Rebecca asks:

After being made redundant last summer I started a new job in a different sector in September.  I work part-time, three days a week, as I have an 18-month-old child.  My salary is significantly lower than in my previous job and whilst I’ve never had many savings I’ve always had enough to cover costs.  However, since starting in my new job I’ve been going slightly backwards each month and am effectively being 'carried' by my partner, who’s freelance and who, fortunately, had a very busy and profitable year in 2009.  I am hoping that I will get a pay review in April 2010 but if not I will need to move jobs.

We currently live in a rented flat, but I have a small one-bedroom garden flat in south west London which I bought for £120,000 in 2003 and which I rent out. Should the flat require any work I wouldn’t have the money to pay for it. I’m also only paying interest on my mortgage as I can’t afford any more.

My partner now has some savings and my question is, should I be looking to sell my flat in the spring and pool money together to buy our own three-bedroom property or is it better to keep my flat as an investment?

Most borrowers with a buy to let mortgage have it on an interest-only basis, partly because it’s more tax efficient and partly because the rental income isn’t usually sufficient to cover a repayment mortgage, therefore I wouldn't be concerned that this mortgage is on an interest-only basis.

However, on the key question of whether you should buy a property jointly with your partner as a family home, assuming that your combined income is sufficiently stable (or increasing) for it to be affordable, and that you are settled in your location, investing some of the profit on the sale of your flat and some of your partner's savings in a new home so that you can have the pleasure of living in a more suitable property seems very sensible. This would also give you more security than renting. One note of caution would be your job situation. If you don't get the pay review you expect in April and have to change jobs it would obviously not be sensible to buy a property yet if you might need to move to a different part of the country.

Regarding when is the right time to sell your flat I would not sell it yet if you didn't need the equity (assuming finding a tenant is not a problem) because I expect the low interest rates we are likely to have for some time to help property prices continue edging upwards, especially in London. However, I would certainly sell it if you need the equity and wouldn’t worry too much about the timing. After all, if you sell one property and buy another which will, I assume, be more expensive, if prices continue to increase the value of your new home will probably increase at least as much as the flat you have sold. Obviously property prices don't move by the same amount all over the country but even so, over the medium term, they tend to come largely into line.

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