Property TV | Property Question Time – Ep 54 – Keep or Sell Your Property
Bryony Billson: The next question goes to you Paul, quite a big question. They’ve asked, “Keep or sell? We refurbished our current home with a lot of love and attention to detail, as a lot of people do. However, it’s now too small for our family. We’ve been thinking of moving for a long time, but the idea of selling this house is breaking our hearts. Moreover, this house has a lot of potential. Loft conversion, or conversion into two flats.” They say a couple of properties in the neighborhood have done this. “It’s also in a lovely area with good schools, and great links to London, and it’s in zone four. If we rent it out for a few years as it is, we could get a rent of about 1,800 per calendar month. This is more than enough to pay the mortgage.” So I mean, there’s quite a lot going on, quite a lot of detail, and I definitely can relate with adding the emotional element into dealing with a house, and living there. But what would your advice be in this keep or sell scenario, particularly with the financial side that they’ve mentioned?
Paul Mahoney: There’s a few points to that question. I suppose the first point is, remove the emotion. I know that’s a difficult thing, and that’s very easy for me to say, and not very easy for somebody to do. But definitely try, as much as possible, to remove the emotion. Be commercially minded when it comes to something like this, because at the end of the day, if you’re renting it out, it’s not really yours anymore. You’re not getting the utility of it. You’re letting somebody else use it, and occupy it, so try to remove that as much as possible.
Paul Mahoney: In saying that though, I am always reticent to telling people to sell property, because it’s a long-term thing. I don’t know anything about the property really, aside from the fact that it’s in zone four, and [inaudible 00:09:21] pounds a month. But if it is a good investment, then maybe it is worth keeping. They’d obviously need to assess that first step, for a start. Then maybe they could seek advice on that, or just some of their own research, to determine whether that is a good investment, because obviously they bought it as a home. The criteria that goes into buying a home is very different than the criteria that goes into buying an investment. A home, you need to love the place. It needs to be your home. Whereas an investment, should be about the numbers, and the fundamentals. So assess that, I suppose, to start with.
Paul Mahoney: They would then need to assess their ability for finance, because just because the rent would be enough to cover the mortgage, doesn’t mean they be able to actually get the mortgage they need, because given some recent changes in the market, there are higher stress testing levels, than what lenders are actually lending at. That would be another thing to assess. Is finance actually viable? Especially because the property is in London. London properties in general, the yields are quite low. An average of about 3 1/2 to 4%, which can make it difficult to borrow what you might think you could be able to borrow. Or what you could’ve borrowed last year, for example, before these changes. So there’s a few things to consider there.
Paul Mahoney: I’d certainly explore their options if I was keeping the property, rather than rushing into selling it. That should put them in a more informed position, as to whether that’s the best option for them or not.
Bryony Billson: Okay, fantastic. Brilliant response to that question there, because there’s so much going on. Am I right in thinking that this person really needs to make sure that they’re seeking the correct advice, because while they might think they can cover their mortgage, given the changes that we seen in the last year, that might not really be the case?
Paul Mahoney: Exactly, and some of that depends on their ability to finance. Another part of it would depend on their actual personal tax position. With Section 24, I will go install the changes, but with Section 24, and the way that affects the way mortgage interest will be tax-deductible on buy-to-let mortgages. That’s another consideration. Will this property actually wash its face after all these changes? Are all very important things for them to understand, and that most people in general wouldn’t understand on the face of it. Therefore, seeking advice would be pretty important in their situation.
Bryony Billson: Thank you, I think that’s really good to keep in mind that it’s quite normal to feel confused about these types of things.
Satyen Lakhani: I think Paul mentioned a key point there. As soon as you bring investment into a discussion, you’ve got to take the emotion out, because by right, investment is all about a box that gives you a return. Once you bring emotion into that, you can’t see the focus, as to what you are trying to do. It’s very important, I mean it’s a great question by that viewer, but they’ve got to be as strong to remove the emotion away. Then you can work out your figures properly, and seek the right advice that you need. So investment and emotion, two things can’t go together, in my opinion.
Bryony Billson: No, absolutely, I think that’s brilliant advice. Thank you.