My girlfriend and I are in our mid-30s. The nature of our jobs means we must be based in or close to London, where we both own our own flats with large mortgages.

We’re both well-paid, but have little in the way of savings as we used everything we had to get on the property ladder. 

We want to move in together, but are faced with a problem because both our flats have gone down significantly in value since we bought them.

If we sell both our flats now and buy or rent somewhere together, we would make a loss which could wipe out the majority of the equity we put in.

Stuck: Our reader says if they sell both their flats now and buy or rent somewhere together, they would make a huge loss which could wipe out the majority of the equity they put in

Stuck: Our reader says if they sell both their flats now and buy or rent somewhere together, they would make a huge loss which could wipe out the majority of the equity they put in

Stuck: Our reader says if they sell both their flats now and buy or rent somewhere together, they would make a huge loss which could wipe out the majority of the equity they put in

If we rent one or both of them out, the rent after taxes will not cover the mortgages so we will be losing money on two potentially depreciating assets. 

And besides, I’m not sure I want to be a landlord. What should we do?

Ed Magnus of This is Money replies: Getting on the property ladder in London is no mean feat these days, with an average home costing £516,000 according to the latest ONS statistics. 

You must have saved hard to get on the ladder, so I am sorry to hear that both homes now feel more like liabilities than assets.

If you bought the properties in London within the last six or seven years, the fact they’ve both fallen in value is sadly not surprising.

I’ve been encountering increasing numbers of people who have faced a similar dilemma with flats they own in London.

Some have decided to hold on and ride it out, either by renting them out or staying put with the hope that prices rise. Others have been forced to sell at a loss.

While large parts of the country have seen average prices rise significantly in recent years, London has experienced the opposite.

The average flat or maisonette in the capital dropped in value from £426,000 to £423,000 between October 2017 and October 2023, according to the latest Land Registry data. 

Some areas will have done better than the average, while other areas will have registered even bigger falls.

In the City of Westminster, the average flat has fallen from a high of £1,050,000 in 2017 to £836,000 as of October last year. That is a 20 per cent fall in prices over the past six years.

Struggling market? While large parts of the country have seen average prices rise signficantly in recent years, large swathes of London have experienced the opposite

Struggling market? While large parts of the country have seen average prices rise signficantly in recent years, large swathes of London have experienced the opposite

Struggling market? While large parts of the country have seen average prices rise signficantly in recent years, large swathes of London have experienced the opposite

Should they sell the flats? 

You mention the losses you’ll have to stomach if you decided to sell both flats and rent or buy elsewhere.

If the flats have lost value, the pain could be compounded by the fact you’ll need to pay estate agent fees when you sell, alongside legal fees to your solicitors.

Then, if you decide to buy another property, there will typically be stamp duty to pay on top of surveyor fees and further legal costs.

Renting may seem like a better option, but with the average rent having increased by 38 per cent in London over the past three years alone, it will be an expensive alternative. 

The average rental property is currently letting for £2,174 in the capital, according to the latest rental index from HomeLet.

You also note that by renting one or both of the homes out, this will not be enough to offset the mortgage costs.

This is because your rental income will be subject to income tax, which will mean waving goodbye to 20, 40 or even 45 per cent of it depending on which tax bracket you’re in. 

Staying put or moving into one property and renting the other out could be a sensible option, but I sense from your message that you have outgrown your one-person flats and are looking to upsize to a property together. 

For expert advice, we spoke to Karen Noye, mortgage expert at Quilter and Manjinder Bains, a chartered tax advisor at UK Landlord Tax.

Advice from a mortgage expert

Karen Noye replies: There’s a lot to consider in your situation, including the current property market, demand, higher interest rates, and the implications of letting a property.

If there’s no immediate need to sell either property and you have the option to live together in one of the flats, moving into one flat while arranging a ‘consent to let’ from your mortgage lender for the other is a potential option.

This approach avoids the need to sell any property at the moment, which can help in reducing living costs and potentially contribute towards mortgage payments on the let flat. 

This arrangement might also allow you to start saving. By not selling immediately, you allow yourselves time to consider longer-term options and avoid realising the current loss, giving the market a chance to recover. 

Karen Noye, mortgage expert at Quilter advises moving into one flat while arranging a 'consent to let' from your mortgage lender for the other

Karen Noye, mortgage expert at Quilter advises moving into one flat while arranging a 'consent to let' from your mortgage lender for the other

Karen Noye, mortgage expert at Quilter advises moving into one flat while arranging a ‘consent to let’ from your mortgage lender for the other

Living together in one flat also enables you to experience cohabitation without relinquishing property ownership.

Opting for a ‘consent to let’ can be a short-term measure, providing time for the economy to stabilise and house prices to potentially rebound. 

You could consider renting it out on a tenancy agreement of 6 to 12 months. However, letting a property is a significant decision with associated risks, so it’s crucial to seek professional advice before finalising this decision.

If selling both properties results in little or no equity, starting anew could be challenging, especially without a deposit in the current mortgage market. 

Renting a property together might reduce your household bills and living costs, potentially enabling you to build up more savings. 

However, with high rents, the actual savings might be less than anticipated, and you would no longer be homeowners.

Selling both flats to purchase something together as a long-term move is another consideration. However, based on your current situation, it seems like this would mean starting over with little to nothing, losing a chunk of the initial investment made in buying the flats.

Seeking advice from a financial planner can help you make the right decision for your specific circumstances.

