I think I have perhaps not been as clear as I could be in my previous post. I am essentially saying that at that value, and rental income, it is not at all viable as a rental proposition, either for OP, or for anyone buying. So OP should not keep it as a rental property.
Unless a potential landlord can buy it at around £325k - which would mean that OP would take a massive hit when she sells at £325k.
If OP kept the property, and switched it to a repayment mortgage, then I imagine there wouldnt really be any money left from the rental income to make overpayments - at £1400 I doubt OP would even break even, with a mortgage interest rate of 4.5 per cent. Don’t forget, you can’t offset the whole of the mortgage payment against tax any more - you just get a 20 percent relief on the mortgage interest component, but this is applied after tax is paid on the income.
So if monthly rental is £1400pcm, that gives a yearly rental income of £16,800. Minus allowable costs (maintenance / certificates etc), assume £1000pa. If a managing agent is used, then those fees can come off as well, say £1400 pa. Which leaves £14400 taxable annual income.
If OP is a higher rate tax payer, or if the £14400 rental income pushes her into the higher rate tax band, then there is £5760 tax to pay on it, with a relief of only 20 % of the interest only part of the mortgage taken off.
Can’t remember what OP said the interest payment would be at 4.5 %, but it may be 3x what she is currently paying (is this £389, so 3x£389 per month = £1167 per month in mortgage interest??). So total mortgage interest payment for the year would be approximately £14k. So a mortgage tax relief of 20% of £14k (£2800) would be taken off the tax bill.
So. With an interest only mortgage of 4.5% (of whatever the current mortgage size is) the finances are:
Rental Income: £16800
minus costs:
Maintenance / certs etc = £1000
Managing agent (?) = £1400
Tax payable on rental income = £5470 - £2800 =£2,670.00
Mortgage interest payment (at 4.5%, assume payment is 3x current mortgage interest payment) = £14000
So total costs for the year = £19,070 (which works out at £1589 per month costs)
So monthly loss = £189.
So it will be costing OP £189 each month to let the flat, and there is still all of the hassle involved in being a landlord.
If OP has £260,000 equity in the flat - if she sells and puts that in even just high interest savings accounts, at 4% interest, she would be earning £10,400 a year before tax. Obs long term S & S investments, and utilising ISA allowances, could improve the earnings.
Compared to an annual loss of £2268 pa, after tax, if she keeps it let at £1.4k per month, with an interest only mortgage, at approx 4.5 %.
One of the only ways that being a landlord is at all sustainable at the moment, is if it has a good yield (ie value of no more than £325k, to achieve a rental income of around £1.7k per month), and you own it outright (so no mortgage payments), and you use Openrent to get tenants (£100 one-off fee rather than a % of rent for tenant find), and the landlord manages the property, rather than an agent managing it. And the landlord is a lower rate tax payer, and all rental income would still fall within lower rate tax band.