Should I sell my buy-to-let properties empty or with tenants living there?

I own a couple of buy-to-lets that I want to sell. The fixed rate mortgages are coming up for renewal next year and, if interest rates remain roughly where they are, my costs will balloon and I’ll be making losses on both.

One of the tenancies is due for renewal in April next year, while the other is due to renew at the end of December this year. After that they will fall on to standard rolling periodic tenancies. 

Both sets of tenants want to stay put and I am yet to tell them of my intention to sell. 

What I would like to know is whether it is best to evict the tenants before putting the properties on the market, or to sell with them in situ?

Obviously, I could do with their rent while I try to sell, particularly if it takes a long time and I end up falling onto my lender’s standard variable rate. 

This would see my interest rate jump from about 2 per cent in both cases to around 8 per cent, quadrupling my monthly mortgage interest costs.

But I am also aware that this could cause issues when trying to sell, and I don’t necessarily want to restrict myself to selling only to landlords. What should I do? 

Ed Magnus of This is Money: This is a conundrum faced by many landlords across the UK at the moment.

There are currently more than 2million buy-to-let mortgages outstanding, according to UK Finance. Many will be seeing their profits decimated by higher mortgage rates.

The average new buy-to-let mortgage rate is currently around 6 per cent. This means a landlord with a £200,000 interest-only mortgage will face paying £1,000 a month if buying or remortgaging at the moment.

Add that to void periods, repairs, maintenance, letting agent fees, compliance checks, insurance and service charges and it shows why some landlords may choose to exit the market.

The pain caused by higher interest rates is already showing up in increased mortgage arrears.

Year-on-year, the number of buy-to-let mortgages in arrears has doubled, according to UK Finance data.

If you feel you have no choice but to sell, you have a choice over whether to sell vacant or with the tenants remaining in the property.

Selling with tenants in situ may appeal to another buy-to-let investor, who will be guaranteed tenants and rent from day one.

However, it may also have the opposite impact on a prospective buyer who intends to live in the property.

It’s worth bearing in mind that if you do end up selling to an owner occupier then you will need to give your tenants at least two months’ notice, which could potentially slow down your sale.

We decided to seek the advice of a mortgage broker, a lettings agent and an estate agent on the matter. 

We spoke to Howard Levy, director of buy-to-let lending at mortgage broker SPF Private Clients, Katinka Hill, regional lettings director at Chestertons, and William Pasquali, an associate director at the estate agent, Hamptons.

Is it better to sell as vacant or with tenants in situ? 

Estate agent, William Pasquali, replies: Navigating the waters of selling a property with tenants in place can be a complex process. 

If you choose to sell with vacant possession, investing a bit of time and money to smarten the property up for sale is a wise move. 

We also often suggest virtual staging – it’s a small cost, from as little as £40 – and is very effective. It works especially well for flats, and helps prospective buyers picture themselves living in the property. 

It’s the perfect solution for an empty, furniture-less property that can end up looking quite soulless and uninviting. Virtual staging will at least help the property look at its best online and on all the marketing materials.

If you decide to sell with your tenants in situ, it’s essential to maintain a good relationship. 

Offering a rent reduction for their inconvenience and arranging set times and days for viewings can make the process smoother. 

Furthermore, arranging a cleaner for your tenants can benefit them and also ensure that your property is looking its best ahead of viewings. 

Try to avoid a situation where your tenants are moving out and you’re marketing the property to sell – boxes strewn everywhere is not a good look.

In the past, sitting tenants may have been an enticing proposition for buy-to-let investors, offering them immediate income and saving them time searching for tenants. However, there are very few buy-to-let investors in the market and this is an important factor to consider. 

Preparing your property for sale to target an owner occupier might be a more effective strategy.

> More landlords selling properties than buying as mortgage arrears DOUBLE 

Mortgage broker, Howard Levy, adds: Depending on your target market for the sale of the properties, the market rent should give you a steer as to the best option. 

If your tenants have been paying less than the going rate – due to being there for a long period of time, for example – then any investor purchasing might not want to keep them in the property so would prefer vacant possession. 

Also, any future investor will look at the rent achieved when working out yields and returns and could offer a lower purchase figure if the rent is comparatively low.

The final consideration is how amenable your tenants are and the state of the property. 

To get the highest purchase price, you would want the properties to look their best. 

This would most likely be achieved after the tenants have vacated and you have given it a fresh lick of paint and addressed any obvious issues. 

With this in mind, thinking of the properties separately might also be best. 

You could sell one first and the other later on, giving you at least one income while you go through the sale process on the first home. 

The advantage of having the properties empty is that access would be much easier and more immediate for each viewing, so hopefully any sale can progress quickly rather than trying to encourage tenants to move out after you have agreed an offer.

When should they serve notice on the tenants? 

Letting agent, Katinka Hill, replies: If you decide to serve notice on the tenants in order to start sales viewings, we recommend giving your tenants as much notice as possible. 

If they have to move out, they would require adequate time to find a new home and would undoubtedly appreciate being informed as early as possible.

If you think there is a chance you won’t go ahead with the sales, for example if you don’t get the asking price you were hoping for, you could ask your property manager or agent, if you have one, to speak to the tenant and explain that there could be a chance they might be able to stay at the property depending on how the sales viewings go. 

One option could be to serve three months’ notice and use the first month to observe how much interest there is from potential buyers.

An important factor during the sale of your property is that the tenants allow access with 24 hours’ notice for viewings, the property is well presented and that there is a vacant possession when the sale completes. 

There is a risk that the tenant won’t leave, but this only happens in the minority of cases. 

In situations where there is a good tenant and landlord relationship with an upfront conversation, the situation should be less stressful for everyone involved.

What else should the landlord consider before selling?

Howard Levy adds: Without knowing the precise numbers it is difficult to be too specific, but as a starting point it is worth speaking to your accountant about the timings of any sale. 

Capital gains tax might be incurred, and timing the sales across two different tax years might be an option. 

For example, selling one property this tax year and the other in the following tax year could ultimately save you thousands of pounds, and be a better solution given the tenancy expiration timings.

You could also consider refinancing using base-rate tracker mortgages with no early redemption charges if there is a possibility that you might not sell. 

It gives you the option to also keep the properties, if rates fall, for example, or the properties don’t sell. 

Of course, with a tracker there is also the risk that rates may go up as well, which you need to bear in mind.

Katinka Hill adds: Although you appear to have decided to sell, it might be worth getting an up to date letting valuation to determine if the rent could cover your increased costs. 

This would allow you to hold on to your assets whilst the current tenants won’t be required to move out. 

If you feel that this isn’t an option, you could consider a corporate short-let tenant or renting to a tenant who is renovating their home and therefore needs short-term accommodation. 

These arrangements tend to command higher rents, which could cover your increased costs.