house buying strategy

Jamsyke

Hi, I'm a bit sketchy on all the procedures and still have some reading to do but I want to see if anyone can spot any problems with what I want to do.

I'd like to buy a new-build on an interest only mortgage as an investment then sell after 3/4/5 years and repeat to gradually move up the property ladder. At the moment I'm single with no baggage so very flexible with all aspects of moving house.

If I'm planning to sell in 4 or 5 years then I don't need to worry that I'm not paying off the capital on the mortgage. The only risk is if property prices crash, am I right?

A new-build is going to increase more over 5 years than an older building and is therefore the better investment, is that generally true? (I'm talking about new apartments).

Normally the advice points to selling your house before you commit to buy but presumably it's different if you're buying a new property. I need the right property to come along at the right time BEFORE I commit to sell.

I live in Edinburgh, by the way. I would say property here is a pretty good investment. Any advice would be appreciated.

Carter_2

Jamsyke wrote:

I'd like to buy a new-build on an interest only mortgage as an investment then sell after 3/4/5 years and repeat to gradually move up the property ladder.

If I'm planning to sell in 4 or 5 years then I don't need to worry that I'm not paying off the capital on the mortgage. The only risk is if property prices crash, am I right?

A new-build is going to increase more over 5 years than an older building and is therefore the better investment, is that generally true? (I'm talking about new apartments).

Not sure why you think newbuilds (apartments) will go up in value more than older houses? I personally would prefer a house and also have heard that newbuilds are overpriced.

I am no mortgage advisor but if you plan on an interest only mortgage and continually move, you will incur the costs of buying and selling (which are hefty!) each time and will eat into any potential increase in value. Plus the original loan is still there to pay off too.

I considered interest only but decided against it. Each to their own I guess.

paint

Hello Jamskye .

Jamsyke wrote:

The only risk is if property prices crash, am I right?

Mainly, yes. But as Carter mentioned, you also need to factor in the costs of buying and selling; which on my last move amounted to around £5,000 (Estate Agents, Solicitors, Stamp Duty). This was on a propertly costing £90,000 about 4 years ago.

Jamsyke wrote:

I'd like to buy a new-build on an interest only mortgage as an investment then sell after 3/4/5 years and repeat to gradually move up the property ladder.

The only way you'll move up the property ladder is if your property increases in value more than other properties. If everything sees a 10% gain, you'll be no better off at all. The house that was 10% too expensive 5 years ago will still be 10% too expensive 5 years later. And you'll have paid nothing off your mortgage.

Jamsyke wrote:

A new-build is going to increase more over 5 years than an older building and is therefore the better investment, is that generally true? (I'm talking about new apartments).

I would be very cautious with this approach, though you would need to research your local market. Where I live, in a Northern English city, there is a glut of new build one and two bedrooom apartments on the market which are being naively snapped up by first time BTL people, 5 years too late to make any real money from them.

There is a real over-supply here, and prices of this type of property have been more or less stagnant for about 3 years now. Be exceptionally careful and research your market. New builds are generally sold at a premium anyway, as the people moving in will have virtually nothing to do. These will be the first to be hit if there is a decline in the market.

7 years ago, I'd say your plan was a good one, though risky. I think now though you have missed the boat.

clutton_2

There is a real over-supply here - this is true in just about every major UK city at present, new builds will lose you money !!

Rimo2021

Don't know where you got the idea new-builds are a better investment - there are almost always overpriced - if you must go for a new-build i would advise going for a house.

Paint is right that unless your property 'beats' the market any increase will just make it harder for you to move up the ladder and in my opinion FTB properties are overpriced therefore are unlikely to out-perform the next 'rung' which is what you are hoping for . It would be more beneficial to you if the market stagnates or crashes. Whether that is likely to happen in Edinburgh (I have owned property here for 16 years) is hard to say.

whambamboo

Jamsyke wrote:

Hi, I'm a bit sketchy on all the procedures and still have some reading to do but I want to see if anyone can spot any problems with what I want to do.

I'd like to buy a new-build on an interest only mortgage as an investment then sell after 3/4/5 years and repeat to gradually move up the property ladder.

Ouch!!!

New builds are generally overpriced, especially flats. There is too much supply, and prices are already falling.

Given that you're Interes-Only, you're speculating on rising prices. Unfortunately prices have already risen by 200% in 10 years, and are unlikely to offer any meaningful gains in the next 3-5 years.

If I'm planning to sell in 4 or 5 years then I don't need to worry that I'm not paying off the capital on the mortgage. The only risk is if property prices crash, am I right?

