FTB pondering the market

maa299

Hi - I've been considering purchase of a 2-bed flat in north London (round where I'm renting atm), but I'm not sure if you'd say I should be rushing into this. I realise I'm in a privileged position financially, and I don't want to go irrational. I would be a first-time buyer.

I'm self-employed, but only since June last year (I've submitted 05-06 tax return though and have letters from people who pay me), which means I'd only be looking at self cert mortgages at present. My current taxable income is around 30k. My work is secure enough, but should be a lot clearer by next April (and I'd also have 2 years' accounts by that time, so maybe I'd then qualify for lower mortgage interest).

My full deposit is about 140k-150k through inheritance, and there's a further 25k that could come from my parents (purely as an investment). I want to be very careful with these, and avoid using that 25k if possible.

Properties I'm looking at are asking for 265k-285k (I'm hoping someone will take an offer below stamp duty threshold!). I don't want to overstretch in any way.

My rent is 800pcm, and I've a flexible landlord who would be happy to see me stay on (I've already been renting from him for 13 months). I haven't really spoken much to mortgage brokers, but I get the feeling that I would be paying 750pcm max for total of monthly mortgage payment and corresponding service charge/ground rent, so I guess I could be saving money every month. At this stage I haven't bothered with a mortgage in principle.

The only other thing I should state is that I probably won't be in the UK indefinitely (quite possibly as little as 6 or 7 years, but who knows), so I have to take a bit of an investment perspective in this (especially where the deposit is concerned). Wrt the house price crash debate, I tend to believe in a moderate vision of it (and within the next 3 years), but I can't wait for that to happen before I buy...guess I just need to make sure I don't sell & pack up during such a time! I suppose I could let for a year or two (I'm trying to look at flats that should be easy enough to rent out).

If I haven't bored you senseless by this point, do you think I should wait or move? Is there any sense in an offset mortgage (reserving fair portion of deposit as savings)? I have a decent credit rating - do you think I might qualify for a lower interest rate right now through a fast-track mortgage or an online application direct to lender? Or would I be better off finishing the tax year renting and picking this up again in April?

Thanks in advance for any help and thoughts you can give me.

MortgageMamma

HI

To be honest there is nobody who can tell you what is the right thing to do.

YOU have to decide if you are ready and willing to buy right now or if you would prefer to hold off. I can understand you want to make good use of your inheritance, and you are obviously intelligent enought to realise that investing it into property is exactly that, an investment which may go up or down.

You don't say which area you are thinking of buying in as obviously this has a bearing on whether your property is going to increase in value.

Unfortunately as much as we'd all like to nobody can actually predict if we will experience house price crash within the next 7 years, I think the best advice anyone could give you on that point is to keep abreast of the market over the coming years and if you see things getting a little hairy, make a decision then.

As regards Offsetting, it could be an ideal solution for you to reduce your housing costs but still keep some liquidity in your savings. You would be well advised to consult a whole of market mortgage broker to explore all the alternatives to you before you commit to buying.

HTH

MM

UK007BullDog

I second what was said above and would suggest you visit a broker to get some real figures to work with.

If you are thinking of moving abroad then not only do you need to think about the area if you would like to live there, but also if it would be easy to rent out once you decide to leave. What kind of developments are planned for the future and how are the transport links into the city for potential city slickers?

maa299

Thank you MM and UK007 very much for your quick replies.

Since you've asked, the areas of N London I'm considering are mainly Southgate (N14), Oakwood (N14) and Grange Park/Winchmore Hill (N21). I would also consider the west part of Enfield (Enfield Chase) and possibly also High Barnet/New Barnet/Whetstone on the other (Barnet) side.

I'm trying to keep proximity to a Tube station in mind, which would point me to Southgate/Oakwood (Piccadilly) or High Barnet/Whetstone (Northern). Winchmore Hill, Grange Park, Enfield Chase and New Barnet all have BR stations that run into Moorgate, so that suits City lovers.

The main attraction in this part of London is the suburban feel, but some of that is lost when you get too close to a Tube station! With regards to letting, the (loose & sparse!) advice I've received so far points to some BR station areas as being rather "grey" ones (Tube is regarded as a prime amenity). Ironically, it's the BR areas that have unique property conversions (as opposed to the standard purpose build apartments and development/estate flats dotted around Tube stations) which could be improved dramatically. The above BR areas are definitely great places to buy a house and live in for ages (for he who can afford), but to buy flat/conversion + eventually rent out = ???

My work is outside London, so Tube doesn't matter to me other than for leisure. I can also tell you that City workers who live just outside the aforementioned BR station areas can't drive right up to the station and park, because of weekday local business restrictions (and no station car parks for the ones I've mentioned). They have to either park + walk a fair distance or drive to another BR station with a car park (e.g. Palmers Green).

