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Should I Sell My Home or Rent it Out?

Written by Reviewed by Graham Norwood

19th Feb 2020 (Last updated on 19th Jun 2020) 13 minute read

Deciding whether to sell or rent out your home all depends on your personal circumstances. If you’re already struggling to sell the property, it may be time to consider renting it out to tenants. 

It’s important to consider that renting out a property will affect the taxes you pay and the benefits you receive. You will also have to update and renovate the property to ensure it meets required the legal regulations before your tenants can move in.  

To help you make a decision, Compare My Move has created this guide to go through the pros and cons of both selling and renting out a property.

This article will cover the following:
  1. Selling a House vs Renting it Out
  2. When Does Renting Your Old Home Make Sense?
  3. What Do You Think Will Happen to House Prices?
  4. Can You Afford to Finance Two Properties?
  5. Is Renting Out a House a Good Investment?
  6. The Responsibilities of Becoming a Landlord
  7. Mortgage Issues When Renting Out Your Home
  8. Income Tax Considerations
  9. Capital Gains Tax Considerations
  10. What is ‘Let to Buy’?
  11. Making the Process Easier With Compare My Move

Selling a House vs Renting it Out

The choice to sell or rent out your property is entirely yours. Although, many homeowners fall into becoming landlords due to work commitments or through their houses failing to sell. Whether you’re researching renting out a property for choice or personal circumstances, there’s a lot to compare and a range of pros and cons to consider. 

Pros of Renting Out Your Home

The latest data by the Resolution Foundation found that 11.2% of the British population own multiple properties. The number of buy-to-let mortgages has risen 15 fold since 2000, proving that renting out properties has become a popular option for many. Here are some of the pros of renting out your home:

  • Ensures you can keep your home if your move is temporary
  • Having a good tenant will ensure your property is well looked after 
  • Being a landlord can often provide a steady income
  • Your home may grow in value while you let it - although there’s no guarantee
  • You can secure capital growth from letting the property

Cons of Renting Out Your Home

Despite the positives of being a landlord, it’s not for everyone. There are also a variety of cons to consider before deciding if letting out your home is right for you:

  • You will need to invest more money to ensure the house meets the legal requirements
  • Bad tenants can damage your property
  • Stamp duty increases when you own 2 or more houses
  • You can lose income if the tenants delay or stop paying rent
  • You will still have to pay the repair and maintenance costs
  • You may incur Capital Gains Tax if you sell the property while it’s being let out

Pros of Selling Your Home

Selling your home can often seem like the easier option when you consider the long-term maintenance you have to continue when renting out a property. Here are a few of the positives of selling your home:

  • It could mean being able to release equity to purchase your next home
  • You won’t have to manage multiple properties or mortgages
  • It can be a much quicker process if there are no delays
  • The additional money you spend on a new home means that when you sell, the gain is free of Capital Gains Tax (CGT)

Cons of Selling Your Home

Selling your house is not always a quick process and many people actually become landlords due to their house not selling. Here are the cons to consider when selling a house:

  • If the property market isn’t good, you could lose money or the process could take too long
  • It can be emotionally and physically difficult to move house
  • If the house is in negative equity, you will need to spend more to pay it off and redeem your mortgage 
  • If the process takes a long time, it could delay your move into the new house

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When Does Renting Your Old Home Make Sense?

There are a variety of scenarios where renting out your property makes sense. So your first step should be to figure out if those scenarios apply to you and your situation. 

One example includes if you’re only moving out temporarily. Letting your current home is a good way to ensure that it’s available to you if you would like to move back in the future. It’s also a good option if you’re financially secure, if you believe the property prices will rise or if you do not need to sell your old home to afford a new one. 

Some couples will choose to rent out their old home when moving in together for the first time, ensuring their old homes are still available if the worst should happen. Renting out property also becomes an option for homeowners who have had their property on the market for some time, but can’t sell it. 

