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Should I Sell or Rent Out?

Most people will typically need to sell their property if they are planning on moving or buying a new home. However, there are some occasions, when it’s more practical or financially sensible to keep your old property too. Renting out a property means you’ll have a valuable asset that generates a regular income for you.

When does it make sense to rent out?

Many people who work away or might need to move temporarily are probably best renting out their property as it means they can always go back to it at a later date. If you have enough money to buy a new home without selling your current one, then it could help you to turn a profit in the future.

What will happen to property prices?

This is the questions on everyones lips. If property prices are on the rise, then there’s a good opportunity to build up a property portfolio. However, if property prices start to fall, then your old home will fall in value. But, it’s inevitable that property prices will always rise after a fall; sooner or later. So by sticking it out by renting, you could still pay your mortgage and make a profit.

Will the mortgage company let me rent it out?

All mortgages are different, so it’s important to check the small print. Some mortgages will include a clause that stops you from letting out your property, whilst others will have restrictions in place such as you can’t let it out for a set number of years. If you are wanting to rent out your property, then it’s likely you’ll need to move to a buy to let mortgage and this will typically be a higher rate mortgage. Let to buy mortgages allow you to leverage finances and move elsewhere.

How will I finance two properties?

Just like when you apply for your first mortgage, you need to make sure all of your finances are covered. If you’re budgets are stretched then it’s likely you won’t be able to get a second mortgage. The easiest way to buy a second property is when your current home has a major amount of equity in it. It’s important to make sure you can afford to pay both mortgages as you’re not always guaranteed a rental income.

How much will it cost me to live in a new home?

The ability to afford both homes will depend on the rent income you get and the cost of living in your new property. To gain a better understanding work out how much your are mortgage repayments will be and see if there are any additional costs involved.

Will I need to pay income tax?

Yes! Landlords have been able to claim tax relief on the mortgage interest they pay on their monthly mortgage repayments. They would only ever pay tax on the profits they have made, depending on which band they where in. However in April 2017, a new system was phased in that states landlords will need to pay tax on their entire rental income and they’ll only be allowed to claim a 20% tax relief rate. This means that a landlord in a higher tax band will pay tax on rental income that is at 40% to 45%.

What about capital gains tax?

You do not have to pay capital gains tax if you sell your primary residence (i.e. your main home) at a profit, but you might have to if you sell a second home. The capital gains tax legislation regularly changes so it’s always best to check with a professional first.

How will I rent out my home?

Renting out your home can be done in a number of ways, either by yourself or through a letting agent. Letting agents know the market and the the people that are looking for your type of property. Renting your property out through a letting agent will typically mean you rent it out quicker and to longer staying tenants. Having your property managed by them will also take the stress of away of having to collect rent from your tenants on a monthly basis every month.