Mr Mandelson, who stands to make a pounds 300,000 profit on the house in just two years, will buy a flat. But he is unlikely to move to a more downmarket area; friends suggest he will stay in or close to Notting Hill.
The former Trade and Industry Secretary will use the proceeds to pay off the pounds 373,000 personal loan from Geoffrey Robinson, the former Paymaster- General, which enabled him to buy the four-storey Victorian terrace house for pounds 475,000. He also took out a mortgage with the Britannia Building Society.
Last month's disclosure of their arrangement provoked the resignations of both men and the departure of Charlie Whelan as press secretary to the Chancellor, Gordon Brown.
Mr Mandelson hopes the decision will enhance his prospects of returning to the Cabinet before the next general election. He said yesterday: "I want to repay Geoffrey Robinson's loan because that's the right thing to do ... It is a necessary step to sort everything out."
Mr Mandelson said of his house: "It's not huge, but it is nice, in a good street with smashing neighbours, and I will miss it."Reuse content