To sell or to let, that is the question
With some uncertainty now hovering over the property market and it becoming more difficult to sell, is now the time to consider whether it would be better for you to rent out your property instead? Here Sarah Ellam looks at how renting your property may offer a short-term solution until the economy is more stable.
Your existing mortgage
Does your current lender allow you to rent out your property? Most residential mortgages do not allow you to rent out your property and so you may need to remortgage with a buy to let mortgage. If your current mortgage has a fixed rate of interest, you should look how long is left on the fixed rate period and early repayment may incur early repayment charges (ERC). ERCs can sometimes be several thousand pounds, depending on where you are within your fixed rate term. You should check your original mortgage offer for further information and if it’s not clear you should speak to your lender. If you do need to remortgage, consider associated costs with a new loan, such as product fees, valuation and surveyors costs and especially in the current climate, interest rates available for new borrowing.
Is your existing property in an acceptable condition for renting purposes? You may need to attend to repair and renovations before your tenant takes up residence. Also bear in mind the rental energy performance requirements, as there is a minimum legally acceptable energy efficiency level for tenanted properties; the current level is band E but there is talk of this increasing to band C in the not-too-distant future. If your current home is of a more historic construction, bringing the property up to band E or higher could involve investments such as solar panels, insulation, new windows, new heating system or a combination of the same, the costs of which can stack up!
The distance between your home and a rental property should be a consideration. If you’re not planning on using the services of a managing agent, you’ll need to ensure you’re on hand to solve any repair and maintenance problems for your tenant. If home care and DIY are not part of your skill set, then be prepared to make the time to arrange for local tradesman to resolve problems. If you are going to use a managing agent, check their fees and factor those into your calculations.
Income tax and capital gains. You’ll need to account to HMRC for your income as a landlord, which will require a self-assessment tax return. Ownership of a second property brings capital gains tax into play also. Sale of your main residence does not attract a liability to capital gains tax; sale of a second property does. You should consider your tax position with a specialist prior to making any decision.
You will also need to pay higher rate SDLT if you are not selling your current home when buying a new one (although you may be qualify for a refund- of the higher rate of your SDLT bill if you sell within 3 years of buying your new home)
If you are struggling to sell your property, you will be responsible for paying your mortgage and utility bills every month whilst it is possibly stood empty. If you can get a tenant for the property, the rent may cover your mortgage payments (and some) and the tenant will usually be responsible for the utility bills.
When the market stabilises, you can look to sell again and maybe get a little bit more for your property, especially if you have done it up and renovated it for your tenant. Being a landlord will not suit everyone and may not always be economically feasible, but it is definitely something to consider in the current market where selling is becoming more difficult.
By Sarah Ellam