I don't think conversions rent badly per se, but perhaps because they're often to be found more in overground BR areas with more specific (City) demand only, some draw the conclusion - from a BTL perspective - that conversions don't measure up to purpose build! As long as a conversion is made "rentable" (and all conversions I've seen would benefit from some work, most often a second bathroom), I don't see what the great problem is!

Developments for the future: Enfield is getting its shops somewhat improved with a new retail centre (includes bigger Next store) opening in October. There are also a couple of good quality new builds going up in Enfield Chase (good for area?) and releasing by March. M25 J25 (Enfield/Holmesdale Tunnel) is being refurbished and should be finished in November 2007. I don't know too much about Barnet (I live on the Enfield side), but that's a bit closer to Brent Cross shopping centre.

In summary, there's probably a choice of: BR area (more village/suburban feel; more conversions and potential to develop; possibly more difficult to rent) OR Tube area (more urban/generally less pretty; limited scope for improvement and possible resale price capping due to host of other similar properties; probably easier to rent, but certainly no more profitable in doing so than in a BR area).

Thanks again for your help and opinions.

MortgageMamma

Well you seem to know your areas and have researched into them thoroughly enough. What makes you want to buy a flat as opposed to a house? You could afford a fairly decent house with your budget and its much mroe saleable and marketable for rental in the future as families would no doubt want it (better and longer term tenants). It could also perhaps cater better for your own changing needs in the future. You could also look at converting it into a shared hosue when you go abroad and leave yourself a room to crash in if you return to the UK.

I understand what you are saying about transport links but I'm not a londoner, although I do sometimes spend time there in Borehamwood and surrey - most people who don't want a 5 hour commute every day need to be near good transport links so this really does have to be an important factor.

I can't really advise you a lot on location but being close enough to shops, supermarkets, petrol. pubs and recreational facilities, along with schools is a good way to select a potential property.

I can however answer any questions you have on mortgages!

maa299

OK MM, thanks once again.

The only grounded reason I don't want to buy a house is because I don't want to overstretch. However, I think what you say makes sense. There are a fair number of houses under 300k, but modernisation and higher stamp duty are the extra expenses. That's the way I started my search, come to think of it, but then I was looking in some different areas. I'd also like to have the option of some small studio that remains my own even if I rent the rest and leave the UK. Food for thought, and well worth investigating.

The other reason I have may actually be fanciful and quite baseless. I think it's easier to rent to a single professional/couple than to a family, simply because I imagine more demand coming from the former group. I imagine most families in suburban London looking to buy rather than rent. Do you find me completely wrong on this point?

MortgageMamma

I think there is a healthy market for both buying and selling in North London, but I do think you would benefit from asking some questions of local letting agents. How the market is now could well change by the time you go abroad in 5+ years. I think if you are going to buy you should keep abreast of changes in the property market. Before you buy anything, look at si5-7 milar properties advertised through letting agentd that are similar to your intended purchase. 5-7 years is a long way off and you never know what may change between now and then, so you need to buy the very best you can get now and make sure it is comfortable, equipt and suitably located for YOUR needs now, rather than focusing on the future.

Also, if you are worried about on going rental income you could always link up with a local housing association and rent it out that way - they would take care of it whilst you are abroad and guarantee your rent for X amount of time too. Hassle free rental. you might not profit but I expect you will pay the mortgage with the proceeds!

maa299

Alright MM - sound advice again.

The views of some letting agents would be helpful, though it does pay to be careful. In my experience so far, those who let and also sell in the same agency frequently seem to hide certain important facts!

I think I'm going to take my time with this. I'll only ever be a FTB once, so I should prioritise gradually and try to extract value from whatever I make an offer on.

nrsql

My rent is 800pcm,
I would be paying 750pcm max for total of monthly mortgage payment and corresponding service charge/ground rent, so I guess I could be saving money every month.

Probably not. You would probably have extra expenses in owning but you would be getting something for your money.

As to offsets - you have to offset a lot of money to make the extra rate worthwhile but £25k might make it. Remeber to compare the saving with the interest you would get on the money.
You can also get fixed rate mortgages with an offset account which sounds like on odd concept.

maa299

Thanks nrsql. What other expenses am I overlooking? I suppose you mean plumbing and electrical problems only, as buildings insurance would be part of the service charges.

As you say, I'll compare between offset savings and usual earned interest. Do you know if fast-track mortgages are offered to first-time buyers?

MortgageMamma

Yes first time buyers with a good credit score who are applying for a loan less than 75% of property value will usually be fast tracked but this is not the policy of every lender, just some. And they do reserve the right to make income checks at any point during the process.