Should we buy in London? FTB.

potential_ftb

Hi, I'm wondering what other people would suggest to our current situation!

My boyfriend and I live in the North and are consdering a move to London for a few years, for work reasons and also we like the idea of a few years living in London before we have a family.

We have been saving for a deposit to buy somewhere so have a bit of cash put aside - I can't stand the thought of going back to renting (currently living with parents!) and eating away at our savings. So - should we buy a flat in London even though it would only be a 2/3 year move?

I'm considering new build as it should have less maintenance issues, I know we will pay a premium but hopefully when we come to sell we would at least make our money back - am I being overly optimistic?

I'd appreciate any advice/thoughts. Thanks!

kingstreet

You'll need a deposit of 15% or more, possibly 20%, for a newbuild house. It will be even more for a newbuild flat, unless you go for one of the schemes, such as Newbuy or Firstbuy.

BitterAndTwisted

New builds carry a premium which you won't get back when selling a second-hand property. Once you've factored in agents selling-fees of 1% to 2% and moving costs you may not come out with much of a profit after only a couple of years. I suggest you look at it more long-term and avoid one-bedroom flats which are harder to sell or shared equity/shared ownership.

potential_ftb

I think we would consider one of the schemes such as New Buy or First Buy - we certainly wouldn't have a 20% deposit!

As for making profit - if we could make back what we pay for it then that would be fine - is this un-realistic?

Obviously we are new to the world of house-buying, and buying in a new area is daunting but I don't think I can face paying thousands in rent over the next few years so would really rather buy a property even if just for short term. I'm hoping this doesn't sound incredibly stupid/naive!

dtsazza

potential_ftb wrote: »

Obviously we are new to the world of house-buying, and buying in a new area is daunting but I don't think I can face paying thousands in rent over the next few years so would really rather buy a property even if just for short term. I'm hoping this doesn't sound incredibly stupid/naive!

I'm afraid that one way or another, you will be paying thousands of pounds in rent over the next few years.

If you're renting, you'll pay hundreds of pounds a month in actual rent in exchange for being able to live in a property. If you buy, you'll pay hundreds of pounds a month in interest in exchange for being able to live in your property.

I don't mean to imply that buying is bad - just that you seem to have an asymmetric view, whereby rent is "wasted" money yet you've ignored the fact that mortgage interest is also "wasted" money. Compare the costs of each side by side for a more accurate comparison, rather than dismissing one based on a more emotive (and inaccurate) assessment.


In terms of your actual question, the price of the property would make a difference. Buying a property in London (even as a FTB) could easily involve something over £250k, and hence in the 3% stamp duty bracket (£7.5k+). This means that, in addition to your survey/conveyancing/moving/misc fees, property prices need to rise an additional 3% just for you to not make a loss.

While no-one can see the future for sure, I think it looks unlikely that house prices will rise enough in the next 2-3 years to offset the depreciation of a second-hand property, and the costs of buying. Buy if you really want to and it makes you happy, so long as you're aware there's a nontrivial chance you'll get back less than you paid.

Bazshawkins

Where do you plan to go in 2-3 years? Move back up North?

You'll obviously get more for your money if you go back north, so does a profit matter that much?

potential_ftb

Yes the plan is to move back up North after a few years, where our money will buy us more than in London. We are happy to buy a small-ish flat in London for less than 200k and then hopefully we can upgrade to a larger property when we move.

No we are not bothered about making any profit, it's more a case that we want to buy at some point, so might as well buy now and start paying into something rather than paying more rent into nothing! Does that make sense? I know there will be fees to pay, but even renting involves some degree of fees, we know that moving is expensive. Also we can only dream of paying over 250k for our first place so stamp duty will be in the lower bracket, thankfully!

I suppose the real issue is how much can we expect the value of a new flat to drop over 2/3 years?

BitterAndTwisted

I think you're looking at it @rse-backwards. Even if the £200k property you choose to buy keeps its value to the penny you will have the following costs:

To buy.
Survey £1k as an absolute minimum
Stamp duty: £2k
Conveyancing to buy: £1k
Moving expenses: £1k


And then to sell again:
Estate agent's fee (1% to 2%) say £2k as an absolute minimum
Conveyancing: £1k
Moving expenses: £1k

That's £9k before you've bought a stick of furniture or paid a single penny off the mortgage.

So, as you can see, moving down here for only a couple of years might not necessarily make you a cent and could end up costing you a fair sum.

kwmlondon

I can make one suggestion - buy near the Surrey Canal Road overground station that's due to open in 2015. It's a bit of a dead area for public transport at the moment but when that station opens up it will be well served. It won't net you a huge profit, but it may cover the costs of buying and selling and if you get a 2 bed place you can rent out a room and cover some of the mortgage. Just an idea.

dtsazza

potential_ftb wrote: »

No we are not bothered about making any profit, it's more a case that we want to buy at some point, so might as well buy now and start paying into something rather than paying more rent into nothing! Does that make sense?

Not really.

If renting a place costs £800/month, and you can buy a similar place with a £240,000 mortgage at 4% interest, then you'll be spending £800/month either way just for the sake of living.

Now, if you take out a 25-year repayment mortgage, you'll actually make payments of £1,266.81/month - £800 interest, and £466.81 capital. The only reason you consider this "paying into something", is that you're forced to make the extra capital payments, which is a form of saving if you will. The £800/month on interest is going to nothing just like rent would be.

You could do exactly the same thing during renting, by paying £800/month rent, and £466.81 into a savings account. This would cost the same per month as the mortgage, and would (in the short term) have the same effect on your net wealth.

This is what I meant above about the illusion of "renting = wasted money, buying = you own a house outright after 25 years". You're not comparing like with like.

Cornucopia

The problem is that you won't have a house after 25 years if you just save £466 per month.

And in the longer term, the rent payments will increase with inflation, and the house payments (neither interest or capital) won't.