Any experience of selling a flat with a tenant in situ?

[SpringHasSprungTheGrassIsRiz]

I have a BTL (actually, my old flat from pre-marriage) in London. 1 bed, Victorian conversion flat. My fixed rate mortgage comes to an end this year and the likely LEAP in mortgage (interest only) costs means that I don't think I can afford to keep it and let it out. I have a good tenant in place. Has anyone had any experience of selling a flat with a tenant in situ?

It limits your market to people actually wanting a BTL with a sitting tenant, but the practicalities of selling aren’t really any different. Mine sold very quickly. The buyer asked to see bank records showing the tenant had been reliably paying their rent and for a declaration that there weren’t any outstanding disputes and that I hadn’t had to address any nuisance or antisocial behaviour during the tenancy, and the conveyancer arranged for the transfer of the security deposit and transfer of tenancy etc.

Thank you. Did you use a specific agent to find your buyer?

I think with the forthcoming Renters’ Rights changes, this will be harder than in the past.

Is your tenant paying market rent? As a new BTL landlord will have higher borrowing costs to cover, just as you would.

My tenant is paying slightly below market rent as she is a good and long-standing tenant. I can look to raise the rent, but it will not come close to meeting the increase in the mortgage rate. Effectively, I would be in a monthly deficit if I keep hold of the flat.

Understood - but any new BTL landlord will have the same issue about the rent not covering the cost of the mortgage. Especially as you are currently on an interest only mortgage ie the lowest payments you could be making.

I think you need to quickly look into the steps needed to issue a section 21 to your tenant as you are on the clock to do that under the current law.

This!
Or unfortunately raise the rent.
It’s currently unsalable if the existing tenants rent won’t even cover interest only.

What will your new mortgage payment be and what is the market rent for your flat?

I assume you’ve checked what new fixed rate you can go to? You don’t have to go up to variable. Just checking!

Doesn’t sound very desirable to prospect buyers - if you would be in a deficit monthly they will be too 😩

Leasehold flats are very difficult to sell at the moment according to the estate agent I'm using.

I looked into selling with a tenant in situ and you get less for it that way, also fewer buyers are interested. I've taken the hit and I did a Section 21. I felt terrible for my tenant but she actually found something much better for her circumstances quite quickly.

I'm not holding out much hope of it selling quickly so paying the mortgage and council tax is going to be quite difficult, but like you it was a pre marriage place and it's not financially viable any more.

Unless they are cash buyers or have a large deposit. But you are right, buying any BTL is not a desirable prospect these days.

I sold a couple of BTLs with tenants in situ (not in the London area) but I decided to sell both via auction. This may reduce sale price but you can set a reserve price so it doesn’t sell for less then you can afford. This is by far the quickest way to sell and no harm in getting a valuation done by auctioneer. The rent will reflect the value of the flat though as investors will look at return rate.

If OP fixed an interest only mortgage five years ago at 1.5% (say) then fixed rates now will be around or above 4.5%, and of course the balance on which the interest is paid will be unchanged

It could be worse than that - if the op's flat has also fallen in value over the last 5 years (quite likley for flats in many parts of London). The property may not longer meet the LTV ratio requirements for the better rates. The op could be looking at a 6% plus rate. I hope they have been investing the income wisely - and not just using it for day to day spending habits.
Its tough to sell flats in London at the moment, never mind with a tenant in situ. The best thing to do is probably auction. Need to be realistic with its achievable value though. If the op evicts and then tries to sell on the open market but doesn't price it right it may sit unsold. That gets expensive quickly.

Thank you all for your comments.

To give a bit more info. The flat currently lets for £1,473 per month, but could be re marketed at £1,700 to £1,800 according to the agent. The mortgage is currently £385 (1.76%), but likely to go up to between 4 to 5%. My LTV is 52.68% so at least I qualify for the better rates - although they all feel pretty dire(. I am trying to work out whetehr thter is any point in hanging on to it, or whether the small amount I make (and the worry/hassle etc) is actually worth it.

Yes, losing the tenant and then possibly having to deal with an empty flat and all the costs that carries would make the situation worse.

I suspect the agent is talking out their hat, why isn"t all the rent going towards paying off your mortgage debt? Interest only is usually a terrible idea, could you get an extra job/overtime and clear your debt that way?

I bought a buy to let with tenants in place. It was through a regular estate agent. The tenants just had to sign a new lease with me, and I kept the terms the same. Worked out well, though the disadvantage was I never saw the flat empty and when I sold it they decided to move out and it was in a worse state than I had thought. But there was nothing special about the purchase , but as PP says, you are very much limiting your buyer pool. You could market it that the tenant would like to stay if terms (rent) is agreeable, or that they would vacate by exchange. This would require your tenants to be amenable to viewings (which they do not have to do, no matter what their lease says) and an uncertain vacate date. Most estate agents would probably advise serving them notice them marketing it one they’ve left (you’ll probably need to be a bit of redecoration).

Many landlords try to cling on to the tenants though because they don"t want (or can"t afford) the costs of an empty property, in the present market there is a real risk of having a property empty long enough to qualify for the dreaded double council tax if you chase the tenants away and the buyers don"t materialise.

You will find it very hard to sell a property with a tenant in place unless you’re targeting landlord investors.

I would inform the tenant of your plans and give them ample notice so that they can plan ahead.

As a landlord myself, I’ve sold when my fixed rate was up but I always gave as much notice as possible. They’ve done you a favour by looking after your property so it’s only fair you treat them with respect when it comes to moving them on.

I don"t think people are lining up to be BTL landlords anymore.

Have you asked the tenant if she has any interest in buying the flat from you, if you want to sell it?

(Your username is given me an earworm, my dad used to follow on with "I wonder where the birdies is" )

At 5% your payments would be about £1100 a month and you say market rate is 1700+? You can raise the rent now before May with two months notice and go up to £1600 now and 1700 in a year's time and unless my sums are completely off you'll still be making a surplus every month and should be able to afford to keep it. I wouldn't give notice, if she doesn't leave it will cost you £££ to evict her and once the new bill comes in you won't be able to relet for a year if you find nobody wants to buy it, which is quite likely with global issues being what they are. A bird in the hand is worth two in the bush, as long as you can afford the bird in your hand.

And as long as the tenant accepts the rent rise, which is probably unlikely with available rental rising and rents starting to fall, interest only to be a landlord is a very bad idea in this environment, the OP needs to get some plans to pay off their debt that are realistic.