Q I am nearing the end of the fixed-rate deal for the mortgage on my flat. My partner and I are planning on moving in together sometime in the next 12 months. My flat doesn’t suit both of our needs, so we would probably need to rent a new property together.
Am I better off selling my flat and having the equity (and existing cash savings) ready to put down as a deposit on a new home, either jointly or independently, in a year or two; or should I seek to rent out my flat? I don’t have much knowledge of agents’ fees, and other costs and taxes associated with renting it out; what can I expect? Based on my initial workings, I suspect I would be hoping to at best break even rather than to make a profit from renting it out.
If I decided to (and was able to) rent it out, I would want to be a good landlord, including by offering the option of longer-term tenancies. Regardless of any changes to my relationship status, I do not want to remain living in my flat for the long term. Selling the flat seems like the simplest option, and would give me a bigger deposit for my next home, but what are the risks in doing so? Would keeping my flat serve me better as a long-term investment?
SH
A Given that you don’t want to stay in your flat long term and are going to sell it at some point, I wondered why you don’t just sell it now and buy another property that does suit both of your needs. But maybe your partner doesn’t want to live in a property that is owned by you (not that I can think why that would be a problem). If that is the case, then your choice, as you have laid out, is between selling your flat and renting it out.
Selling is, as you say, the simplest option but if you are not planning to buy somewhere else straight away, you’ll miss out on any growth in the flat’s value in the next year or two. Any interest you earn on the cash made by selling is unlikely to match property price growth. This would not be the case if you chose to rent the property out. Taking that option would also mean that you had somewhere to move back to if living together doesn’t work out.
But that assumes you can let your flat. It could well be that your lease says that you’re not allowed to. Even if you can, you will need to establish that you are able either to convert your mortgage to a buy to let or get permission from your current lender to let the flat. Converting to a buy-to-let mortgage is only an option if the mortgage would represent 75% or less of the value of the flat. If your current mortgage is more than 75% of the flat’s value you’ll have to hope that your current lender will give you permission to let the property.
There is another potential barrier to getting a buy-to-let mortgage: the rent you get from the flat must cover the mortgage payments by 125%.
The other factors to take into account are agents’ fees – which can be as much as 20% (including VAT) of rent paid if you choose a full management service, the cost of safety checks and income tax on the rent less expenses. Rightmove has a useful guide to becoming a landlord at rightmove.co.uk/advice/landlord.
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