Husband thinks timing good to sell family home and rent. Is he right? Post Reply

[Scout]

My husband thinks it is a good idea for us to sell our family home and rent because he believes house prices are going to go down over the net couple of couple years. He thinks if we sell now, at the top of the market - in his mind, we will be in a better position to upsize later on. I don't feel equipped to argue but I am very scared of removed as this is a word used by spammer our family home. It feels like too big a risk.

Could anyone give me a non emotive perspective on how correct he might be?

[chorister]

All I can tell you is that some next door neighbours of ours did that last time this happened to house prices in about 2010 and it ended very, very badly.  You need to decide whether your house is your home or a financial asset.  Hope that helps - you are right to be nervous.

[Goldhawk]

Depends how much equity you have
Inflation will eat away at your capital
Rents are high in London and rising

Someone I know did this and the market rose and they were priced out - they went overseas in the end

[Jonny Dyson Property Consultants]

Hi Scout,

Please please please don't do this. As both Chorister and Goldhawk have said, this idea is fraught with danger and I have NEVER in 25 years in the property industry known this to work out well. In fact, in a similar way to Chorister I know someone who did this 10 years ago and is still paying a (rising) fortune to rent and is completely priced out of the market now.

Is the property market likely to crash - I'll stick my neck out and say that it's highly unlikely - interest rates may have risen recently but due to the banks stress testing borrowers, most people are not so heavily leveraged against their property that they will become distressed sellers.  Equally many people are locked into five year fixed rates that will not come to an end for another few years by which time the current interest rate rises will hopefully have calmed down.  Finally, remember the transaction costs - for an average between the commons home this is around £100k so on a £1.5m house you would need prices to drop by around 7% just to break even, let alone when you factor in the cost of renting.

At the end of the day your house is your home, not just an asset that you should play with like stocks and shares - I'm happy to have a chat over the phone or in person if it helps.

Jonny

[TFP]

it'd be unlikely to work out imo, though it's possible of course.

if you'd owned in the late 80s, sold up, and then snuck back in a few years later, it'd with hindsight I daresay have worked in your favour, but primarily because interest rates were so high back then that renting was a good bit cheaper than the interest costs on a high LTV mortgage (or alternatively, if you'd sold up with low LTV you'd have earned a lot of interest on your deposit). I can't think of any other recent period where the same is true. and the above would only have worked out if you'd timed it within a year or two of the with hindsight absolute best time, which of course is very difficult to do. it's true that these days rental yields are lower than they were back then, and that interest rates are rising, but only from a very low base. the really punitive stamp duty you pay on expensive houses these days doesn't help either.

[M.B.]

Hello Scout,

The real estate market has only been one way for most of the last 3 decades: up.
Which means that most of us have only known a rising real estate market.
This was in conjunction with interest rate going down.

As interest rates are now rising, Real Estate prices would have to go down.
If we knew for sure that interest rates were to rise continually over the next few years, real estate would have to go down.

At the same time as we are having inflation (the reason why interest rates are going up), we have a growing risk of recession (due to rising rates), which could lead in term to decreasing rates..
It is not clear yet how real estate prices will behave in the scenario of an economic recession.

A long answer short: your view on which direction will real estate prices go will depend on your view on which direction inflation and the economy, and as a result interest rates, will go.

[Denwand]

Just to add yet another anecdote to underline the probable danger of this approach.

A friend had a 3 bedroomed terraced house in Fulham and he was convinced that house prices would slump after Brexit - They didn't - He had expected to be able to afford a 4 bedroomed house in Fulham once prices slumped but in the end was priced out of Fulham entirely and had to buy a house in the cheaper area of Tooting.

I well remember how depressed this made him as he was more than happy where he was originally. He described that it was a gut-wrenching experience to see houses in his old street selling for much more than he received when he sold.

[Becareful]

I can see your husband’s logic, and we benefitted from buying at the bottom of the market on our last place. The difference was that we held our existing property and remortgaged that to fund the new one. Rising inflation should erode the value of your mortgage and it may be prudent to focus your efforts on paying your mortgage down, if not off. You’ll then be in a much stronger position when prices have bottomed out. Your salaries also will likely have benefitted from a few years of increase due to inflation - meaning you may be able to borrow more for that bigger house later on.

