While many people have made a fortune out of property in the UK over the past few years, some have lost a packet – even as prices continued to rise. These are the so-called ‘Sell-to-Rent’ brigade, who attempt to time the peaks and troughs of the house price cycle by selling their home at the top and then buying after the presumed house price crash.
With prices finally wobbling and the credit crunch making terrible headlines every day, now looks a great time to sell-to-rent. Flog your home for £350,000 and you might be able to buy it back in five years for £250,000!
Happy times? Perhaps, but remember:
- 2005 looked a good time, too (prices dipped slightly when interest rates began to rise)
- 2003 also looked a promising time to sell (the onset of the second Gulf War led to a plunging stock market and global gloom)
- 2001 saw the earliest sell-to-renters make themselves known (this was around the time that London property first passed through its long-term price-to-earnings average, which has historically been a good barometer as to the future direction of house prices. It’s proven very unreliable in this era of low interest rates)
Now London property blog The Rat and Mouse notes that the sell-to-renters are back, going on to warn that:
Few financial decisions are as risky, or real-world calculations as tricky… taking in the cost of storage, rents (which can go up and down), the costs of selling and buying, the value of time, inconvenience and risk, all multiplied by however long it might take for prices to start to drop and then assuming it’s possible to buy in just before everybody else does. The chances of getting all this right are low.
Too right. I’ve not sold-to-rent, but I hold my hands up as a would-be first-time buyer who has sat out the property market for several years now, most recently believing that property prices are unjustifiable if you compare mortgage costs with rent.
It’s been a costly error. You gamble with the Great British love of property at your peril.
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Yup, I am in the same boat. Looked to buy a condo in 2002 and decided that it wasn’t worth it (a friend asked me to move in a rent-controlled apartment in a hotspot).
Oh well, I could have been well on my way to retirement had I used the money that would have been available for refinancing to purchase yet more real estate.
Maybe that is why I am enjoying this downturn so much. But “vindication” that prices were too high still doesn’t mean that I am really better off than had I speculated.
I think UK property is very much influenced by Greater fool theory – that and the “my house is my castle” mentality of the british public.
Then again, property has bounced back so maybe the investors had the right idea? Just maybe? 🙂
@AquaDaily – You’re right, property has surprised everyone I think it’s fair to say. Some of that must be due to the incredibly and unsustainable low interest rates though – it’s a risky trade in the medium term.