The state of the property market: should you rent out or sell your property?

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Man struggling to make a decision of whether to rent or sell his property.

Other than in exceptional circumstances, such as a recession, you’d be hard pushed to find a property in the UK that hasn’t appreciated in value over the years.

The pandemic has caused much disruption and confusion regarding the UK’s current housing market, and it can be difficult to decide what is best for you when selling or renting your property.

So, if you’re a homeowner and you’ve long-debated whether you should sell or rent your property, keep reading, as this guide might just help you make that decision.

What is the current state of the UK’s property market?

House prices are currently at an all-time high. The stamp duty holiday during the pandemic increased buyer interest and is one of the reasons for the rapid growth of property prices — demand increased, so too did supply.

According to Rightmove’s July 2022 House Price Index, house prices in the UK have increased by 9.3% in the past year alone.

But, now that the Bank of England has decided to raise interest rates, many people may choose to cool off on buying a house for the time being and concentrate on saving. And with fewer people looking to buy, rising house prices may slow down.

This increase in interest rates may encourage more people, coming to the end of their fixed terms, to sell their properties while prices are still sky high, along with the interest rates. It’s a real mixed bag.

Pros and cons of selling my house

We’ve listed a few things you should consider before making the decision to sell your property:

Pros

  • You’re likely to make a decent profit – in the last year, UK house prices have grown by 8% in capital gains in the past year, following an increase of 12.8% the previous year.
  • While it’s unlikely that house prices will fall, the rise of interest rates and the reintroduction of stamp duty may lead to stagnation or a slight fall in house prices in the UK. So now might be an excellent time to capitalise on the market.
  • You don’t have to be a landlord! Many potential sellers become ‘accidental’ landlords and all the headaches this brings because they can’t sell their property. So if you’re in a position to sell, now may be a good time.

 

Cons

  • You will be selling off an asset almost guaranteed to appreciate in value.
  • You may be waiting a while to sell your property at a price you want – many buyers might be discouraged by higher property prices and interest rates, deciding to concentrate on saving for when the market changes.
  • Selling your house when prices are high will give you a great return on your home. However, if you plan to buy another house, you’ll be met with the high prices you’d have just benefitted from as a seller, plus added competition from other buyers.

 

So, should I sell my house?

With house prices continuing to soar throughout the pandemic, 2022 looks like a great time to sell your property. In fact, they are at such a high at the moment that you may want to prioritise selling your property sooner rather than later before the market inevitably drops, interest rates rise higher, and buyer interest starts to dwindle.

What is the current state of the UK’s rental market?

According to the ONS, between July 2021 and July 2022, private rental prices rose by 3%, and according to the same report, they currently stand at their highest since 2016. So now would be a perfect time to rent your property out.

There may not be a massive rush to rent your property out because rental yields have increased by 13.9% since 2015, and along with the ongoing demand for rented accommodation — this trend doesn’t seem to be going away anytime soon.

Pros and cons of renting out my house

Before making a big decision, such as renting your property, you want to weigh the facts. We’ve listed a few things to consider below:

Pros

  • It can provide a very lucrative alternative to selling should you want to retain your property. For example, you may be moving away temporarily and wish to move back to your home when you return.
  • You can outsource the responsibility of renting your property to a property agent for a fee. The level of involvement you have is entirely down to you. It will eat into your profits, but you could do very little and benefit greatly.
  • By charging rent, you can make a substantial monthly profit, or simply cover your costs, while continuing to benefit from the capital growth of your property.

Cons

  • Depending on the type of property and issues encountered, maintaining a rental can sometimes cost more than the rent will provide. E.g. you will be taxed if the rental is your second home — that’s before you factor in any damage caused by bad tenants.
  • Paying for interest rates on a second house will be pretty expensive, but you can cover this cost by increasing the rent — passing the cost to your tenant. However, this may price out some tenants, decreasing your pool of renters to choose from.
  • If you are still in the process of paying off your mortgage, you won’t be able to rent your house under a traditional residential mortgage; you’ll need to get permission from your mortgage provider. There are also numerous legal requirements you’ll need to consider as a landlord, such as health and safety responsibilities.

So, should I rent out my house?

The rental market is constantly growing, with a larger percentage of people looking to rent a property. Due to rising property prices, transient lifestyles, or less job security, fewer people can (or choose to) take on the responsibility of a mortgage.

When considering renting your property, you may want to consider conservatively budgeting for only 11 months of rent a year. As most tenancy agreements will last between six months to a year, you’re likely to have a month each year where you’ll be searching for a new tenant; unless you are one of the lucky few who manage to get a long-term tenant or a tenant happy to sit on a rolling contract.

Rolling contracts can also have their issues, allowing your tenant to provide you with a single month’s notice before leaving you with an empty property.

If you’re seriously considering becoming a landlord, we’ve got lots of useful content to help you navigate this exciting process:

A guide for landlords: how to choose a residential tenant

How to become a residential landlord

Landlords: Do you need an HMO mortgage?

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