What Do You Think Will Happen to House Prices?

If you’re expecting property prices to increase over time then it would be worth letting your current property and increasing your property portfolio. However, if you expect prices to decline and you’d rather sell quickly, then you’re better off selling your property now rather than renting it out first as it will only continue to go down in value.

To understand more about your local market, especially if you believe it may be dipping, consult an estate agent or local chartered surveyor. Prices will eventually begin to rise again and so, if you’re not thinking about selling your home anytime soon, your local property market will most likely improve.  

You can also monitor past property inflation by using websites like HM Land Registry and Net House Prices. Simply review properties similar to yours in the same area and track their prices over time. 

Can You Afford to Finance Two Properties?

Before committing to owning two properties, you need to ensure that you’re financially capable of doing so. If you’re financially secure then it’s possible to continue without it putting too much strain on you. However, if you’re not confident or your budget is already stretched, then it will only add further stress and you could come to regret the decision. 

You need to first consider the general maintenance and repair costs and what would happen if interest rates rose. Remember, two properties also mean two mortgages which are other costs you need to calculate. If you’re unsure, speak to a mortgage broker as they can discuss what your future mortgage repayments could be as well as what deposit each property will require. 

If you have major equity in your current home - that is, the house is worth more than you may owe on the mortgage - and you have a steady income, you may be able to afford to own two properties. Don’t forget to factor in the rental income you would be receiving if you decide to rent out your current property. 

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Is Renting Out a House a Good Investment?

To truly understand whether renting out your property will be more profitable than selling, you need to consider the costs of renting it out. There will possibly be added tax, ongoing bills and fees and also general maintenance and repair work. The Advisory suggests that for a landlord to begin earning a profit, they would have to hold the property for 15-20 years.  

Our previous data found that the cost of selling a house in the UK is £5,852. This is the average cost determined for an average house priced at £234,370. This may be a large lump sum but the majority are upfront costs, unlike the constant ongoing fees of renting out a property. 

To create an accurate budget, you need to keep detailed accounts of what fees you’re paying as a landlord. This will also be a legal requirement as you’ll have to inform HMRC of your earnings. To help you make your decision, here are a few examples of the added costs to consider when renting out a property:

  • The cost of ensuring your property is legally safe - smoke alarms, electrical checks, fire risk assessment, repair costs etc.
  • Ongoing costs until you rent it out - mortgage, utility bills, council tax, rent etc.
  • Annual ongoing costs - mortgage, EPC, general maintenance, deposit protection, insurance, white good’s replacement etc.

All this sounds complicated, and it is - there are around 400 pieces of legislation governing private rental properties. But this in itself should not put you off. Professional lettings agents act on your behalf, knowing the legal requirements and any local council regulations. 

They will charge, of course - typically 10% to 15% of your rental income. But this is a tax-deductible expense, so it makes sense to instruct an agent with time, expertise and experience.

The Responsibilities of Becoming a Landlord

Another major consideration when deciding whether to sell or rent out your home is the responsibilities that come with being a landlord. Letting out your home can be hard work and so it’s important to plan, prepare and budget for the tasks at hand. 

You have to ensure that the property is safe and a legal residence for your tenants. You have to take care of any maintenance or repair work as well as reply to every call your tenants make to highlight any issues. It all depends on the size and age of the property as well as who your tenants are.

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Mortgage Issues When Renting Out Your Home

Before committing to the decision to rent out your home, you need to first speak to your mortgage provider. You need to inform them that a new person may be living in the property. If your mortgage agreement does not support this you may need to switch mortgages altogether, possibly to a commercial mortgage, with a slightly higher rate of interest, and start another mortgage application. 

Double-check the small print on your agreement as some do not allow the homeowner to rent out their property, some allow it for up to a year and others allow it if it’s only temporary. If you don’t have to switch, you will still have to change to a buy to let mortgage. 

