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Are you planning to jump off the property ladder?

Over recent years there have been many reports about first time buyers that are trying hard to get onto the property ladder, but have had very little success due to high property prices and rising interest rates, as well as the more recent problem of restricted access to mortgages. However, there seems to have been a turnaround, as a recent report has shown that many people are not trying to jump off the property ladder whilst the going is still good so that they are not left saddled with a property that has plummeted and value and possibly left them in negative equity.

The report suggests that many homeowners are now trying to sell up whilst prices are still relatively high, and then planning to move into rented accommodation until property prices fall, at which point they will look into purchasing again. It was revealed that around 20% of those looking to sell up were actually thinking of moving into rented accommodation in order to sell at a higher prices and then buy at low prices once property prices fall, as they are expected to do over the coming year.

A number of industry experts have predicted that property prices are set to fall by 10% or even 20% over the next couple of years, although so far the dips in house prices have only been small ones. If property prices were to fall by 20%, as predicted by one industry professional David Miles, then the average house prices in the UK would fall from £200,000 to £160,000. The survey also revealed that another 14% of those planning to sell were thinking of renting accommodation for a while in order to free up some money from their home and deal with their financial problems.

The survey was carried out by, and an official from the group said that they had noticed a trend where homeowners were selling their properties and moving into rented accommodation, hence the decision to commission the study. He said: 'You expect people to consider renting when the market is falling because there is a chance to make money, but 18 per cent is a high figure.' He added: 'The 14% who indicated they might move to rented accommodation because they have money worries will find it hard to get back on to the ladder if they spend too much of their equity.'

Another industry official warned that homeowners planning to sell up now, move to rented accommodation, and then buy again when house prices fall needed to be careful. He said: 'It's a dangerous game to speculate on the property market with your own home and is not for the faint-hearted. The average property has to fall around 7% in value before you even break even once you take all the costs of selling, moving and then buying again into account. Stamp duty is the biggest cost. For people in more expensive homes, the market has to fall further still - nearer 8%. So you need the market to drop a very long way before this starts to look like an attractive prospect.'

Tom Smith
2nd April 2008

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