First Time Buyer - Now or Wait?

SimonC_4

I just wondered what people thought in the following situation:

Background:

Living in London, renting a 1-bed flat at £800/month

Combined income with partner is c£45k 2006/7. Combined income will rise to c£65k 2007/8, then progress in line with inflation.

Current liquid deposit savings of around £10k. Likely to rise to £30k when a share saving scheme matures in 2008 - plus a bit of additional saving means we could be looking at £35k within two years.

Still eligable for some form of First Time Buyer mortgage, and my partner will soon be eligable for a Keyworker allowance / mortgage as appropriate.

Scenario:

Originally I had intended we would buy in 2008 - we'll both be on good salaries by then, with a fair deposit. Ideally I was aiming to buy a 2 bed flat in Zone 2, which would cost (at current prices) about £250k - after costs we'd probably be able to put down at least 10% as a deposit, and on an affordability based mortgage we'd get a good multiple as we don't spend much and have little / no debt.

However, I'm starting to get frustrated at spending £800 a month on rent. I'm therefore wondering if we might be better off buying now - £180-200k on a 1 bed flat, live in it for 3-4 years before moving to something larger prior to having children.

The benefits I can see are that we'll be contributing to our equity position rather than giving the money to someone else each month, and that we're then hedged against further rises in property prices.

Downsides are that we're buying something that doesn't suit our long-term needs, that most of the mortgage payments in the early years go on interest anyway, and that we'll get no return on the money spent on stamp duty, solicitors fees and other house-move costs. We're also far more leveraged that if we wait - most of the 'deposit' money will be eaten up in fees, giving us a high LTV and a high income multiple to afford a property. We're also going to be slower to react if/ when a larger property like we want comes onto the market in the future - in essence we're giving away our FTB advantage.

Is anyone able to provide some advice on what a sensible course of action might be? Thank you very much in advance.

hethmar

Oh dear, difficult one, eh? Dont really have any solid suggestions except - £800 a month - how much would that pay on your mortgage?

Is Zone 2 in a regeneration area? In which case you may find the flat would be stamp duty exempt - check with estate agents - I know people who wasnt aware of this wrinkle and spent years trying to get the stamp duty back.

But, I do get a strong feeling you really feel you shouldnt buy now.

No one knows what the future will be - we could have stagnation, a rising or falling market, but you want your own home and why worry about it being too small in 4 or 5 years time? By then you will have some equity (hopefully), be on a rising salary by the sounds of it and in a position to find a bigger place.

Try to think of the puchase for nesting not investing and it may help you make a clearer decision

But if you are nervous, stay put if you feel you will find it difficult to handle all the stress involved. .

Good luck - count your blessings that you are in a very secure position by the sounds of it.

Tassotti

It is a difficult situation.

When I was in the same situation 5 years ago, people told me to wait, as prices would drop. ....

I would look at moving slightly further afield (but within commuting distance) and buy a 3 bed house.

By 2008, there is no way you will able to afford a 1 bed flat in zone 2.

Get a nice 'home' and enjoy it. Little bit of travelling, but so what?!?

Tass

Jorgan_2

Nobody knows what prices are going to do, up, down or remain static. Many people assume prices will continue to rise as that is all they have known in their time as home owners.

I started in Estate Agency in 1991, not a good time to be buying or selling a property with high interest rates, repossessions at an all time high, however people still bought houses. They did so because they felt it was right for them.

Try & work out all your calculations on paying higher interest rates, say 6-7%, calculate moving costs if you buy the one bed, say £10k, what about if the property drops in value, can you afford to move if the one bed drops by say 5-10%?

Decide what is best for you & go from there.

Bargain_Rzl

To the OP - I know this doesn't really answer your question but there are "scruffy but really convenient" parts of Zone 2 where you could currently buy a reasonable 2-bed flat for under £200k ... For example, the 2-beds in the brand-new block where I'm currently buying a shared-ownership 1-bed are valued at around £180k ... That's on the London side of Peckham, which is fabulous for buses and which is due for some transport improvements, also it's only a mile outside Zone 1! ... Also try Bermondsey, New Cross, Deptford and Lewisham ... All have areas which are not horrible, and you could find something quite new and low-maintenance for around £170k ... New Cross should be a good investment because of the East London Line extension ... Dare I suggest you might be being a little bit picky in your choice of area?

Tassotti

I can get to London bridge in 30 mins and you can buy a 4 bedroom property for £200,000, 3 bed £170,000, 2 Bed 160,000

depends what you want..you thinking about expanding.

LeanneF

Simon,

I emphasise with your dilemma entirely having considered the very same choices as you last year. But they don't call it a property ladder for nothing. Also, 3/4 years isn't long-term, I'd say it's more short to mid-term...so what about looking at 2-bed garden flats? You'll probably need to look further outside zone 2 though. If you got a fixed rate for 2 years, then when your share saving scheme matures you could use the money to reduce the mortgage when you re-mortgage.

hechizero

Sorry to poke a finger, but fixating on zone 2 will be to your determent. Also, in 4-5 years you may have split from your partner and decided not to have kids - you have to be pragmatic. We all like to plan for the future, but do you want to bring up children in zone 2? If not, buy a flat for now, in the location you desire and if any of the other stuff you talk about materialises, then you can upgrade to the suburbs if required. Who knows what will happen to property prices, the thing is rents will not be going down if property prices crash...imo

F_T_Buyer

If any FTB is worried about finances when buying you really need to open your eyes.

I can't believe how a FTB is serious about getting into the market, virtually all the elements supporting the market since 2004 have gone, or is rapidly going.

- interest rates are rising (short and long)
- living cost inflation accelerating
- unemployment rising
- carry trade ending
- credit tightening

And look at all the people justify investing in property... "ah, but it will go up in value". Now watch sentiment...

libitina_2

Bargain_Rzl wrote:

Dare I suggest you might be being a little bit picky in your choice of area?

Surely on a combined wage of approx £45k they're entitled to be 'picky' about the area they want to live in?
A few years ago you could get a nice house in a nice area for that amount. Now, you consider yourself 'lucky' to be able to afford a grotty flat in a grotty area.