Like most investment decisions, by the time people realise the market is about to fall - it already has. I would argue that the top of the market was just over a year ago. People are feeling much more cautious and property prices have already started to stagnate and drop. Agree with others that it is better to hold your asset as prices in London tend to stall rather than free fall in times of economic uncertainty.

[Astolat]

I agree with the above poster, the top of the market has been and gone.

Even if there’s a repeat of the financial crash and London prices drop 15% a lot of that would be swallowed by moving costs.

If you buy and sell a £1.2m house it will cost you around £80k in stamp duty, move costs and 2 years rent. You ‘might’ get a place at a 15% discount on last year but that’s only £180k so a relatively small difference for the risk.

The flip side is you sell up and rent, incurring the costs, but prices don’t drop or (unlikely) tick upwards. Then it’s an expensive mistake.

[Smeee]

Considering that you will incur stamp duty, legal fees etc. on a £1.5m house that’s circa £100,000. So you will lose money unless house prices fall at least 7% , and ….. you need to time sale and repurchase perfectly and you need to find a house you want to live in in 2-3 years time and you have to outbid rivals and you have to make sure that vendor doesn’t pull out and you need more favourable mortgage terms than you have now and you need to put up with not living in your own home. And after all of that (if it goes perfectly) … what will you gain?

[Smeee]

Considering that you will incur stamp duty, legal fees etc. on a £1.5m house that’s circa £100,000. So you will lose money unless house prices fall at least 7% , and ….. you need to time sale and repurchase perfectly and you need to find a house you want to live in in 2-3 years time and you have to outbid rivals and you have to make sure that vendor doesn’t pull out and you need more favourable mortgage terms than you have now and you need to put up with not living in your own home. And after all of that (if it goes perfectly) … what will you gain?

[SkyMother]

You need to decide if your house is your home or an investment.

You may make money in house prices dropping (that is debatable), but you need to take into account cost of
- moving
- rental payments vs mortgage repayment (rent is not repaying for anything where else mortgage is paying off your mortgage)
- stamp duty

Also, at the inflation we are currently at, money in the bank just looses its value. Will you invest the money you make by selling the house to something else that you considered a better investment?

I am not trying to put you off, everyone should do whatever they want with their money. But there are a number of factors to consider in addition to actual house prices.

[Torcat]

Oh gosh, please avoid this like the plague! I think we have been waiting for house prices to crash since the 90s, and yes, they have gone down at times, but overall they are up, up, up! Unless we suddenly build millions of homes in desirable locations, the law of supply and demand is always going to prevail. I know someone who even moved abroad 15 years ago, because they reckoned that prices would crash and that the fall-out for the economy would be so horrific that they didn't want to live here. This was a really smart guy, financial analyst, but well.... he is still abroad, his wife and children moved back home without him and prices have not crashed. As others have pointed out, prices would have to drop a lot before you made good on the cost of moving, estate agents' fees, stamp duty, moving costs....

No one has mentioned the uncertainty of renting and the impact on your children. Another person I know, who moved back to London 10 years ago, has been renting whilst waiting for prices to drop.... well, they are still renting and have moved 4 times due to landlords wanting to sell their properties or move back in. They feel completely unsettled and hate the fact that they can't even decorate their home as they want, or put a picture up! Even if you were to make some money on the course of action suggested by your husband, do you want to put your children through this?

[dudette]

We did this a decade ago. We wanted a bigger house but the sort of house we were after don’t come onto the market that often so we sold to put us in a better position to move quickly when the right house came up. The upside is that we do now have the perfect house for us; the downside was three years of renting (two years in one house and one in another) which was unsettling and neither of the rental houses were as nice as our previous house. They never really felt like “home” and these were years when our kids were small and memories were being made. I don’t have particularly special memories from either of those houses and although I love our current house I can’t help feeling we could have probably bought it anyway without selling the previous one. As someone else said - houses are not just commodities - they’re your home.

[Kirstie’s Mom]

I have seen people do this over many housing cycles and it has always ended badly . Stamp duty and taxes make this even more of a difficult proposition . If he feels this way about housing tell him to short property shares or look into options . Yes rates will rise and housing should suffer but there are other ways to make money without risking the family home which is a home not a commodity . Renting is also very expensive and unsettling.