Tips from a tax advisor

Manjinder Bains replies: Many couples find themselves at a crossroads when deciding what to do with the properties they both own.

If both properties are sold now, this could wipe out the money you initially put down to buy the homes. 

One possible solution might be to sell the property that has the least amount of equity in, and keep the other property to let out.

If the rental income will not be sufficient to cover the monthly mortgage, any shortfall will need to be paid using your employment income and savings. 

Tax advice: Manjinder Bains, a chartered tax adviser, says losses on one property could reduce tax payable on gains from the other

Tax advice: Manjinder Bains, a chartered tax adviser, says losses on one property could reduce tax payable on gains from the other

Tax advice: Manjinder Bains, a chartered tax adviser, says losses on one property could reduce tax payable on gains from the other

But if the property increases in value during the time it is rented out, you may be able to recover the equity that has currently been lost.

If you choose to sell both properties and one home makes a gain for tax purposes, the loss made on the other one could be used to mitigate any capital gains tax. 

This may be a useful relief in your circumstances.

Whist I appreciate that you may not wish to become a landlord, using estate agents and accountants to do most of the administration and management of the property could make this less onerous.

> What is capital gains tax and how much will I pay? 

How much tax will they pay for renting a property? 

Ed Magnus of This is Money replies: Your rental income will be subject to income tax, which will mean waving goodbye to 20, 40 or even 45 per cent of it depending on which tax bracket you’re in.

If you charged rent of £2,000 a month and your mortgage costs were £2,500 a month, you would be paying tax on the rental income before even paying your mortgage costs.

A higher rate taxpayer in that scenario would get a rental income of £1,200 a month after tax – and before including other costs such as letting agent fees and repairs. Then they would have to pay the mortgage on top.

The good news is that they would be eligible for mortgage interest relief in the form of a 20 per cent tax credit. This is on the interest payments, not the repayment of the capital.

An expensive alternative: The average London rent has increased by 38 per cent over the past three years alone

An expensive alternative: The average London rent has increased by 38 per cent over the past three years alone

An expensive alternative: The average London rent has increased by 38 per cent over the past three years alone

For example, on a £2,500 repayment mortgage, the interest payments could hypothetically account for £1,500 with the remaining £1,000 going towards paying off the mortgage.

This means that £1,500 of your £2,000 monthly rental income can be taxed at 20 per cent, rather than at the higher rate. Of course for the purposes of a tax return you’ll be totting this up on an annual basis.

In order to establish what the interest-only part of your mortgage is, call your mortgage lender and ask for a mortgage interest certificate each year.

Your mortgage lender should already be doing this, but you could also speak to your mortgage broker to see if this is a commercially viable option or not.

Could they rely at all on the mortgage charter?

Although this is unlikely to be relevant to our reader, it is worth mentioning for those that may be struggling with their mortgage at present.

If your mortgage lender is a signatory to the mortgage charter introduced by the Government last year to help support struggling homeowners facing soaring mortgage rates, there could be some temporary relief to be had by either switching to an interest-only mortgage or extending the mortgage term.

Extending your mortgage term will reduce your monthly payments and your lender should give you the option to revert to your original term within six months if you so wish.

The mortgage term is the number of years you agree to repay your mortgage for – which used to commonly be 25 years but on new mortgages is now more often 30 years.

By lengthening the term of a mortgage, you spread your repayments over a longer period of time and therefore reduce the monthly costs.

The benefit of hindsight: Whether an early repayment charge is worth paying will depend on high interest rates rise between now and when someone is due to remortgage.

The benefit of hindsight: Whether an early repayment charge is worth paying will depend on high interest rates rise between now and when someone is due to remortgage.

Higher or lower: By shortening or lengthening the mortgage term you alter your monthly repayments. This could save you money in the short term but cost you more in the long run

Whilst taking out a longer mortgage term will reduce the monthly costs, it will ultimately mean paying interest for a longer period of time and therefore paying more in the long run.

For example, someone with a £200,000 mortgage paying 4.5 per cent interest over 20 years would face monthly repayments of £1,265, paying a total of £303,672 over the lifespan of the mortgage.

Conversely, someone with a £200,000 mortgage paying the same interest rate over a 40-year term would face monthly repayments of £899. However, they would pay £431,580 over the lifespan of the mortgage: £127,908 more than on a 20-year term.

While your interest rate would likely change during this time when you remortgage or fall on to your lender’s standard variable rate, the principle remains the same.

This will probably only be relevant if you are concerned about your total monthly incomings and outgoings, which doesn’t appear to be the case with our reader.

Could they change their mortgage terms anyway? 

Karen Noye adds: Your readers appear to be well paid, so affordability doesn’t sound like an issue. 

It’s more to do with the property value dropping and their savings having gone into the properties, leaving them with little left to move forward with or be able to save.

Extending the mortgage term is a consideration, but if they are not changing mortgage lender initially it will be down to the individual lender if they will allow an extension.

Extending the mortgage term does mean more interest payable and less equity build up. 

For your reader, I consider the letting route more of a short term option, to get them through the current market turmoil and uncertainty – and to give them a bit of breathing space. 

With the consent to let route, there may be a possibility that the lender would consider moving to interest-only if the flat was let out short-term. 

Interest-only criteria is tight, but they could certainly ask. 

If they decided that letting one or both flats was something they wanted to do for the longer term, they could consider the option of remortgaging to a buy-to-let and then an interest-only mortgage would definitely be potential option for them.

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