Assumptions
| Original assumed sale price | £400,000 |
|---|---|
| Downside sale price | £360,000 |
| Selling costs | 2% of sale price |
| Interest-only mortgage remaining | £150,000 |
Gross equity proceeds before CGT
| Original case | 10% lower price | |
|---|---|---|
| Sale price | £400,000 | £360,000 |
| Less 2% selling costs | £8,000 | £7,200 |
| Less mortgage | £150,000 | £150,000 |
| Gross equity proceeds | £242,000 | £202,800 |
The property price is 10% lower, but gross equity proceeds are approximately 16.2% lower because the fixed mortgage is repaid in both cases. This is leverage amplifying the change borne by the owner’s equity.
CGT and IRR will also change
A lower sale price would normally reduce the estimated capital gain and therefore may reduce CGT, but it also reduces cash received and the investment IRR. The precise tax effect depends on eligible costs, allowances, ownership and wider gains.
How to interpret the warning
If a 10% lower exit value makes the IRR unattractive or reduces proceeds needed for another objective, the investment is highly sensitive to capital growth. Consider a lower entry price, less debt, stronger recurring cash flow or a larger margin of safety.
Run your own exit sensitivityThe figures are illustrative and are used to demonstrate leverage. CGT is excluded because personal circumstances affect it.