If you are thinking about selling your house and renting instead it could be for a number of reasons. One reason may be you’re considering selling your house and going into rented to pay down your debt. Or you’re perhaps just looking for an easy life where the property is no longer your responsibility.
But should you sell your house and move into a rented property instead? It’s not a good idea to sell your house and move into a rented property instead, as you’ll be selling an appreciating asset to move into a property you don’t own. If you’re considering selling your house to rent instead you’ll make it difficult for yourself to get back onto the property ladder.
Renting vs selling pros and cons
If you’ve asked the question ‘should I sell my house and rent instead‘ you obviously got a good reason for asking it. To help you come to the right answer for you, let’s take a look at some of the pros and cons of selling your house and going into rented.
What are the advantages of selling your house and renting instead?
- Your mortgage might be more expensive than the rent for a similar sized property.
- You may be selling up to move abroad where renting may be the best option and owning property may not be possible.
- If you have too much debt you can sell your house to clear the debt off.
- If you no longer wish to have the responsibility of owning a house and having to pay out for repairs and upkeep.
- You may be able to get a bigger house for the same amount of money in rent as it costs you for mortgage payments each month.
What are the disadvantages of selling your house and renting instead?
- If you are in negative equity you may not be able to sell your house in the first place, which may count out renting instead. If you find yourself in this situation, you may like to read this article: What happens if you have negative equity?
- You will still need to be credit checked if you rent, and if you have a bad credit report you may find it difficult to rent.
- Not all landlords will let you rent a house if you have pets.
- Landlords may give notice to terminate the tenancy which is disruptive.
- You will be subject to regular visits by the agent to make sure you are looking after the property.
- You have to seek permission to do anything to the house. For example, if you want to paint any of the rooms you can’t do this without permission.
- Rent payments can be more than you mortgage payments.
What if you want to get back on the property ladder again after selling?
If you sell your house and go into rented you may find it difficult to get back onto the property ladder. Whilst there are ups and downs in property prices, over time house prices usually increase over the long term.
Property is what’s termed an appreciating asset, which means that for the most part houses gain value over time.
Which means that if you sell your house and come off the property ladder, and if property prices appreciate in that time, you may struggle to afford to buy a property if you change your mind and want to buy again.
Example of selling your house and going into rented then changing your mind to re-join the property ladder
- Let’s assume you sell your property when it’s value is £265,000 and you have a mortgage of £235,000.
- If you sell this property to rent instead and assuming that selling costs are £6,500, the money you keep when you sell your house in this example is £23,500.
- Let’s assume that you aren’t able to save money whilst you’re renting and you decide you want to buy a house again in 10 years time.
- Let’s assume interest income over the 10 years was £500. This gives you £24,000.
- Assuming buying costs are £6,000 including Stamp Duty means you are left with £18,000 as a deposit.
- If property prices have gone up by 10% over the 10 years, the same size property in the same location is now worth £291,500.
- To buy this same property with £18,000 as a deposit, your mortgage would need to be £273,500 or 93.8%. This level of mortgage would be difficult or impossible to get.
Looking at the above example, if you hadn’t sold the house to rent instead, your home equity would now be worth £56,500. But this assumes your mortgage has stayed the same, but in reality you’ve been making mortgage repayments. So your equity will be higher, and your mortgage will be lower.
You may choose to sell your house as your mortgage is coming to the end of its term and you won’t pass a credit check
If you have a mortgage that is coming to the end of its term, you may not have a good enough credit file to remortgage your house on the same or similar terms. It’s far more difficult to get a mortgage if you have bad credit, but not impossible.
To get a mortgage with bad credit may mean you have to take out a mortgage on a higher interest rate. It may be the higher rate of interest makes it impossible to continue to own, as you may not be able to afford the repayments.
In this case you may be better to sell your house to pay off the mortgage and rent instead for a while.
Get a lodger to help with the mortgage payments so you can keep your house
If you’re not able to afford your mortgage repayments, you may be able to get a lodger to rent a room to help with affordability. But you may need to seek permission from your lender or consent to let beforehand to avoid breaching the terms of your mortgage.
When you consider selling your house and going into rented you need to look at whether house prices are rising or falling
Before you considered selling your house to rent, take a look at what house prices are doing. If house prices are falling, you won’t lose out in the short term. But on the other hand, if house prices are going up you will lose out in terms of capital appreciation.
As demonstrated in the above example, by selling an appreciating asset you lose out on capital growth. You may then lock yourself out of getting on the property ladder again.
Interest rates can go up or go down but so can rents increase or decrease
Interest rate will always change over time. Rates can go up, as well as go down and this will affect your monthly mortgage payments. This is unless your mortgage is on a fixed rate.
But as some point if you are on a fixed rate, this will come to an end. If rates have gone up during the fixed term, your mortgage payment will see an increase.
Whereas if rates have fallen during your fixed rate period, your standard variable rate could be lower than your fixed rate. But generally speaking when fixed rates come to an end the rate of interest tends to go up.
The same is true for rents, which means that rents can go up and can also reduce. As a general rule of thumb, if interest rates are rising, rents will follow the trend.
The debt may trap you into keeping your house so you cannot sell to rent instead
Your reason for wanting to sell your house to rent instead may be because of a mountain of debt. As a result you may be struggling to keep up repayments of your mortgage and other loans and credit cards.
On top of this, you may be in negative equity and therefore you can’t sell your house, as you owe more than the house is worth. This would leave your only alternative to have your house repossessed.
But there are alternatives to being repossessed. If you want to find out more, please contact us to find out what’s possible and to have a free no obligation chat about your predicament.
If you sell your house to rent instead you won’t have the asset to pass on to your children
By selling your house and going into rented instead, you won’t have this asset to pass on to your children when you pass away.
For most people their biggest asset is their home, but if you’ve sold this to go into rented accommodation you won’t be able to pass it on.
So instead of selling your house if you are struggling to afford it, you may want to speak with your children to see if they want to help you. If they do help you, they are helping to make sure they will inherit your property when you die.
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