Sell or Let?

[WilfSell]

OK, me and DH own a house which we bought for my MiL to live in. She has sadly recently died and we need to decide what to do...

Fixed rate mortgage runs out (argh!) I think in november.

We have been paying the mortgage ourselves however so can afford to take a bit of a loss.

but if we need to remortgage are we going to be in a shit position?

Would it be better to try and sell just to break even?

[fishnet]

Depends how much equity there is in it really. V difficult to sell at the moment so you would need to be prepared to take a big hit on sale price. Depends also on how quickly you need your money out. If you can leave it tied up in the house then you can always rent it and sit out the crash.

Remember that you'll pay CGT on the sale proceeds since it hasn't been your primary residence.

[WilfSell]

small amount of equity but I think if we sold now we would get back the deposit and perhaps the payments and no more (ie breaking even) but then CGT on top (it's 18% now isn't it? Are there allowances as well?) might make it less attractive to sell now.

I bet letting is a right old hassle though isn't it?

[lalalonglegs]

Sorry to hear about your MIL. Allowance for CGT was £9200 last year - can't find this year's threshold but probably slightly higher. If the house is in your dh's and your name then you will get a combined allowance of £18+k. But you only pay CGT on any profit above that - so purchase price plus £18k - which you seem to think it is unlikely to realise.

Yes, letting is a hassle and you will need about 25% equity to get a buy to let mortgage.

[WilfSell]

Thanks, so can I just get this clear... It's in joint names. Suppose it sold for 130k an the mortgage was approx 95k... We would then earn 35k but only roughly 17k of that would be taxable? At 18%? So that would be just over 3k... Which would mean equity of 32k.

Or have I got that all wrong?

The other thing I'm not sure about is how mortgage companies are likely to treat us when the mortgage deal runs out. Do you think they will see us as any other BTL landlord and give us a much more costly deal than we were on? Anyone know how we can help ourselves not get nobbled when current deal runs out?

Thanks for any advice.

[lalalonglegs]

The mortgage is by the by for CGT - it's purchase price. So, if you bought it for £100k, it sold for £130k then you would have roughly £18.5k allowance and would pay CGT on the £11.5k profit. (There are other expenses you can work in as well which would lessen the profit - stamp duty etc)

If the bank values your house at £130k - and they may say it is worth far less - and you have a mortgage of £95k, then that's roughly 25% equity so you should be eligible for a reasonable deal but that's all relative as there are no "cheap" mortgages at the moment and set-up fees are high. You will have to show you can get a rent that will be above interest on mortgage payments (usually 30% over) which is more difficult given relatively high rates.

[WilfSell]

OK, so profit is just on purchase price. That's better for us then as we had quite a large deposit.

I'm more concerned (but grateful for your views) on the mortgage. We already have a mortgage with a BS. Surely they wouldn't want to force us to sell by saying (after we'd already been paying the mortgage costs ourselves with no rental income) we had to find 30% over mortgage interest? Eeek! Or would they (they are banks after all...) By forcing us to sell they would be losing any further custom from us...

[WilfSell]

If we sold for 130k, our joint allowance would more than cover the profit, so am I right in assuming we'd then pay no CGT?

[lalalonglegs]

You would pay no CGT if the differenc between the purchase price and the sale price were less than £18.5k (and you had no other CGT liabilities this financial year).

I think you should take advice abt the mortgage. Basically banks DON'T want mortgage business at the moment so they are discouraging applicants by making deals expensive and limited and down-valuing anything they are presented with. I'm not sure if you want to keep the house to rent out - in which case they will want very strong evidence on rental income and proportion of equity - or you just want to keep it, in which case your own incomes and outgoings will be under scrutiny. When your discounted period comes to an end in November, the banks would prefer it if you sold as you would then have a lump sum to save and they really want savers, not borrowers currently.

The only way to get a good deal is to pay off as much of the mortgage as you can by using any savings you may have to rachet up your equity and to start shopping around for deals asap. Speak to an IFA or broker and see what their advice is/where they can point you.

[WilfSell]

Thanks lalalonglegs, that's incredibly helpful. I will speak to a broker before doing anything, including ringing the BS...