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Should I sell my home or rent it out?

When you move home, you normally have to sell your current property, especially if you need the money to buy a new one. But there are occasions when it makes practical or financial sense to keep the old home. If you rent your old house out rather than sell it, you could end up over time with a valuable asset that generates a regular income.

If you do decide to sell your home, read our step-by-step guide to selling and make sure you get the best possible deal with your estate agent by reading our guide on fees

When does renting out the old home make sense?

  • If you are just moving temporarily, perhaps for work reasons, and you want to keep open the option of moving back to your old house
  • If it is a good rental property, and you are confident that property prices are going to rise – and you have enough money that you do not have to sell your old one to fund buying the new home

What do you think will happen to property prices?

This is the critical question. If property prices are rising, then clearly there is a massive financial advantage to building up a property portfolio – you get the capital gains on more than one property. But if property prices are falling, then you old home will go down in value, and certainly in the short term you would probably be better off selling it.

However, in the long term property prices invariably rise (along with economic growth and incomes), and so if you are planning to keep your old home for many years, then you shouldn’t worry about a short term dip in prices.

See our House Price Watch report for the latest trends in house prices.

Will your mortgage company let you?

You need to check the small print of your mortgage. Most mortgages include a clause that does not let you rent out your house, while some let you do it for up to a year, and others have clauses that allow you to rent it out if you are moving for a limited period for work and intend to move back.

If you do have to change mortgage, you will probably have to change to a (usually higher interest) buy-to-let mortgage which will probably entail early repayment fees, valuation survey fees, and new mortgage arrangement fees.

If you are thinking of remortgaging, you may wish to seek expert advice from a mortgage broker, we’ve teamed up with London & Country, the UK’s leading fee free mortgage broker. Find out more

How can I finance two properties?

Clearly, you should only consider doing this if you are financially secure, and financially literate – if you are already stretched, and not confident dealing with financial matters, then you could end up really regretting it.

You are more likely to be able to buy a new property while keeping your old one if you have major equity in your existing property, and a sufficient income to easily finance the mortgage on your new property.

If you need to raise the deposit for the new property, you can then do that by increasing the mortgage on your existing home, the payments for which should be covered by the rental income.

You will then need to take out a second residential mortgage on your new home, the payments for which would be covered by your normal work income.

You will then have two mortgages, one on each property, covered by the rental income and your normal income.

Will I be able to pay the mortgages?

If you move out but still have a mortgage on your old property (whether you are buying or renting a new place), you need to work out whether you will be able to keep up with the monthly repayments on that mortgage – in addition to the mortgage on your new home.

Your mortgage lender is likely to insist that the rental income is enough to cover the mortgage interest payments. But there are many other factors that you need to consider:

  • How many months of the year are you likely to be able to rent it out? As a rule of thumb, you should reckon on one month a year where it will be unrented (for example, when you are looking for a new tenant)
  • Will you be able to cover the mortgage if you are unable to rent it? You should be confident that you could avoid a forced sale or repossession if you have difficulty renting it out for a while
  • Will you be able to pay for the property’s maintenance? Can you afford a new boiler? What if the house gets damp? Or if it needs a new roof?
  • Will you manage the property – or will you pay somebody to do so? How much will that cost?
  • Will you rent it through an agent? What commission will they take?
  • Have you factored in insurance into the total monthly costs?

How much will it cost me to live in the new place?

The ability to afford to keep your old home will depend not just on the rental income you get, but the cost of living in your new place.

Will I have to pay income tax?

If you make a profit on renting out your property – i.e. the annual rental income exceeds the allowable costs including mortgage interest payments – then you may have to pay income tax on it. HMRC give generous allowances for maintenance and wear and tear (and you can offset professional fees such as agents and property managers), so the tax bill is often less than you might expect.  You cannot offset mortgage capital repayments against income tax.

Will I have to pay capital gains tax if you sell?

Capital gains tax is a tax on the profit – or ‘gain’ – you make when you sell an asset that has gone up in value.

You do not have to pay capital gains tax if you sell your primary residence (i.e. your main home) at a profit, but you might have to if you sell a second home.

The capital gains tax regime is frequently changed by the government, and the calculations are complicated, so you should seek advice either from a tax adviser or directly from HMRC.

In general:

  • You do not have to pay any capital gains tax if you are not selling the second property at more than you bought it for – or indeed, if you don’t sell it at all
  • If you used to live in the house you are selling, then capital gains only kicks in three years after you move out, i.e. if you sell it within three years of moving out, you will not have to pay any capital gains tax.  
  • You only pay capital gains tax for the period you have not lived there (minus the three years grace period), and this is worked out on a pro-rata basis as a proportion of the total gain in the value of the property while you have owned it
  • The rate of capital gains tax is tapered (i.e. the longer you own something, the lower the rate you pay), and there are annual allowances, so the total tax bill may be less than you first expect


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14 Comments

  1. I’m thinking of renting out my home and using the income to part fund the renting of a larger house in a different area.

