selling a property that is on interest only mortgage

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    selling a property that is on interest only mortgage

    Hi, I bought my first property in 2007 on interest only mortgage in 2007. the value at the time was GBP 250000. The property is currently rented and the rental value is equal to the monthly mortgage payments. The property value dropped down to GBP 160000 ( ever since 2008). What are the pros and cons of selling the property now. Please advise.

    #2
    Why did the capital value drop? Is the cause likely to be remedied?

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      #3
      The property prices dropped drastically just after we bought them in 2007. This happened through out northern ireland. I am not sure if the prices will increase any time in the near future.

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        #4
        Do you have £90,000 in cash to give to the bank + sufficient to pay for the legal/agency fees associated with selling. If not you can't sell.

        Of course we will be seeing a lot of this kind of thing in England and Scotland and Wales (especially come Corbyn).

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          #5
          What's the value of the mortgage loan?

          Are the landlords basic rate tax payers?
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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            #6
            Is the property in negative equity , a factor which has reeked havoc even in mainland Uk over various property crashes and resulted in many borrowers defaulting. Can you perhaps indicate the loan size and the amount of rent and I will gladly check my sourcing systems to see if there is a solution.

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              #7
              The outstanding loan is 139000 and monthly rental is GBP 565.

              I dont have 90k cash to pay!!

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                #8
                Ok you won't need 90K in that case, but you won't get much back from the property (much less than you paid in initially plus interest paid so far). You will sell it for 160K, 139K will go to the bank, ~3K to lawyers etc and you will pocket 18K. You will need to get rid of your tenant probably, unless it will yield a greater sale value with tenant in situ. Need to check with bank for any early exit penalties.

                You are paying an interest rate of 5% on a depreciating asset.

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                  #9
                  I am at such a huge loss, but is it best to dispose the property or are there any benefits in holding on to it. On a day to day basis it is a break-even situation with this property but not sure long term? Thank you for the responses.

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                    #10
                    If the property doesn’t require additional contributions from your primary income I would keep the property, the question is are you getting the benefit of current mortgage rates if not refinance on say a five year Fixed rate and build a level of stability on mortgage costs and ensure you are achieving a true rental which reflects the property and the immediate area to get a marginal profit.

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                      #11
                      definitely keep it. A classic school boy error is to buy at the peak and dispose of it at the bottom. I see it all the time from Novice landlords. They get sick after 10 years, give up and cash their chips in. Fear not - There has NEVER been a 20 year period in history where property has not doubled in price. I will repeat the important word NEVER. I can see many people questioning this...................

                      Northern Ireland using your example on the Nationwide house price index. Prices in 1998 were 53,456 in the first quarter. You bought in at the peak but even now 20 year ahead average prices are currently 136,211. In 2008 they were 196,892.

                      Obviously using this theory you should wait to 2028 but I feel 2025 or perhaps earlier could be the next peak depending on Brexit/Corbyn and possible other factors.

                      I am seeing this time after time in the area I am in people giving up on properties they bought at the peak, selling off at losses and capitulating. Are you going to bet against 200-300 years of history? Let inflation do its job and increase your investment. Unless of course you think prices will do keep going down, but you would have to be pretty stupid to believe something like that

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                        #12
                        Originally posted by AndrewDod View Post
                        Do you have £90,000 in cash to give to the bank + sufficient to pay for the legal/agency fees associated with selling. If not you can't sell.

                        Of course we will be seeing a lot of this kind of thing in England and Scotland and Wales (especially come Corbyn).
                        Corbyn will drastically increase immigration. Also, Sadik Khan is big on build to rent. All of these policies to me are based on strangling supply and increasing demand.

                        Corbyn will give Khan a big job once he's PM. Don't be surprised if it's housing and planning and build to rent gets rolled out in a way you never thought possible, obviously backed with legislation to remove small BTL landlords from the market entirely.

                        Politicians never do what's good for us because their actions are influenced. It doesn't take much to work out how.

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                          #13
                          Sadik Khan might sound bullish on housing for London but the results todate show that he has failed to come anyway close to his objective.

                          I have often stated within the forum that the Right to Buy concession should be abolished since such sales are never replaced by the same number of new units and until more affordable units are constructed then existing social housing stock should be retained.

                          With regards the conundrum of the OP ,I am in agreement with Hech123 that the property should be kept but ensuring that the mortgage is on the best rate possible and the rent is at or about market norms.

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                            #14
                            Originally posted by kpasun View Post
                            The outstanding loan is 139000 and monthly rental is GBP 565.

                            I dont have 90k cash to pay!!

                            You seem to have paid 250K for a property which only rents for 565 per month = 6780 p.a which is a tiny yield of 2.7%. .

                            Has the monthly rent risen at all from 2007 to present time ?

                            Did you buy from a propertyinvestment club or local estate agent.?

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