House: Sell or rent?
Discussion
I wonder if there are any landlords or property types who can advise here. 
Mrs JackRatt has just seen her dream job on the other side of the country, in an area we were considering moving to in a few years' time. Unfortunately, I've recently set up as a sole trader, so we won't be able to get another mortgage for at least a year. We'd need to rent somewhere in the meantime, but the question is whether we sell the current house or let it out?
To me renting it out seems like a no-brainer. The current house is in a popular area within commuting distance to London - whatever happens to house prices I can't see it going down relative to the rural areas we're looking at. So as long as we have that house to sell (albeit subject to notice for the tenant), we should be able to afford to buy the sort of place we want once I have enough proof-of-earnings for a mortgage.
The other alternative is to sell the house now and go in with no chain. The problem is if we sell it and the market goes up while we're renting we might not be able to afford to get back on the property ladder. Plus, I think I'm right in saying we'd get taxed differently if we sold the house and then held the money in a bank account?
So:
Do you agree we should keep the current house and rent it out until we're ready to buy somewhere else?
Can anyone give me a very rough idea of how much we should budget for in terms of agency fees etc? Our house has a rental potential of about £1,300 pcm, so how much of that could we expect to see reach our pockets after fees, maintenance, tax etc?
Mrs JackRatt has just seen her dream job on the other side of the country, in an area we were considering moving to in a few years' time. Unfortunately, I've recently set up as a sole trader, so we won't be able to get another mortgage for at least a year. We'd need to rent somewhere in the meantime, but the question is whether we sell the current house or let it out?
To me renting it out seems like a no-brainer. The current house is in a popular area within commuting distance to London - whatever happens to house prices I can't see it going down relative to the rural areas we're looking at. So as long as we have that house to sell (albeit subject to notice for the tenant), we should be able to afford to buy the sort of place we want once I have enough proof-of-earnings for a mortgage.
The other alternative is to sell the house now and go in with no chain. The problem is if we sell it and the market goes up while we're renting we might not be able to afford to get back on the property ladder. Plus, I think I'm right in saying we'd get taxed differently if we sold the house and then held the money in a bank account?
So:
Do you agree we should keep the current house and rent it out until we're ready to buy somewhere else?
Can anyone give me a very rough idea of how much we should budget for in terms of agency fees etc? Our house has a rental potential of about £1,300 pcm, so how much of that could we expect to see reach our pockets after fees, maintenance, tax etc?
Personally, I'd rent, but be prepared for extra hassle as well as expected and unexpected costs. I've let out two places I've previously lived in and one thing that I have found is that some tenants will not want to put up with some of a properties foibles that you did as an owner, therefore maintenance is usually higher than expected for the first year or two. (Most) maintenance can of course be offset against profit from a tax purpose.
1. You will need consent to let from your current mortgage lender. Wasn't a problem for me on the one property I needed it on, but if you have little equity I guess it could be. Worst case is you would have to move to a buy-to-let product which would likely mean increased interest rate.
2. Gas Safety certificate needed annually (~£65)
3. If you are "the other side of the country" you may need somebody to manage the property (5-15% depending on the market around you I would guess)
4. You'll need to replace your current buildings/contents insurance with a Landlords product. Mine is no more expensive than standard residential.
5. You will be taxed on your profits (via self assessment), and bear in mind the rules around mortgage interest are changing.
6. You need insurances or an emergency fund for when something breaks and needs fixing promptly (boiler, central heating, oven, etc).
7. I would normally expect an unfurnished rental to include all white goods, so factor in leaving current ones behind or replacing.
8. Most letting agents will stiff you some fees up front at the start of each tenancy (although the tenant usually bears the brunt of this).
9. Be very wary of potential bad tenants. As well as generally problem free ones, an merely averagely bad one (mainly skint through loss of job rather than malicious) will still leave you with a large loss - they won't get social housing until you evict them and are advised as such.
