Sellers: drop your price and get out now

A stand-off is developing in the property market between sellers and reality. Despite the collapsing market, too many sellers are refusing to drop thier prices in order to sell. Instead, as the weeks pass, they are choosing to hang on to their overpriced properties and rent them out instead. "Homeowners who need to move are switching from selling to letting, preferring to depend on rising rents and yields to keep them afloat as they wait for more favourable lending conditions," says Karen Dugdale in The Observer.

You can see the attraction of this. As far as the optimistic owners are concerned, falling prices are a blip. They figure that if they just hold their nerve by renting out their houses for six months, they'll then be able to get it away at the asking price when conditions return to "normal". Unfortunately, this isn't very likely, not, as Lucy Denyer and Emma Wells in The Sunday Times put it, "with the gloom worsening" and Merrill Lynch forecasting that it will be 20 years before the market regains its highs in real terms. And being a long-distance landlord isn't exactly a piece of cake.

First there is the mortgage problem. Some lenders may require you to switch to a buy-to-let mortgage with their higher interest rates and higher loan to value requirements. Then there are the tax implications. You have to pay tax on your rent (although you can offset your mortgage interest payments against it) and capital gains tax will be due if you sell the home after more than three years of renting it out hence wiping out any gains you may (or may not)make by attempting to wait out the market for that long. Add in voids, maintenance and bad tenants, says Simon Gordon of the National Landlords' Association in The Observer, and amateur landlording could be "a disaster waiting to happen" in the current climate.

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So what should sellers do? Simple. Give up on their 2007 asking price, redo the brochure, and get out. "A lot of people who believed they were sitting on hefty amounts of equity now see it floating off. The fact is it was all just on paper, it didn't exist," says Gordon. So accept your losses, sell, rent, and wait. That way you become "chain-free, deposit-rich and in a very strong buying position", says Catherine Manning of Hamptons in The Sunday Times.