Author Topic: UK Croydon: rent or sell  (Read 316 times)

FIFTWUK

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UK Croydon: rent or sell
« on: July 28, 2018, 05:16:47 AM »
I am considering (potentially temporarily) leaving the UK.
Selling or renting decision in the UK has some specifics: potential drop in property prices after Brexit potentially offset by unavailability of credit, currency fluctuations depending on Brexit negotiations, tax development on the BTL front , local council renting schemes etc. etc.

Market Value: ~290k (I had 3 separate valuations done in the last 6 months and they varied between 270-330k, the worst one being the last one (closest to Brexit) which also suggested that there aren't that many buyers around atm)
Original Purchase price: 197k
Original Mortgage Amount: 150k
Interest Rate: 3.54%
Mortgage Term: 5 year fixed
Term remaining: 1 year, allowing me to remortgage with the same supplier 4 months beforehand
Amount remaining on mortgage: 102k
Gross Rents: 900-1,300, mine being around 1100-1150 mark since it has a garden, was recently renovated and I can add in the garage which currently nets 70/week
Principal and Interest: P of mortgage ~530, I of mortgage ~300
Taxes and Insurance: Lettings insurance approx 40/month
One off cost of agreeing with the mortgage provider for the property to be let: 275
Croydon council letting scheme (up to once every 5 years): 750
HOA costs: Buildings insurance is covered in 120/month
Deferred maintenance notes: Recently renovated property, need to fit additional fire & carbon monoxide alarms, but otherwise no real new requirements due to fire regulations (I don't think)

I am considering the two options because
1) I'm not sure if my move is permanent and I like the property that I own and would prefer to move back if needed BUT if I do sell it, I could put 40k of the proceeds in an ISA (therefore protecting it from any tax forever),
2) there are some tax benefits if I keep the property (e.g. I would benefit from 20% tax credit on mortgage interest long term allowing me to consider extending the mortgage term),
3) it might help me retain permanent residency if it becomes a problem after 2 years and
4) I will be able to make use of the full personal allowance (11,850 of income you don't pay any tax on, this does not include NI): I do have a limited company in the UK giving me some income (but not 11k); if I have this property in the UK as well, I can make use of all of it (which is connected to extending the mortgage term as it gives me more disposable income due to lower mortgage payment); the EU country in question has higher taxes and they do not have personal allowance which means I'd otherwise only be able to use personal allowance for the income from the limited company.

MarcherLady

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Re: UK Croydon: rent or sell
« Reply #1 on: July 28, 2018, 10:22:31 AM »
Hi FIFTWUK. A few other things to consider: How would you manage the rental if you are abroad, a management agency? What are their fees? Will they deal with repairs and maintenance? Do you trust them to make the same decisions about quality vs cost of repairs that you would make? After taking into account management fees and tax what occupancy rates do you need to achieve to cover the mortgage? Are those realistic for your area/property? How would you feel if a tenant trashed the place and ran out without paying rent?

Caveat: When I was in a similar position (I was moving in with my partner and deciding whether to sell or rent my house) I chose to sell. It was the right decision for me, but I have a lower tolerance for hassle than many people here, & the potential profits didn't seem worth the risk, for that property at that time.  Someone who has a successful rental portfolio might have a rosier view.

Also: you have a garage, in Croydon? There's posh!

FIFTWUK

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Re: UK Croydon: rent or sell
« Reply #2 on: July 28, 2018, 04:14:20 PM »
Thanks MarcherLady for stopping by!

I found it fairly easy to rent myself through Gumtree or similar, therefore I don't expect massive issues finding tenants. I'm not in a horrible rush either, but you are right, I need to check whether I already have info on how much local estate agents charge.
As for repairs & maintenance, I definitely agree, this is still work in progress:
- for minor conflicts/repairs, I could potentially rely on a few friends who live locally,
- for major conflicts/repairs, the flat is 15mins away from Gatwick airport and I'd rather handle it myself.
Yes, I don't have experience with this and I might be underestimating the work required, but I reckon the current condition of the flat would reduce this particular stress. Honestly, I know I'd need to reconsider this if it were long term.
Considering the majority of rental income would effectively be tax free (personal allowance), with the current LTV, I could cover the costs with occupancy 10 months out of 12. If I were to lengthen the repayment duration or borrow more, Id need to recalculate.

I am considering selling, obviously, but I'm also unsure about the move to EU and if I want to come back, I doubt I'll find a similar location - garage might be a good thing, but I prefer the flat being 5mins walk from the train station with 15mins to all major London stations (Victoria, London Bridge, Waterloo, St. Pancras).
I'm also conscious that I might need to sell it cheaply at this stage since it looks like buyers are waiting for Brexit to happen and that I'd need to invest this money outside of the ISA wrappers (from what I can tell, I'd be taxed on dividends above 2k and if the capital gains are ever above 7% or so (170k*7%=11.9k), I'd be at risk of paying Income Tax on over and above as well; as opposed to flying under the radar (since you also get tax credit equal to 20% interest paid)).
I find the option of borrowing more (and not focusing on repayment) a possible hedge to Brexit risk - borrow more and invest - but I've never been in a position where I had a massive amount to invest so I might experience Analysis Paralysis :)
« Last Edit: July 28, 2018, 04:31:41 PM by FIFTWUK »

MarcherLady

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Re: UK Croydon: rent or sell
« Reply #3 on: July 30, 2018, 02:35:06 AM »
Ah yes, Brexit, the fuck-up that keeps on giving :-(

I think you really need some UK landlords to weigh in on this one. Might be worth putting something up on the UK Tax thread pointing people over here... If you haven't checked it out we're using it for all things UK finance, not just tax.