UK mortgage/rental advice

JonJoe89

Hi all,

First time poster looking for some advice/information on the below. Thanks in advance.

Basically, we moved back to Ireland last year from London. Lived there for 6 years and in this time had bought a flat which we are now renting out. We are now at the point in which we are trying to decide if it’s worth it to keep the flat or not, as the interest rates have doubled since we took the mortgage out and the rent is not covering the mortgage. The only saving grace is that we have been able to spend a bit of money to do up an old family home to allow us to move back to Ireland and in doing so do not currently have any rent etc to pay.

The other side of it is we will also be looking for a mortgage maybe sometime this year(in Ireland) and was wondering how banks would view the situation mentioned above? Does having income from a foreign property come as an advantage(as it’s extra income) or disadvantage(as there is then an existing mortgage).

Also, long term, could anyone advise on tax implications of keeping the flat vs selling. We are in a position that we could pay an extra lump sum off the mortgage for the first time, but wanted to be clearer on the questions above before committing to this. I can’t see our situation being that uncommon? Thanks for any input.

JVince

If you sell the flat and there's a "profit", this will be mostly tax free. The longer you rent it, the less "tax free" years will apply.

So if you owned it for 5 years, lived in it for 4 years and rented for 1 year, 80% of the increase n value will be tax free. Next year this drops to 67% and so on.

You also will pay tax on the rental income.

So if it has appreciated substantially I'd sell it and then I'd look at pension contributions and max them out whilst drip feeding the surplus from the flat sale into your everyday spending.

eg- 150k joint salary. Circa 30k tax paid at high rate. Put up to 50k into pension. This will see a drop in your after tax pay of 25k (usc and prsi still have to be paid). If you need this 25k, move 25k from deposit account holding surplus into your everyday spending. Continue each year until surplus is down to a level you want.

Enjoy earlier retirement.

Jim2007

Addressing the UK property:

Property is a high risk asset class and when you invest in property you break all the tenants of investing:

• You invest in a high risk asset class
• You borrow to invest
• You fail to diversify among asset classes
• You fail to diversify within the asset class
• You invest in an illiquid asset class
• You accept a low risk return on a high risk asset class
• You go way above the accepted low risk asset allocation of 6% -7% for this class

At this point the UK economy is in a state of flux, they have series challenges in respect of trade and have struggled even before that to regularly generate a positive balance of payments. Which make it a bad bet for small investors, because most don't have the financial strength to carry the risk.

Much has been written about the last crash in Ireland, placing the blame on the banks, the government, the bond holders etc... but most of fails to address the blame that belongs to the investor - the failure to management the risk.

And in that respect this is where you are right now - the question you need to consider is do you have the financial strength to carry that risk, if things go wrong? And if the answer is not then you exit as soon as possible.

This is not about whether it's a good or bad investment, it's about your ability to carry the risk.