Second guessing the property market …
September 6, 2019
Current market conditions
This is a dangerous thing to do, especially in the current market conditions and even more so when selling a rental property.
There are reports at the moment that properties are typically taking between 4 and 7 months to sell, when previously the average time on the market across the UK was circa 3 months.
The property website “Home” calculates the Typical Time on Market - and this reveals the worst regions, which are the East of England (where Typical Time on Market has worsened by 14 per cent in the past year), the East Midlands (+13 per cent), the South West (+12 per cent ) and the West Midlands (11 per cent up year-on-year).
Overall Typical Time on Market across the UK is 93 days, nine days longer than in August 2018, making it the slowest August since 2013.
There are a number of reasons that are causing properties to languish on the market and it is plausible to suggest that the situation is going to get worse before it gets better.
Impact of Brexit
Brexit has been dragging on now for three years and has caused a huge amount of uncertainty - something that always negatively impacts the property market.
The possibility of a “No deal” Brexit is looming larger by the day and has resulted in the property market going into a kind of limbo.
Transactions are down and there is a lot of anecdotal evidence to suggest that both buyers and sellers are keeping their powder dry until things become clearer.
With new Prime Minister Boris Johnson just getting his feet under the table, metaphorically speaking, there is unlikely to be much policy-making, especially as Boris has the summer recess and prorogue to content with, and of course delivering Brexit.
One policy that Boris Johnson has indicated that he is intending to reform is stamp duty. Many people are holding off buying to await what form this takes.
At the moment, landlords and investors have to contend with the 3% stamp duty surcharge, which is very onerous and really slims profits, especially for those undertaking buy /refurbishment / sell.
When asked about the stamp duty reforms, Housing Minister Robert Jenrick replied “wait and see” - a rather unhelpful comment that industry experts say will again result in the market being paralysed by uncertainty as people don’t want to transact on property and then find out a few weeks later that policy has changed and there is now a reduction in the stamp duty liability for their transaction.
Selling a property tenanted
It’s not unreasonable to suggest that a tenanted property may take even longer to sell, due to the following reasons:
- Tenants are entitled to what is known as “quiet enjoyment’ of their rental home, and, even if there is a clause in the tenancy agreement that allows for viewings, they are not obliged to facilitate these. This means that you will have to serve notice on them and wait for them to vacate, before being able to put your property on the market.
- Should the tenant allow viewings, tenanted properties often do now “show” well at viewings, as the tenant is not keeping the property clean and tidy or they may have a lot of clutter or pets.
- It is not unknown for some tenants, who do not want to leave their rental home, to sabotage viewings by making negative comments about the area or the property to potential buyers!
- If a tenant has been in situ for a long time, it may be that the condition of the property has reduced significantly - such as scratched paintwork, stained carpets etc. This means the landlord will have to spend a potentially significant sum of money to bring the property up to a “sell-able” standard to achieve the best possible price. With no guarantee that you will sell the property any time soon, and no rent coming in, many landlords find it sticks in their craw to spend this money, or may not even have the funds to undertake this work at all.
Understanding the financial risk
Of course, numbers never lie, so crunching them helps to understand the possible financial risk of selling a void property:
- If you had the average property earning £900.00 per calendar month with a mortgage of £500.00 per calendar month and you served notice on your tenants, then it would be prudent to be prepared for 7 months of void while the sales process went through.
Your costs might look something like this:
- 7 months @ £500.00 mortgage per month= £3,500.00 in mortgage payments.
- 7 months @ £200.00 council tax per month = £1400.00 in council tax payments.
So with the two major costs that would be a total of £4,900.00 which would essentially come out of your sale proceeds to pay for the property while it was void awaiting sale.
On top of that, you would have standing utility charges, and possibly an increased insurance premium, not to mention having the check the property regularly to make sure it is secure, as empty properties are often targeted by vandals and asset strippers.
There was a recent post on a landlord forum where an empty rental property that was up for sale had been broken into and the boiler and all the copper piping stolen!
The landlord was going to have to board it up to stop it happening again - an additional cost - not to mention the worry and the fact that a boarded up property is probably not too appealing to buyers either!
If you live remote from your property, then you might even have to employ someone to check it on your behalf.
What is the answer?
However, there is an answer of how to sell a rental property without any hassle or financial loss whatsoever, and that is to sell it via the Vesta platform with tenants in situ.
Your tenants can remain in situ, meaning you are collecting rent throughout the sales process. This is especially reassuring as around 1 in 4 sales fall out of bed before exchange of contracts.
Selling a tenanted property through Vesta means that you will be receiving rent right up to the day of completion!
The added benefit is that, if you are continuing to collect rent, and your sale does fall through, you won’t become what is known as a “motivated seller”, meaning you are not forced in a position where you have to reduce the price of the property to facilitate a quick sale.
Vesta has revolutionised the way landlords buy and sell property and creates a rare win/win/win situation.
The seller wins because they receive rent up until the day of completion, the buyer wins because they receive rent from day one of completion, and the tenant wins because they are able to remain in their home and continue their tenancy on with the new landlord.
Get in touch with Vesta today to see how we can assist you in selling either an individual property or an entire portfolio.