Is selling and renting a good idea?

By MoneyhighStreet Staff. Published on June 15, 2007 This post currently has no comments.

House prices

Many people believe that the boom in house prices is coming to and end and that prices can only go one way now - downwards.

These people are looking to hop off the property ladder and rent in the hope of picking up a bargain once house prices are lower. Is it a good idea to sell and rent?

In our recent feature about where property prices are heading we pointed out that there are confusing signals about the state of the property market at present.

Growth in house prices is still growing strongly in some areas - notably London and the South East - but it tailing off in other regions such as the Midlands.

It's no wonder that people are beginning to wonder if we are at the top of the market and that they should “bank” their profits and move into rented accommodation whilst the market dips to lower levels.

In fact for some people this is a tactic that they have used before. As the house market fell away in Spring 2004, some people sold and them moved into rented accommodation, picking up a similar properties for 30 percent less, eighteen months later.

Risky Strategy

Riding the peaks and troughs of the market in this way can bring rewards, but there is a risk attached as property experts point out.

One of the biggest risks is that one never knows how deep a trough will be, or if there is a market slow down rather than a larger slump.

Once you have signed a six month tenancy agreement you are legally bound to pay rent for that period. In that time the market might have taken off again, leaving you stranded for a few vital moths.

With rents being generally more expensive than mortgages, it has been calculated that property prices need to fall more than four percent to make renting worthwhile, however this fails to take into account the costs as well as the upheaval of two removals.

Strong market fundamentals

Selling and then renting does make sense if you need to move to another area or changes in personal circumstances dictate changes in property requirements. Mostly, though, the underlying strength of the property market means that you should remain on the property ladder.

Despite areas of weakness in some regions, interest rates are still relatively low and demand for housing remains strong, so it is felt that the property market is resilient to downward pressures at present. It is unlikely that there will be a property crash.

As with any major decision, it comes down to your view about the future of house prices in your area. If you are prepared to accept the hassles of two moves and take a pessimistic view about house prices, then perhaps selling and renting is for you.

A more benign view of the prospects for house prices will probably dictate that you stay on the property ladder and ride out any small troughs or plateaus in the market.

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