Advice please on whether to re-mortgage a rental property

[Galen]

Can I ask for some advice please? We have a rental property, on interest only, with 140K owed, and the mortgage ends in Dec 2015, so I will owe 140K in Dec. I only have 40K in savings, so I think my options are: (1) Sell the house, it is probably worth 150K, there would only be a small CGT, so this option would clear all debt. (2) Remortgate the house, get another mortgage for say 120K. At say 6% for 20 years, the repayments are 860 per month. The rent is only 600 per month, I don't have any problem paying the difference monthly. However, if I sell now, I am selling at the bottom of the market. So, if I remortgage and sell in say 5-10 years time, I should get much more for the house.
Our PPR is on an interest only tracker, with 400K due in 20 years, which would be covered with the sale of a second rental property we have, which is mostly paid off. Any thoughts on our options?

 

[Brendan Burgess]

We don't allow speculation about house prices on Askaboutmoney, but you should not assume "So, if I remortgage and sell in say 5-10 years time, I should get much more for the house." You may get more or you may get less.

You have three properties. You don't give the values of them or your income, but it's likely that you are overexposed to property and borrowing.

It seems clear to me that you should sell the property with the mortgage.
You are getting rent of €7,200 on a property worth €150k or around 5% before costs, voids and taxes. This is not a good enough return for the risks and hassle involved.

I would assume that the mortgage on your home with with Bank of Scotland? A €400k tracker, interest only for 20 years is very valuable to you and loss making for them. At some stage, they might offer you a discount to pay it off early. So flexibility to take advantage of any such offer is key. If you have €50k in savings, it's likely that you would find it very easy to remortgage your home to another lender. If you have three properties and a mortgage of €120k, it might be more difficult.

So, all in all, sell the property, pay the CGT, and remain flexible.

Brendan