Remortgage or sell?

Remortgage or sell?

9:33 AM, 28th September 2022, About A year ago 9

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Good evening, I am looking for some expertise from the forum if possible please.

I am a landlord by mistake – currently to my sister. However, she is moving out soon and so I have a new dilemma:

1. Do I rent it out? (An area I have very little general expertise currently)

2. Do I sell instead (I would invest the money in the global equity markets – Which I am more comfortable with versus property given my profession).

The property is in North East London. The mortgage is coming up for renewal next July when I’ll need to remortgage it.

There is currently a 1% early exit penalty of 2.5k on it.

I am trying to figure out if renting out the property is worth my while so this is I guess where I am looking for some guidance. I’m treating this as an investment decision as referenced above – no need for advice on the alternate investment solution of global equity markets for reasons mentioned.

In terms of some useful info to be aware of:
I would like to maximise borrowing to 300k (or as much as poss) on 500k property. The mortgage is 250k currently. I appreciate the maximum I could borrow could change based off rates. I plan to pay back a loan of 100k to family with some of the funds – I can pay back the full amount today standalone but would like to maximise borrowing because I prefer to keep my funds invested in global equity markets (I appreciate they are currently down 20% or so but will likely rebound over the next 6 – 12 months as they always do after a bear market). I will repay the other 50k with funds I have in cash.

Based on 4.5% BTL mortgage which is about to expire, I can take out 300k of equity based on rental yields.

But I expect this to increase to 5-5.5% shortly, if not more dependent on interest rate increases.

The incoming rent will be around about 1650-1700 GBP per month.

On 300k @ 5.5% equates to about £1,400 interest payments. (Again this could increase soon). This means profit of 250-300 per month. Where is the lower limit of profit I should accept first of all?!

I am not expecting too much in the way of repairs or maintenance as when I was living there I refurbished it. However, I expect roughly 500- 600 gbp in landlord and building insurance. Annual electricity and gas certs at roughly 120 gbp.

Plus maybe some other unexpected costs that could take these up to 1000 gbp per year in total. (Please let me know if I am missing anything).

In terms of upfront costs –
I also have a landlord license of 700 cost due to the area the property is in.
Also I will have the EPC fees to think about so call this 60 gbp.
I am expecting remortgage fees of 2.2k (I am an expat so will need to pay a hefty upfront fee) too. If I remortgage now – I also would pay 2.5k early exit fee too.
I want to make sure I leave enough profit to cover unexpected costs.
I’d look to take out 5 year mortgage most likely to help spread the costs out – but realise this does lock me in for a while.
I will be able to claim 20% tax relief on the mortgage interest too as a non resident which should give me 3.3k in tax relief. This should mean I don’t pay any tax given I have no other UK based income and I will get my full personal allowance and be able to offset some of the above costs referenced.

To me, the profits are slim and the hassle of sorting out issues / tenants (I’d plan on doing this via open rent) leave me thinking that selling might be better right now.

I’d be able to repay the mortgage – albeit with a small exit penalty, pay back the loan and still have some profit (with no CGT to pay based on my calcs).

I feel comfortable I can get 10% annualised returns in equity markets over the long term. I appreciate the possibility of leveraged returns at a lower annualised rate of return should provide more in the way of investment returns in the long term but the profit margin and hassle in the short term are putting me off this route.

Would anyone view this differently?

Any advice or perspective would be appreciated.

Please let me know if I have missed any details that might be helpful to offer a more insightful perspective.

Thanks,

Alex


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Comments

Judith Wordsworth

10:49 AM, 28th September 2022, About A year ago

Personally I would say sell, others may not.

MIkeK123

11:32 AM, 28th September 2022, About A year ago

Reply to the comment left by Judith Wordsworth at 28/09/2022 - 10:49
Sell, the small amount of profit you would make is not worth the hassle.Most forecasts are anticipating interest rates to be much higher than 5.0 - 5.5%.
This on its own would reduce your margin dramatically. If you do go ahead try to fix the mortgage for a longish period
If you wait to long I suspect that house prices will drop by a meaningful amount.
I am selling my BTL due to a negative yield.currently I could get 3.9% interest on a 1 year bond. I expect in the New Year to easily get 5% plus, maybe after further base rate increases it could be even higher.
If I wanted to to enter the BTL market again I would wait till house prices have dropped then buy.

Reluctant Landlord

12:16 PM, 28th September 2022, About A year ago

sell. Its seriously not worth the hassle and so many unknowns still to come.
Sit back and watch the s£it show unfold and be glad you got out when you did....

Freda Blogs

12:46 PM, 28th September 2022, About A year ago

You say you are an inexperienced landlord, in which event you may need to consider appointing an agent to act on your behalf to minimise aggravation and assist in compliance with current and proposed (ever-changing) legislation. This will be an added cost and hence will impact your projected returns.

Clearly you have competence in alternative investments and seemingly can obtain a decent return with minimal cost and hassle, and are comfortable with such investments.

You are on a forum with experienced landlords, many of whom are now looking to sell, fed up with the constant government financial and legislative tinkering and the incessant vilification of landlords. That in itself is sending out a huge message.

Sell.

Dennis Leverett

12:46 PM, 28th September 2022, About A year ago

If you are confident in a long term 10% return from equity markets you've answered your own question. Sell as soon as you can, why have the hassle of BTL with all its future unknowns. No brainer really.

MIkeK123

12:52 PM, 28th September 2022, About A year ago

Reply to the comment left by Freda Blogs at 28/09/2022 - 12:46
Agents are expensive, thus reducing any hopes of a high yield.

Mark C

12:54 PM, 28th September 2022, About A year ago

I would look at it differently:
One way...
I would look at how much I had invested, deposit, stamp duty, fees, refurbishment etc (say this was £100k) and then the amount you are going to get out if you remortgage - looks like £50k. So overall you have £50k invested. Then you need to look at you profit and divide this by the £50k to get your yield. From you numbers max gross 3,600, annual costs c. 2,380 profit 1,220 = yield 2.4%
The Other
Sell and make 500k - 250k = 250k (you may have some CGT if non resident - no idea). With the 250k if you can get dividend yield of 5% that 12.5k
Conclusion:
Sell, more money, no hassle

Alexander Ward

17:09 PM, 28th September 2022, About A year ago

Many thanks so far for the comments. Very helpful.

I've paid about 10k in stamp duty and id say maybe 50k into the property. I was hoping I might be able to keep it for longer originally for the sake of some further profit on the property as its not gone up as much as I would have liked - original mortgage was 290k so now down to 255k so an additional 35k paid into the property since 2016. I paid 390k originally so if I get 450k, with stamp duty and the costs to refurb, I think I've broken even and recovered costs. However I think I can get 475 - 500k fingers crossed. Not a huge profit for all the time and effort gone into the property however.

Like anything sometimes there are better investment opportunities elsewhere and its challenging because as humans we have these biases and animal spirits that works against us when trying to make rational decisions.

Many thanks so far.

Dylan Davies

22:25 PM, 28th September 2022, About A year ago

Tough decisions to be made.
With property its the long game.
We are currently on a high but there could be a massive recession.
Sell now, cash out, pay family and friends and get 10% in the markets.
No brainer.

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