You could find rising interest rates mean you can't afford the payments, and you've not reduced the amount owed, so you can't remortgage.

A new-build is going to increase more over 5 years than an older building and is therefore the better investment, is that generally true? (I'm talking about new apartments).

Entirely the reverse. Planning regulations encourage vast numbers of new flats (what's an apartment?), which many people don't want - they'd rather a proper English house + garden. Oversupply implies falling prices. In addition, they are nearly always overpriced. You need to compare the cost of the newbuild with an existing property in the same area. The newbuild better not be costing more, because by 5 years it won't be new anymore. Older properties tend to have nicer architecture, character, and gradens

I live in Edinburgh, by the way. I would say property here is a pretty good investment.

Why would you say that? Do you think prices are low relative to earnings? There must be some basis for you to make a speculative, high-risk interest-only investment of tens or hundreds of thousands of pounds?


Do you think this:

http://thehousingbubbleblog.com/
http://housingbubble.blogspot.com/
http://www.patrick.net/housing/crash.html
http://housingpanic.blogspot.com/
http://www.bloggersblog.com/housingbubble/
http://realestatecafe.blogs.com/real_estate_bubble/

won't happen here?

Jamsyke

Regarding the overpriced nature of new builds, which just about everybody has mentioned.....

I was under the impression that if you get in on the first phase of a development and basically buy off the plans the price is cheaper.
I have also found that prices are negotiable.

I realise it's dependant on finding the right property that will rise more than the market average.

Daniel_B

paint wrote:

If everything sees a 10% gain, you'll be no better off at all. The house that was 10% too expensive 5 years ago will still be 10% too expensive 5 years later. And you'll have paid nothing off your mortgage.

Hi paint, just wanted to mention, that as far as I can see it, it will be a worse situation in 3-4 years time.

In that if you want to buy a £150,000 house today, but can only afford a £100,000 house, so you are 50K short of your target.

After 3-4 years, lets specualte the properties have increased by a figure plucked out of thin air, lets say 15%.

The £100,000 house is now worth £115,000, but alas the £150,000 house is now worth £172,500.

The deficit is now £57,500, when it was only £50,000 before, and that isn't taking into account the £1725 stamp duty on the more pricey property.

The only way this method would work that I can see, is if you were planning to leave the conutry with the initial profits.

Dan

Jamsyke

I should also point out that I'll make sure the mortgage has a 10% overpayment option and I will put money towards it when I can.
The interest-only option just brings it to an affordable level, I may only have to do that a couple of times.

I'm looking at buying around £140,000-150,000
My deposit will be around £70,000

Jamsyke

whambamboo wrote:

Why would you say that? Do you think prices are low relative to earnings? There must be some basis for you to make a speculative, high-risk interest-only investment of tens or hundreds of thousands of pounds?

Well my current property has increased around 30% or more in 4 years, based on what similar surrounding properties are selling for, and I don't consider my current apartment to be particularly attractive apart from the location which I think is a big factor.

There are a number of factors on this side of Edinburgh..... The scottish parliament area, which only recently has ceased being a building site. New hospital. Large student population.

A lot of apartments (old and new) are being bought up to rent out to students, not sure whether that is negative or positive.

whambamboo

Jamsyke wrote:

Well my current property has increased around 30% or more in 4 years, based on what similar surrounding properties are selling for, and I don't consider my current apartment to be particularly attractive apart from the location which I think is a big factor.

Wouldn't a 30% increase suggest that prices are *less likely* not more to increase further? I.e., if prices fall they have room to rise, if they rise they are surely not going to rise forever

There are a number of factors on this side of Edinburgh..... The scottish parliament area, which only recently has ceased being a building site. New hospital. Large student population.

Well I'm not sure a hospital does much for property values. I'm sure Edinburgh is v nice with employment prospects and so on, but the same arguments you are using were being used in the US six months ago 'but San Diego has jobs, prospects - prices will never fall'. They do fall. You can have all the prospects in the world, but that doesn't mean that prices are cheap at any level - if it's cheap and good prospects at £50k, it surely isn't cheap at £500k. If jobs pay £30k then housing should cost about £100k.

Just because an area is 'good', doesn't mean that's not already factored into prices - if the good area doesn't cost more than the bad area already, then you'd say 'yes, this is relatively good value'. But if Edinburgh is already more pricey than say Dundee, then there's no evidence that Edinburgh is undervalued.

A lot of apartments (old and new) are being bought up to rent out to students, not sure whether that is negative or positive.

Probably means too much supply, so lower resale values.