Should You Rent Out or Sell Your House in 2023?
Looking at whether or not you should sell or rent out your property, the pros and cons of selling your current property or renting it, and how you can sell to us.
Alexandra Ventress ★ Digital Content Writer
Table of Contents
Deciding whether to sell or rent out your current home is a decision that thousands of homeowners face every day. Whilst the majority of homeowners are reliant on the sale of their current property in order to purchase their next, some find that it can make financial sense to hold onto their current property and rent it out to tenants.
In this blog post, we will look at the pros and cons of renting out your home vs selling it, why people choose to rent out their properties rather than selling on the open market and answer the all-important question “Should I sell or rent my house?”
Looking for a quick answer? Check out our interactive menu at the side!
When does renting your home make sense?
Whilst renting out your home rather than selling it is a situation that is not suitable for everyone, you may find it is suitable for you if:
- You have enough money in savings to be able to buy another property without selling your current home
- You feel confident that house prices are going to rise
- You are having to temporarily relocate and you want to keep your current home
- It is an attractive rental property that has the potential to generate a healthy rental income
Will your mortgage lender let you rent out your home?
One of the biggest deciding factors on whether or not you should rent your house you will need to check your mortgage to make sure you would not be in violation of it should you let out your home. Unfortunately, the majority of mortgages contain clauses that do not allow you to rent out your home. However, others will let you rent it out for a year and some will even allow you to rent it out if you are moving for work for a limited period and are intending to move back.
If your mortgage will not allow you to rent your property, then chances are you will have to switch to a higher interest buy to let mortgage. This will usually involve you having to pay early repayment charges, valuation survey fees, and new mortgage arrangement fees.
Another option that you could explore would be to look at Let to Buy mortgages. Whereas Buy to Let mortgages are taken out by homeowners who are looking to let out their property, Let to Buy mortgages are taken out by homeowners who use it to buy a property. If you have enough equity, you remortgage and use some of the cash to put down a deposit on a new property. You then let out your current property and use the rental income to pay the mortgage on your existing home.
Pros and cons of renting out your house
As with any house-selling decision, there are pros and cons to renting out your property. Below we have broken down some of the biggest advantages and disadvantages of renting out your home:
- If you are only moving away temporarily or you cannot sell your property on the open market, then renting out it short term may be a viable option
- You can generate income and secure capital growth by retaining an existing property and letting it out to tenants.
- If you do not want to undertake the hassle of renting, then you can always use a letting agent
- Your tenant will pay rent on time and take care of your property
- Becoming a landlord is a minefield of red tape. With 400+ rules and regulations that getting added to by the day, you have a lot to find yourself getting to grips with.
- When you rent out your home, taxes on second homes can be hefty, and the rates on buy to let can be much higher than when investing in other ways.
- You will potentially have to invest money into your current property to ensure that it is up to code e.g new boilers or wiring
- The rental income you receive from your tenants can often be outweighed by the costs of running and maintaining your property
- In the event that you default on your mortgages on house prices fall you could risk losing both houses
- If you have unruly tenants, they may end up damaging your property which may not be covered by your landlord insurance, leaving you out of pocket
- You will need to be wary of ‘void’ periods. This is when you are unable to let the property for one reason or another and have no rental income.
- You will need to prepare in case your tenants decide to stop paying rent. Will you be able to cope without the rental income until you can find new people to let your property to?
Pros and cons of selling your home
When you are deciding whether to rent or sell, it is important to explore the pros and cons for both sides. Now that we have looked at the advantages and disadvantages of letting your property out, we can now take a deep dive into the pros and cons of selling your home:
- You are able to move on with your life without worrying about tenants or the property
- You can release equity and invest it in other investments
- Any extra cash that you spend on your next home will be free of Capital Gains Tax when you sell the asset
- You will be able to spend more on your new home than if you rented it out
- You won’t have to deal with any extra unexpected repair bills or letting voids
- You won’t be putting all of your eggs in one basket and expecting one property to deliver a return
- It can be difficult to part with the family home, especially if you have lived there for many years
- If you have found yourself in the position of being in negative equity, then you may have to use the cash from your house sale to redeem your mortgage
- Selling on the open market can take months and can bring a lot of stress with it
- You run the risk of selling off a lucrative asset
Do you need to pay Capital Gains Tax when selling your house?
Capital Gains Tax (CGT) is a tax that you pay on any profit or gain you make when you sell an asset that has increased in value.
If the ‘asset’ that you are selling is your main residence then you will not need to pay CGT on it. But if you own a second residence then you may have to pay. The rules and regulations surrounding CGT are frequently updated, so it is important to check with either a tax advisor or HMRC if you suspect you may have to pay CGT.
