Nervous about buying in London - advice needed

rainbow_carnage

We're thinking of buying a flat in the next few months. We've lived in the same rented flat for over a decade. It's time to move. In the meantime, rental prices have doubled in our area. Renting is less affordable than a mortgage.

My main concern is that we'd be buying at the top of the market. While prices have come down around the country, they've continued to go up in North London. A middle-sized two-bed flat on our street has just sold for £450k. No only is that way outside of our budget, but it's 12 times the average London salary. Can this really continue?

We're looking to buy in an adjacent neighbourhood, where prices are a bit more reasonable, but I'm still concerned about negative equity. We're not planning on staying there forever. It's a great area for us, but it's not really suitable for the children we plan to have (great restaurants/lousy schools).

My question is, do you think that prices will continue to rise in London in the next 5-7 years? Obviously, no one knows for sure, but I'd appreciate some educated guesses.

Thanks in advance.

Typhoon2000

I think people with average salaries in London look to buy up to the £250k mark if buying as a couple. 4x income maybe with a 20% deposit. You can easily get a 2 bed flat near a tube station for that.
Maybe not in the most desirable location but still more than decent, especially if look south and East.
If the market in the UK starts to improve I assume London will surely follow. A combination of rising population and limited space to build new property will see to that.

rainbow_carnage

Thanks for your reply. I think we can afford £250k. I just don't want to buy at the top of the market and end up in negative equity five years down the line. It's one thing when you're planning on staying in that flat for 10+ years. You can wait out the price fluctuations. It's another if you know you're going to need to sell.

London prices have been buoyed by foreign buyers and cash-rich landlords. The question is, how much longer can this go on? The average Londoner cannot afford these prices. Surely they will have to come down at some point?

MobileSaver

rainbow_carnage wrote: »

We're thinking of buying a flat in the next few months.

The average Londoner cannot afford these prices. Surely they will have to come down at some point?

Supply and demand dictates pricing, property in London in general is not going to drop much if anything as the capital city will always be desirable to an ever increasing population.

Your issue is that you are buying a flat, wherever in the country you buy there is the risk that supply outstrips demand and so prices go down. That's because it is relatively easy to create new flats by, for example, a developer buying one large house and converting that into four or more flats.

Pretty much everyone thinks property prices will stay the same for the foreseeable future so another way to look at your dilemma is to ask yourself which way do you think rental prices will go over the next few years... ?

jc808

why not just buy elsewhere?

SG27

My advice would be to save as much as possible for as long as possible. Even in London it's unlikely prices will rise quicker than you can save! For us living in Essex we saved for nearly 8 years! Over the last couple of years we have been saving and at the same time watching prices slowly fall too so it was a double incentive!

We finally found a house to buy and should be completing in January. We saved up a 50% deposit and still kept money back for fees and contingency! Saving so much put us in excellent position, we picked the best rate on the market knowing we would be accepted (even the estate agent mortgage advisor couldn't believe how good our rate was!) it was also a good bargaining tool as we got a good amount off the asking price and used it for justification when putting in low offers!

So basically my advice would be save save save for as long as you can!

rainbow_carnage

jc808 wrote: »

why not just buy elsewhere?

As in, in another city? That's not an option we'd consider.

Or do you mean in a different area? Our area isn't posh or especially pricey. It's just that everywhere is expensive. We could move further out, where property is slightly cheaper, then commute for an hour each way. But I don't think it's worth it. I don't want to waste 10+ hours a week on a sweaty, cramped tube train to save 5-10%.

The other option is to buy an ex-council flat in a dodgy neighbourhood, which would be significantly cheaper. But then we'd have to live there.

MobileSaver wrote: »

Supply and demand dictates pricing, property in London in general is not going to drop much if anything as the capital city will always be desirable to an ever increasing population.

Historically, that hasn't been the case. London's population was actually shrinking until the mid-90s. Prices were falling. My boss bought her flat 20 years ago. She and her husband were in the early stages of their professional careers. They were earning £15k each. The flat cost £60k, or four times their individual salaries. The same flat is now valued at over 20 times my salary. This cannot be sustainable in the long term. I'm hoping it's sustainable in the medium-term.

SG27 wrote: »

My advice would be to save as much as possible for as long as possible. Even in London it's unlikely prices will rise quicker than you can save! For us living in Essex we saved for nearly 8 years!

