Better to rent than sell?

Higher mortgage rates are reducing buying power which could be as much as 28 per cent if mortgage rates reach 5% by the end of the year, according to a recent report by Zoopla.

The property portal added that despite housing market activity holding up over the summer, the recent flurry of interest rate rises and the prospect of more to come are now hitting home and warns that affordability will likely reach a crunch level in 2023.

There are early signs that price sensitivity is emerging as six per cent of homes listed for sale have seen the asking price adjusted downwards by five per cent or more, the highest level since before the pandemic.

Richard Donnell, executive director at Zoopla, said “For sellers, this means there is more of an impetus to shift their mindset when it comes to asking price, and consider local market dynamics more closely as well as the potential types of buyer for their property in the local area.

“While the recent changes to stamp duty are welcome, the increase in mortgage rates will erode much of the gains. Homeowners that want to sell their home this year need to price realistically.”

For landlords seeking to divest themselves of their rental property, now is not an ideal time to sell. Instead it could be more prudent to adopt a 'wait and see' approach and continue to rent their property.

The recent interest-rate increases could also indirectly benefit the rental market by boosting demand. According to a recent report by Rightmove, a 10 per cent deposit on an average first-time buyer type home is now £22,494, which is 57 per cent higher than 10 years ago - by contrast, average gross monthly salaries have increased by 31 per cent in the same period. With the average monthly mortgage payment for new first-time buyers increasing to over £1,000, many potential buyers will have no option than to rent.

Whilst uncertainty in the financial markets and the cost of living crisis continues, property prices are likely to continue to decline along with affordability. For landlords, this means it may well be better to continue to rent than to sell.

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