Should I sell my house and rent to get out of debt?
Selling off your property in order to get out of debt will only really work if the property is worth more than you owe. You can figure out how much your property is worth by taking away your remaining mortgage balance from your house’s market value.
If your market value has fallen below your outstanding mortgage amount, then you are now in negative equity. If you sell whilst still in negative equity you risk owing money to the bank, so if you can help it, wait until house prices improve.
You should also consider the following when deciding whether to sell to get out of debt:
Selling your home in order to clear your debt is a big decision to make and it can have major repercussions later down the line. It is worth exploring other avenues before putting your home on the market for good. An example of this would be talking to your lender about implementing lower interest rates.
When it comes to debt, you ideally want to release equity as quickly as you can. Selling on the open market is not often ideal when it comes to a fast sale, as it is a lengthy and time-consuming process with no sale guaranteed at the end of it. You will need to research what the local market is like and consider whether your home is in a sellable condition or not.
Another element you will need to consider when it comes to selling your house in order to clear debt is how much the process will cost. Selling a house can be an expensive business, with solicitor fees, conveyancing costs, estate agent commission, repairs and maintenance fees all eating away at your equity. Will you be able to afford all of the fees, especially if the sale falls through?
Once the majority of homeowners have bought a property, this is often their biggest asset. If you decide to sell your property in order to clear your debt, you may struggle to purchase another property in the future. You should decide whether you are dependent on this home in order to fund retirement or if this sale will affect your finances in the long run.
Are your money troubles short-term or long-term? Are they a result of a change of circumstance or is it due to difficulty managing money? Selling your house to clear debt is not a decision that should be taken lightly. You should only sell your property if you are certain it will clear your debt for good.
What are the extra costs involved with renting out your property?
When you are deciding to sell your house or rent it out, you will need to consider the costs involved with letting a property. Not only will you be paying your own monthly mortgage, but you will also be paying the costs of maintaining a rental property. Your lender will often want to be sure that the rental income is enough to cover the mortgage interest payments, and you will need to take the following points into consideration:
- In the event that you are unable to rent out your property, will you be able to afford the mortgage? You need to be sure that you will be able to avoid repossession or a forced sale should you run into difficulty.
- Will you manage your property yourself or are you going to enlist the help of a letting agent? Whilst letting agents do a great job it is worth bearing in mind that it is not done for free, and you will need to pay them on top of the mortgage and running costs.
- How many months will you rent out your property for? You should plan to have at least one month of the year where the property is empty, so you have time to find a tenant.
- Are you going to be able to afford the property maintenance? Should the property need a new roof or boiler can you afford it alongside property and mortgage payments?
- Have you thought about how much insurance will cost?
Will I have to pay income tax if I become a landlord?
As of April 2017, landlords will have to pay tax on their entire rental income, rather than just on the profit they make. You will only be able to claim relief on mortgage interest at a rate of 20%, regardless of income tax band. If you are a landlord who is in a higher tax band, then you will pay tax rental income at 40%-45% but you will only be able to claim 20% tax relief.
Should I sell or rent?
Whether or not you should rent or sell your home is down to your own personal circumstances. What works for one homeowner may not for another. But before you make the decision to become a landlord, you should carefully weigh up the pros and cons. Becoming a landlord involves navigating a lot of legal red tape and undertaking a lot of extra work to ensure your tenants are well provided for and are in a safe and legal property.
If you are unsure about becoming a landlord, but don’t want to navigate the stress of a house sale, then we may have the solution for you…
The Property Selling Company
Wanting to avoid the red tape that being a landlord brings with it? Or maybe you want a life free from unruly tenants and unexpected repair bills? Whatever you reasons for deciding to sell instead of rent, we are here to help.
Here at The Property Selling Company, we believe a house sale should be three things: fast, effortless, and most importantly free. That’s why we can sell your property in as little as 28 days, without having to pay estate agent fees!
It’s our mission to change the way you sell houses, so we are proud to offer a full online estate agents service. Long gone are the days of hefty estate agent fees eating away at your final profit.
We work alongside you every step of the way, covering all aspects of the house-selling journey so that you won’t have to. The days of expensive solicitor fees and legal work are over, and our team of property experts will continue to be there, even after the process is complete.
We will market your property on popular property portals such as Rightmove and Zoopla, organise viewings, cover legal fees, and negotiate better deals all for free!
If you are ready to sell your home in as little as 28 days, then get in touch today and fill out one of our fast, free, no-obligation forms for your house valuation today!