Edited to add:
- I was coming at this from the viewpoint of renting in the longer term, if just for a year or two then IMHO you will be banking on / hedging against house price rises. Is your property truly immaculate - if you can be confident that it will need little in the way of repair then letting in the shorter term perhaps not such a bad idea.
1. You will need consent to let from your current mortgage lender. Wasn't a problem for me on the one property I needed it on, but if you have little equity I guess it could be. Worst case is you would have to move to a buy-to-let product which would likely mean increased interest rate.
2. Gas Safety certificate needed annually (~£65)
3. If you are "the other side of the country" you may need somebody to manage the property (5-15% depending on the market around you I would guess)
4. You'll need to replace your current buildings/contents insurance with a Landlords product. Mine is no more expensive than standard residential.
5. You will be taxed on your profits (via self assessment), and bear in mind the rules around mortgage interest are changing.
6. You need insurances or an emergency fund for when something breaks and needs fixing promptly (boiler, central heating, oven, etc).
7. I would normally expect an unfurnished rental to include all white goods, so factor in leaving current ones behind or replacing.
8. Most letting agents will stiff you some fees up front at the start of each tenancy (although the tenant usually bears the brunt of this).
9. Be very wary of potential bad tenants. As well as generally problem free ones, an merely averagely bad one (mainly skint through loss of job rather than malicious) will still leave you with a large loss - they won't get social housing until you evict them and are advised as such.
Edited to add:
- I was coming at this from the viewpoint of renting in the longer term, if just for a year or two then IMHO you will be banking on / hedging against house price rises. Is your property truly immaculate - if you can be confident that it will need little in the way of repair then letting in the shorter term perhaps not such a bad idea.
Edited by UpTheIron on Monday 18th April 11:51
UpTheIron said:
- I was coming at this from the viewpoint of renting in the longer term, if just for a year or two then IMHO you will be banking on / hedging against house price rises. Is your property truly immaculate - if you can be confident that it will need little in the way of repair then letting in the shorter term perhaps not such a bad idea.
Hopefully it'd be for a year; 18 months at the most. The house is a relatively new build, although it does have a few bits of skirting board starting to come away, a few blemishes on the carpets and things like that. The original plan was to spend a couple of hundred quid on a spruce up before we put it up for sale.
The mortgage is a very good point. In real terms our income is not a problem, but on paper - my wife having taken a break to have a baby and me having just gone self-employed - it's way down. We're okay to renew with our current mortgage lender, but we'd struggle to get a mortgage elsewhere at the moment. This whole dilemma coincides with us having to renew the current mortgage.
Edited by JackRatt on Monday 18th April 12:25
If you want to own something in a few years time and you're worried about price inflation, then your best bet is to own that something right now ... our at least the very best proxy you can find for it. So in your case hanging on to your current house does indeed seem like a no brainer. You're not going to find a better financial hedge.
ATG said:
If you want to own something in a few years time and you're worried about price inflation, then your best bet is to own that something right now ... our at least the very best proxy you can find for it. So in your case hanging on to your current house does indeed seem like a no brainer. You're not going to find a better financial hedge.
That's my thinking. Although, to be clear we do want to sell the current house once we can get a new mortgage (probably 12 months' time). This whole scheme is about finding a way to relocate before we can buy elsewhere.12 months seems a very short period to be considering renting your house and the hassle involved. Spruce it up, wait to let it out (could be a few weeks), spend money fixing any niggles the tenants spot, set up fees etc... Rent it on one maybe 2 6 month periods, evict tenant, fix up property again, sort out garden if they haven't maintained that ready for sale, wait months to sell etc... Your not going to be able to rent and sell at the same time.
BoRED S2upid said:
12 months seems a very short period to be considering renting your house and the hassle involved. Spruce it up, wait to let it out (could be a few weeks), spend money fixing any niggles the tenants spot, set up fees etc... Rent it on one maybe 2 6 month periods, evict tenant, fix up property again, sort out garden if they haven't maintained that ready for sale, wait months to sell etc... Your not going to be able to rent and sell at the same time.
