Should we maximise our mortgage if we move out of London?

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Q My wife, son and I have decided to up sticks from east London in order to try out my home town of Belfast on a two-year trial basis.

Given recent buy-to-let tax changes, we’d be losing money on our flat if we wished to rent it out in the meantime. Therefore I think we’d prefer to sell. If we managed to do this soon (while the market is still hot), we should get more than £400,000 for our little flat.

Looking at house prices in Belfast we could purchase a very comfortable home with a garden – which would be considerably larger than our pokey experience here – for about £200,000 to £300,000. But given there’s a chance we might find ourselves moving back to the south of England, should we try to maximise our mortgage so as to make it easier to jump to a much larger mortgage should we decide to return?

A I must admit that I am stumped by your question about maximising your mortgage. If you are asking whether you should get as big a mortgage as possible on a property in Belfast to make it easier to get a big mortgage back in England, the answer is that it’s not how it works. The size of mortgage on a former property only makes a difference to the size of mortgage you can get on a new property if it is small and so means that more of the proceeds of the former property can be put towards the purchase of a new one.

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But all that assumes that it’s a good idea to sell up here and buy in Belfast which I don’t think it is straight away. If there is any chance at all that you will come back to England at the end of the two-year trial period in Belfast, I think you should reconsider your decision not to let out your flat in London. As a general rule and because of the costs of buying and selling, if you do not plan to stay in the same place for longer than two years, you would be better off renting.

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It is true that changes to the way mortgage interest is treated in the taxation of rental income have made buy-to-lets less attractive to individual landlords with interest-only buy-to-let mortgages. However, the changes have made little difference to landlords with repayment buy-to-let mortgages and no difference to landlords with no buy-to-let mortgage. As far as I can see, you would only be losing money on your flat if you let it at a rent that didn’t cover your mortgage – and other – costs.

If you do decide to let your flat after all, you either need your lender’s permission to do so – for which there is likely to be a fee – or you’ll need to convert your current residential mortgage to a buy-to-let mortgage.

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