Q&A

Continue being a landlord or sell? Advice welcome!

Just over a year ago I moved out of a property I had owned for 9 years to move into a rented house 50 miles further south with my partner, the idea being to see how we got on before making major property commitments. Houses just weren't selling then, so I refurbished the owned (no mortgage) property and successfully let it out after a few months. It brings me in about £700 a month, minus about £100 managing agent fees. I'm a 40% tax payer, so I need to take tax and costs off that too. Once we had been here for a year we agreed it was all working for us and we should look for a home to buy. About the same time my company decimated my pension plan and is still mooting redundancies (I've worked there over 20 years). By the time we were looking around, property prices around here have become unbelievable (well, to me, anyway). If I sold my 3 bed detached I might expect to get somewhere between £180k and £200k for it right now - prices haven't moved much where I came from. To buy a similar sized property around here would be at least £300k, and I have seen relatively small houses up for much more, even in areas not thought of as 'posh' in any way. I have about 15 years left to work, assuming I can remain employed for that period. My partner is 12 years younger but having changed career, earning substantially less than me. We have enough capital between us we could just get a large mortgage to buy one of these 300k houses, but I am trying to figure out the best option for the two of us, especially given the upheaval and uncertainty at my job. Option 1 is sell the owned house, realise all the capital, put it with the capital we have, and that would give us some protection against the roughest market conditions. Advantages - owe no mortgage, save income, little risk of being repossessed even if complete disaster strikes (ie both unemployed etc). No more worry and hassle of being a landlord. Disadvantages - opportunity for capital growth limited to single property, no opportunity to try to offset damage to pension through capital growth of second property. If partner wants to move job (likely within a few years given building new career) we could stand to lose the costs of buying as we sell to buy again (2 lots stamp duty and legal fees, etc) Option 2 - take BTL mortgage for 70% of owned property, top up with small mortage on property we like, have a finger in 2 properties simultaneously Advantages - leverage mortgages to increase potential capital gains. Can claim tax relief on BTL interest and costs. Disadvantages - worst case scenario doesn't bear thinking about - drop in property prices, huge mortgage commitments, lost jobs, tenant from hell demolishes property etc. Option 3 - either sell or rent out the owned property, but remain in rented ourselves for the foreseeable future. Without a crystal ball, every single option feels like a gamble on the housing market right now. I read as much as I can on what is supposed to be happening, and I was once burned very very badly in the last recession, which makes me cautious about ending up with so much in property. But what do others think? Do you see a clear path through this? One last twist in the tale, a friend told me that even if I have one BTL mortgage and 1 mortgage on a property we live in, if the real reason I am taking the mortgages is essentially to fund my 'business' (the BTL) I can claim the interest from both mortgages against the rental income from a tax point of view. Could anyone confirm or deny this? It might matter because securing the mortgage against the lived-in property would probably be cheaper (1% or so less) than a BTL mortgage against the rented property.