Q We bought our one-bed flat in 2007. As you can imagine we paid a high price and it is now worth nowhere near what it was. We now have an 18-month-old daughter and are very keen to move to somewhere bigger.
We recently had a valuation on the flat and the estate agent believes it is worth �100,000-�105,000, which is just below what we still owe on our mortgage. We are on a five-year fixed-rate mortgage which expires in April 2012, at which point we will not be liable for early repayment charges (currently �4,000 plus).
Our main concern is that we get to live somewhere with enough space for our daughter to grow and to have more children, so we are not averse to giving up homeownership and renting. Are we better off waiting till the fixed-rate period ends and trying to sell up for whatever we can and then rent, or do you think letting our flat and renting somewhere else is a better option? Is there another option other than staying where we are? NR
A To answer your last question first, the option you haven't mentioned is buying a bigger place with a bigger mortgage. But for that to be a viable option you need to have a lump sum to put down as a deposit on the new place. as well as sufficient earnings to command the size of mortgage you need.
As to the other options, given the size of the early repayment fee you would probably be better off waiting until next April if you intend to sell up and move to rented accommodation. The other option of letting your flat, while you rent another larger place, will also bring costs as you will either have to pay your lender a fee for converting to a buy-to-let mortgage or you will face a higher interest rate ? but that's assuming your lender agrees to your letting the flat in the first place. In addition, you'll need to pay for various safety inspections and certificates and for an energy-efficiency assessment, not to mention advertising and the cost of drawing up a tenancy agreement. And the question arises, do you really want to be a landlord?
It could be an attractive proposition if you can bring in enough rent to cover the mortgage and be able to afford the rent on a home for yourself. However, I suspect you will find that the rent you have to pay will be more than you currently pay on your mortgage, so there will be extra money to find each month.
Source: http://www.guardian.co.uk/money/2011/sep/28/sell-up-or-rent-flat
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