Thanks, but I don't think this make financial sense for us. I did some basic calculations of the cost of buying/renting for the next five years. Buying came out significantly cheaper.

I don't know how much it costs to rent a two-bed flat in Essex, but where we live, it's £350 a week. We'd be throwing away over £18k a year. However much you've saved on your mortgage, is it more than you wasted in rent over the eight years?

Also, it's not unheard of for prices to rise faster than savings. Here are the sales prices for a two-bed flat on a nearby street:

1999 - £100,000
2000 - £168,000
2001 - £210,000
2003 - £184,000
2012 - £499,000

Don't you wish you bought it a decade ago?

Hillbilly1

Don't punish yourself over previous prices and any missed chances to buy - if we all had hindsight at the time we'd all be millionaires...

Yes, renting may be cheaper thna buying over the next 5 years, however you need to sort out

1) where you want to be to have children - are there any areas that would fit both needs now?
2) if you couldn't sell the bought property in 5 years can you afford to buy elsewhere and rent it out?

Its easy to look on paper and think "yeah, its cheaper" but you then rely on someone wanting to buy it for a similar price to what you paid. This is not guaranteed and may take time!

We live in North London and are glad we bought when we did! Don't let silly prices put you off. We see some things go up for sale and know they won't achieve what they set out for!

For interests sake, what are your alternative areas?

rainbow_carnage

Hillbilly1 wrote: »

We live in North London and are glad we bought when we did! Don't let silly prices put you off. We see some things go up for sale and know they won't achieve what they set out for!

For interests sake, what are your alternative areas?

Thanks for this.

We're looking at the Harringay Ladder (cheaper than Stroud Green). We're also considering the cheaper bits of Finchley, though we don't know the area as well. A friend just bought a place in Kentish Town, but it's outside of our budget. Depending on which mortgage calculator we use, I think we can do £250-300k. Any suggestions would be much appreciated.

sinbad182

I bought a flat in chiswick 2 years ago and had the same second thoughts and doubts as you are now.

The way I looked at it was that supply and demand in London means that property will always be more resilient to falls than the rest of the country. Also, any slight drop in value will be partially offset by the money you would have spent in rent in that period.

Look at it as a place to live and a long term investment, and don't worry about short term fluctuations.

SG27

rainbow_carnage wrote: »

As in, in another city? That's not an option we'd consider.

Or do you mean in a different area? Our area isn't posh or especially pricey. It's just that everywhere is expensive. We could move further out, where property is slightly cheaper, then commute for an hour each way. But I don't think it's worth it. I don't want to waste 10+ hours a week on a sweaty, cramped tube train to save 5-10%.

The other option is to buy an ex-council flat in a dodgy neighbourhood, which would be significantly cheaper. But then we'd have to live there.



Historically, that hasn't been the case. London's population was actually shrinking until the mid-90s. Prices were falling. My boss bought her flat 20 years ago. She and her husband were in the early stages of their professional careers. They were earning £15k each. The flat cost £60k, or four times their individual salaries. The same flat is now valued at over 20 times my salary. This cannot be sustainable in the long term. I'm hoping it's sustainable in the medium-term.



Thanks, but I don't think this make financial sense for us. I did some basic calculations of the cost of buying/renting for the next five years. Buying came out significantly cheaper.

I don't know how much it costs to rent a two-bed flat in Essex, but where we live, it's £350 a week. We'd be throwing away over £18k a year. However much you've saved on your mortgage, is it more than you wasted in rent over the eight years?

Also, it's not unheard of for prices to rise faster than savings. Here are the sales prices for a two-bed flat on a nearby street:

1999 - £100,000
2000 - £168,000
2001 - £210,000
2003 - £184,000
2012 - £499,000

Don't you wish you bought it a decade ago?

Yes. I also wish I picked the right euromillions numbers last week. In 2002 I had no deposit and was not ready for my own place anyway. I don't think what happened over the last 10 years will ever happen again. The only way prices got so high compared to salaries was but stupid 10x wages 100% and self cert mortgages! This isn't going to happen again.

Its a big difference when you renting though. The only way I managed to save so much is that I still live at home so my rent is very cheap just £50 per week. That's how we have saved so much. But in hindsight, saving these 8 years was absulotley the right thing to do and if wasn't for the fact that I'm now 30 and want to make home with my fianc! I would save for another 5 years and buy mortgage free!