What route would you take..flat in London vs house outer london?

GDB2222

silvercar wrote: »

I would buy a house now for the simple reason that in 5 years time when you hopefully have children you will be able to live comfortably in the house if you can't afford to move.

I agree with Silvercar (and other posters!). Buy somewhere you can bring a family up in as that is a safe bet. The point is that house prices can go up or down. Nobody knows for sure. If prices go down, you'll be stuck with whatever you buy now, because of negative equity. If it's a house that you can bring a family up in, you're safe whichever way the market goes.

princeofpounds

One point you must consider - transport. It's very expensive in London. If central london transport might cost you a grand a year (rough figures, you need to do your research) and commuting by train might cost you three grand, then that's an opportunity cost of 2 grand.

Divide that extra annual cost of 2 grand by a typical 5yr fixed mortgage cost to capitalise the ongoing payments. What this essentially does is convert between a stream of payments and a lump sum. The reason you would use a fixed mortgage cost of that duration is because it's the market's best estimate of the average cost of a mortgage over the 5yr period, and 5yrs isn't a bad bet for how long you might stay in a property (but it's up to you).

Assuming that is 5% (0.05), then in this example that is equivalent to an extra £40k that you could afford on the mortgage otherwise.

This is only a ballpark figure, and you may wish to offset savings from being out of the centre (cheaper parking, council tax or whatever), but it will give you a sense for the cost of such things. A cheaper house in a bad location is sometimes a false economy (though the space might be worth it).