Fair point. The thing is, I don't think we could afford to pay the mortgage on that and rent somewhere else without getting some return on the house.
If we could simply sell it and buy somewhere else we'd do that, but we have no chance of getting a mortgage until I have at least another year of accounts (I'm actually earning more than I did PAYE already, but I don't have 2+ years of proof and my wife is self employed too...)
One alternative would be for us all to move in with my parents for a bit, while we pay the mortgage on an empty house 200 miles away. That's not quite as crazy as it sounds - they've got a fair amount of room and they're in the area we're looking to move to.
Or sell the house. But, again, our situation means we could be a little marginal for a mortgage application even next year. And if houses in the new area were to go up by as much as our current one has we'd be priced out the market.
The whole thing makes me angry at the banks to be honest. We've always been well within our means to pay the mortgage on the current place and we want to borrow less on the new place, but there's no way they'll play ball.
If we could simply sell it and buy somewhere else we'd do that, but we have no chance of getting a mortgage until I have at least another year of accounts (I'm actually earning more than I did PAYE already, but I don't have 2+ years of proof and my wife is self employed too...)
Do you know this for a fact? Have you spoken to brokers who specialise is those who are self employed? Maybe drop Sarnie a note here to a specialist. I think some will look at your day rate and CV and a broader history of earnings for example
Do you know this for a fact? Have you spoken to brokers who specialise is those who are self employed? Maybe drop Sarnie a note here to a specialist. I think some will look at your day rate and CV and a broader history of earnings for example
Couple of things:
Could you port your mortgage over to a new property without having to go throug the affordability process? Obviously you'd need to buy a house of similar value but must be worth looking into.
Secondly, if you don't live in a property and sell it any increase in the value since you bought it could be taxable. It's a complicated area, so would be worth getting advice, but it could be as much as 28% on some of your gain.
Could you port your mortgage over to a new property without having to go throug the affordability process? Obviously you'd need to buy a house of similar value but must be worth looking into.
Secondly, if you don't live in a property and sell it any increase in the value since you bought it could be taxable. It's a complicated area, so would be worth getting advice, but it could be as much as 28% on some of your gain.
It seems the job that prompted this sudden rush is no longer an option, so it's panic over to a certain extent. But we still want to relocate soonish (probably next summer) which means this could all still be relevant.
Interesting point on the taxation. I guess it becomes an investment property at that point we move out (even though it is currently our home).
bigunit00 said:
Do you know this for a fact? Have you spoken to brokers who specialise is those who are self employed? Maybe drop Sarnie a note here to a specialist. I think some will look at your day rate and CV and a broader history of earnings for example
Good point. Our mortgage broker has been very good and I'd prefer to stick with him, but he's not a specialist in sole traders as far as I'm aware; I'd certainly consider a second opinion if he's not able to do anything when the time comes.CaptainSensib1e said:
Couple of things:
Could you port your mortgage over to a new property without having to go throug the affordability process? Obviously you'd need to buy a house of similar value but must be worth looking into.
Secondly, if you don't live in a property and sell it any increase in the value since you bought it could be taxable. It's a complicated area, so would be worth getting advice, but it could be as much as 28% on some of your gain.
It'd be ideal if we could port it over. We're actually looking to spend significantly less than the value of our current house on a larger, nicer house elsewhere (such has been the growth round here), but I'm told our current lender won't do that without re-assessment. Again, it's something I'd probably double check.Could you port your mortgage over to a new property without having to go throug the affordability process? Obviously you'd need to buy a house of similar value but must be worth looking into.
Secondly, if you don't live in a property and sell it any increase in the value since you bought it could be taxable. It's a complicated area, so would be worth getting advice, but it could be as much as 28% on some of your gain.
Interesting point on the taxation. I guess it becomes an investment property at that point we move out (even though it is currently our home).
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