Can you rent out your house instead of selling it?

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Can you rent out your house instead of selling it?

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    You may be facing a decision about whether to sell or rent out your house. This article will cover the pros and cons of renting out your home rather than selling your property to help you make the right decision for your personal circumstances.

    Before you finalise your decision to rent or sell your house, don’t forget there may be clauses in your mortgage lender agreement which stipulate what you can and can’t do.

    Simmonds Mortgage Services supports landlords with rental properties in finding the best products with low mortgage costs. Contact us today.

    Should I rent out or sell my house?

    There are many reasons why homeowners choose to rent out their property rather than sell up.

    Advantages of renting out your home

    The decision to rent out your house instead of selling it could make good financial sense in the long term, so it’s worth considering the following factors in your decision-making.

    Property prices

    Over time, generally house prices increase. The property market has peaks and troughs so you’ll need to take that into account, especially if you are only planning to rent out your house for a short time. Your local market is a big factor in what’s happening with property prices, so it’s a good idea to talk to an estate agent or mortgage broker who knows what’s going on in the local area.

    While you are renting out your house, the property market can appreciate which means that you can secure capital growth while you pay off your mortgage using the monthly income. If you are in a financial situation of negative equity, which means your house is currently worth less than the mortgage you owe, renting your property may be your only viable option for moving until prices increase.

    Rental income

    The income from your property can be used to make your mortgage payments. In other words, your tenants effectively pay your mortgage for you. However, be aware that you’ll have to pay tax on your entire rental income while you can only get relief on 20% of your interest costs. You can claim other rental property costs, such as advertising costs and letting agent fees.

    Being chain-free and turn your home into a rental property

    If you decide to keep your house and rent it, this would put you in a strong position for your new purchase as you would be chain-free. Sellers would find this more attractive. You can look to release equity from your property and remortgage it to a buy-to-let, otherwise known as a let-to-buy. You would turn your old main residence into a buy-to-let.

    Disadvantages of renting your house

    There are some significant tax implications of earning rental income from your existing property. So it’s important to factor these into your decision on whether to rent or sell.

    Subject to capital gains tax (CGT) when you do sell

    If you have more than one property and you sell your house, you will have to pay capital gains tax on the property which isn’t your primary residence at 18% for basic rate taxpayers and 24% for high/additional rate taxpayers (correct for 2024/25).

    Pay income tax on rental income

    As mentioned before, your monthly income is subject to income tax at your marginal rate of tax. This can reduce the overall financial benefit of renting your property significantly if you are a high/additional rate taxpayer.

    Damage to the property

    Tenants don’t always look after rented property very well. You should expect to need to pay for repairs and maintenance during the tenancy agreement and it’s likely you’ll need to refurbish the property between tenants. Make sure you include a budget for this work in your figures when deciding if renting or selling is right for you.

    Other costs involved with renting out your home

    If you rent your property, you will need landlord insurance. This covers you for damage to your property by tenants and can also protect against loss of rent if your tenants stop paying rent on time. You can do rent checks before you sign agreements to make sure they are good tenants.

    You’ll also need to produce an energy performance certificate for your property to rent it out and discuss the change with your mortgage provider. This will involve converting your mortgage from a residential to a buy-to-let mortgage, which will probably increase your mortgage interest payments. Moving to a new mortgage product may also require valuation survey fees, so remember to add these to your budget.

    Advantages of selling your house

    Selling your house so you can move may be quicker and easier in the long run than becoming a landlord. You won’t have to find tenants, worry about the legal obligations of being a landlord or manage two properties or more at the same time.

    Buying a new home

    By selling your current property, you’ll have more to spend on your new home. This means you can get a larger property or you can get a better mortgage deal using a larger deposit.

    Reduced tax

    If you sell your main residence, you won’t have to pay any CGT. You also won’t have additional stamp duty tax to pay due to additional income from your property.

    No tricky tenants or unexpected repair bills

    Finding the right prospective tenants can take time and energy and you might lose money while you are waiting to find the right people to rent out your home. Repairs and maintenance costs can eat into your property income, and tax relief has reduced in recent years, meaning being a landlord is less lucrative than it used to be.

    Drawbacks of selling your house

    Selling a property can be stressful, so it’s worth considering the downsides of putting your property on the market.

    No buyers

    It can take a long time to find a buyer for your home at the right price. When there are very few buyers, you may be forced to rent out your property instead if you have to move. This may lead you to lose the dream home you are trying to buy.

    Long-term capital growth

    An increase in your property price could put you in a great financial position in the future. If you sell your property now, you will forgo future capital appreciation.

    Dealing with property viewings

    When you are selling your property, you may have to deal with potential buyers coming around for months, which disruptions your personal life. Estate agent fees can also be significant.

    How can I rent out my house?

    Renting out your existing home rather than selling it can be done relatively easily if you are renting to one family on an assured shorthold tenancy. However, there are a few different ways you might become a landlord.

    Before you rent your property, you’ll need to consult your mortgage lender for permission to rent and to take out the right sort of mortgage. A mortgage broker who specialises in buy-to-let mortgages, like Simmonds, can advise you of the different products and lenders who could provide the best product for you.

    HMOs

    HMOs or houses of multiple occupation are specific types of rental properties where more than one family shares a property. Find out more about HMO mortgages.

    Holiday let

    If your property is in a popular tourist area and is an attractive rental property, you could consider doing short-term lets or holiday lets rather than going into the longer-term rental market.

    How can Simmonds Mortgage Services help?

    Seek professional mortgage advice to suit your circumstances and make the right sell or rent decision. Call 01184 693037 or book a meeting with us today.

    Picture of Andrew Simmonds

    Andrew Simmonds

    Andrew Simmonds is the managing director at Simmonds Mortgage Services. He's been providing mortgage advice to home owners for many years.

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