    Will I have to pay tax on the rental of my mortgaged property even though I now have the additional rental outgoing?

    Comment by David Field — March 24, 2016 @ 4:32 pm

  2. I have been left a property by my late father. It is a 1 bedroom converted flat in a house. I am so confused. I don’t know whether to rent or sell.
    the price for selling wold be around 335000 and the renting a month could be from£800 to £1000.
    The one thing that is really getting to me is that almost every year there is charges when the council do work on council flats in the square and I never know how much this could cost,
    What would you do?

    Comment by D Fennell — February 7, 2016 @ 2:20 pm

  3. @Mukamba Be careful there… I did exactly the same thing but you will also have to pay letting agent fees (if you use one) plus tax on your income from the rental – which you cannot offset on the place you rent for 875. You’ll only be able to offset the interest potion of your mortgage, which will probably be fair bit judging by your quoted figures.

    Comment by Paul — July 25, 2015 @ 6:12 pm

  4. I am going to rent out my 5 bedroom and go and rent 3 bed for 875. Will get monthly rentals of £2000. My morgage is 1700. I am not going to have a profit but will save money from the diffence I am going to be paying by renting somewhere cheap. Our plan is to raise money and buy another property

    Comment by Mukamba — July 20, 2015 @ 5:05 pm

  5. Great article with useful advantages and disadvantages which will need to ne considered. Thanks for sharing with us.

    Comment by Megan — July 10, 2015 @ 1:39 pm

  6. Some interesting pros and cons to weigh up and of course dependant on the situation the housing market is in at the time you make the decision. Also think – Do you have time to be landlord and the funds to maintain two homes?

    Comment by Izzy — July 1, 2015 @ 3:29 pm

  7. Looks like you have to weight the circumstances right as which you can benefit.

    Comment by Fixing rental property — June 10, 2015 @ 9:30 am

  8. If I rent out my house and rent a townhouse where I am paying more than the rent I collect which is more than the mortgage amount , do I still have to pay tax on the collected rent?

    Comment by Agnes — April 25, 2015 @ 10:44 pm

  9. I would like to rent my house while it is up for sale.I would be interested in potential buyers saving a 10 percent deposit while living in my home but have to pay refurbish fees that occurr, council tax etc

    Comment by Janine Turner — September 27, 2014 @ 6:13 pm

  10. I’m thinking about the feasibility of letting out my 4 bedroom property with no mortgage and renting a 2 bedroom property. would all the financial implications make this an impractical idea?

    Comment by raymond sansum — August 15, 2014 @ 11:12 pm

  11. What a detailed and informative guide. It all depends on the time and the situation of the housing market. If it is booming and increasing, it is the right time to rent and sell. Trouble is, there is no telling which direction it will go in so there is always an element of risk. Does the state and size of the house hold much weight in the equation? It definitely is a complex decision to make and one that needs to be thought over in advance.

    Comment by Kayleb Holden — June 11, 2014 @ 1:20 pm

  12. Renting or selling your property could be one of the hardest decisions in terms of long term assets and as Steve said, a retirement nest egg. I think personal factors are the biggest influence for a home owner, however as the property market is looking relatively healthy, home owners may be attracted to the valuation of their property.

    Comment by Peter — April 14, 2014 @ 9:36 am

  13. Do you have to pay capital gains on a rental property if it’s not worth the original value it was purchased?

    Comment by Robin — February 15, 2014 @ 9:04 pm

  14. Selling your home means you can transfer all your responsibilities to a new owner. We all know that owning two or more properties at once requires cash reserves and time. Therefore, selling will allow you to relocate without the burden of multiple mortgage payments and many other carrying costs. It will simplify your life because you won’t have to worry about tenants, repairs or any other landlord issues. The down side is that you may miss out on the possibility of capital appreciation in the long run. Renting out the home is an attractive and common alternative to selling. It’s sometimes possible to rent out your property and make a profit every month while your tenants effectively pay for your mortgage. Rental income can cover most of the expenses to carry, such as mortgage, taxes and insurance payments. This is a great way to build wealth because at some point the house will be paid for by the tenant income and you will have built a nice retirement nest egg. Also renting instead of selling offers the possibility to move back if you are unsure that you will like your new place or if there is the possibility that your move could be a temporary one.

    Comment by Steve — January 7, 2014 @ 8:51 am

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