A buy to let mortgage will also include early repayment fees, mortgage valuation fees and also mortgage arrangement fees. There is also the option of a let to buy mortgage which is specifically for homeowners looking to let out their property. We explain this in more detail further along in this guide. 

Income Tax Considerations

If you’re considering renting out your home, it’s important to budget accordingly and consider income tax. If you’re renting your property, you will have to pay income tax. 

Your rental income will be added to any other income you earn during that specific tax year. You’ll have to complete a Self Assessment tax return to declare this annually. Legally, you must pay tax on any profit you make from renting out a property. How much you pay depends on how much profit you make as well as your own personal circumstances.

However, in April 2017, a new system for landlords was introduced where they must pay tax on their entire rental income and not just the profit. British landlords are now only able to claim tax relief at a rate of 20%, no matter what tax band they’re in. This restriction has been gradually phased in and will be fully in place by 6th April 2020.

It’s becoming increasingly popular for landlords to incorporate - that is, set up a small company which is the formal owner of the buy to let property. All income therefore goes to the company, not the owner. This means instead of income tax, the company pays corporation tax, which is usually lower. This option is not suited to everyone’s finances, so a discussion with an independent financial adviser or an accountant is advised.

If you’re still unsure, you can find more information on the gov.uk website where they explain the changes made in 2017 in further detail. 

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Capital Gains Tax Considerations

Another tax to consider when renting out a property is Capital Gains Tax (CGT). Capital gains tax is what you must pay when you purchase an asset, such as a property that isn’t your main home, and sell it for profit. You do not have to pay this on your current residence, but you will likely have to on your second property. 

Some of the key points to consider include:

  • You only have to pay CGT on the gains or profit that exceeds your annual allowance (currently at £12,000 pp). 
  • You do not have to pay CGT if you are not selling the second property at more than what you bought it for
  • If the property you’re selling used to be your primary residence, then you won’t have to pay capital gains until 18 months after you’ve moved out. Although, from April 2020 this period is shortened considerably
  • Excluding the aforementioned 18 months, you only pay CGT for the period in which you’re not living in the property. 
  • The rate varies depending on your income and the size of your gains, not the total sale price.

It’s important to note that the capital gains tax system and requirements are constantly changed by the government. The calculations involved can be complex and so we advise you to speak to a property tax expert before you begin the process of renting out your house.

What is ‘Let to Buy’?

Do You Need a Mortgage Broker?Let to Buy is the term used when a homeowner lets out their current property so that they can purchase and eventually move into a new one. If you’re unable to sell your home or you’ve found a new property you can’t wait to move into, then let to buy could be the better option for you. 

This option allows you to take out a buy to let mortgage on your existing property and release enough money for you to then be able to afford another house in the same area. Remember, you can not live in a property that has a buy to let mortgage against it, so once it’s agreed, you must move out. 

You will also have to take out a let to buy mortgage, meaning you’ll have two mortgages to your name. A Let to Buy deal will allow you to release equity from your property to help you secure a new one. Each mortgage is different and the criteria depend on your lender. It’s advised to speak to local letting agents, your current mortgage provider and consider whether you need to hire a mortgage broker before deciding.  

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Making the Process Easier With Compare My Move

When preparing to buy or sell a house, you’ll need to begin comparing conveyancing solicitors immediately to help you begin the transaction. Don’t forget to use our free online service to get the best deals from the most trusted professionals in your local area.

Whether you’re comparing conveyancing, surveying or removal quotes, our team are available to guide you through the process, connecting you with the best in the business. 

Zenyx Griffiths

Before Compare My Move, Zenyx once wrote lifestyle and entertainment articles for the online magazine, Society19 as well as news articles for Ffotogallery.

Graham Norwood

Reviewed by Graham Norwood

Property Journalist and Editor,

With over 15 years of experience in residential property journalism, Graham is currently the editor for both Estate Agent Today and Letting Agent Today.