Moving to live together - what should I do with my existing property to make the most out of it?
Some of us did buy the property as the single person or with the ex partner. Now you are moving in to live with your new partner or perhaps to moving back to parents to look after them. And there is a nice problem to have. To have an existing property you don’t need :)
What do we do with an existing property?
Most people automatically wish to sell existing property not looking at the other options. And the only other option most people think of is just renting the property out. Renting is correctly not an option in most cases - risky, little and not guaranteed money, potential damage to the property, agency overcharging, maintenance to mention just a few.
Rent to Buy seems like a great option for many. It is a combined sale with a rent. Typically the buyer exchanges contract today with deposit payment and rent the property for few years before buying it for higher price. We will
Explain figures and advantages below.
With moving to live together with the other person each person need to look in detail into their personal circumstances and financial aspects.
From financial point of view you don’t need to sell existing property. And even if you decided to be a joint mortgage holder in a new property lenders don’t have a problem with you having another property with the mortgage as well.
Let’s say you still need some money while you moving in. As the example we need £30k. You own the property which is worth £200k with £110k mortgage on it. You have £90k equity. £30k required by you can be simply obtained by the remortgage or in fact, at least partly from Rent To Buy purchaser.
Let’s look at the risk and cost of and selling the residential property now in opposite to in few years:
Sale price of your existing property. With sale now you are likely to get slightly less for your property.
Costs by the time you sell the property - you need to continue paying mortgage, council tax and utility bills. By the time you sell it is likely to take 3-4 months and costs typically around £2k in total.
Costs. If you sell now you will pay estate agent fees around £3k while if you use Rent To Buy you avoid paying it.
Tax. You are likely to pay no or very little tax on any capital appreciation in few years time because it is/was a residential property. So tax is really not a major problem.
Income. You are getting money on top of your monthly mortgage with Rent to Buy making it more profitable.
Lower mortgage amount means a higher profit at the end of Rent to Buy.
Why Rent to Buy would be a great option for this scenario?
The price you are likely to get is actually slightly ABOVE MARKET VALUE. It is due to completion having taking place in few years time. It is likely to be £10k difference on typical £200k worth of property.
Over the period of few years you receive a rent which not only pays off your mortgage but leave you with surplus. Let’s say it is around £100 a month so £4000 in 3 years time.
You also save money as you don’t pay any estate agent fee for sale. It is another at least £2k.
If you have a repayment mortgage you are likely to reduce the balance over few years. Let’s say it is another £3k
So total savings are £17k in this particular case. And there is hardly no tax to pay as well due to the fact it was your residential property.