Should we buy in London? FTB.

princeofpounds

Buying with a mortgage is just renting the money rather than renting the house. The only difference is that you have title, so you have the rights and responsibilities of ownership, and you get to capture any moves in house prices - up or down. (or another way of looking at it is that the house prices inflate and the mortgage doesn't, being a nominal rather than real terms financial obligation.)

Frankly, buying for 2-3 years is stupid unless you are sure prices are going to increase markedly. The transactional costs are far higher than for renting. Stamp duty, lawyers, estate agents, mortgage arrangement fees and so on all cost big. Then you will need to foot the bill for all the maintenance on the house, which most FTBs totally underestimate. So you need to overcome all those hurdles before you think about making a profit and particularly so because those costs need to be spread over only a couple of years.

Another thing to understand about repayment mortgages. When you start paying them, in the first few years you pay almost NOTHING off the value of the mortgage itself. The proportion of capital repayment vs interest payment in a mortgage looks a bit like this:



So frankly in terms of repayment you will only own an extra % or two of the house as you did in the beginning. You will not be building up significant equity through repayments.

Finally, I know a lot of people who have done the 'move to London'. Almost always they arrive in an area, actually discover the city and then realise they should have moved somewhere else. Tying yourself down as a novice would also be foolish, so even if you did want to pursue buying I'd recommend you rent and visit areas over a year or two first.

singingkettle

If you want to buy, Id do so up norf, then rent the place out whilst you are in that there London, and rent in London.

Cornucopia

princeofpounds wrote: »

Finally, I know a lot of people who have done the 'move to London'. Almost always they arrive in an area, actually discover the city and then realise they should have moved somewhere else. Tying yourself down as a novice would also be foolish, so even if you did want to pursue buying I'd recommend you rent and visit areas over a year or two first.

This is very true. Places that are literally a mile apart can be unimaginably different e.g. Deptford and Blackheath, or Dulwich and Peckham.

dtsazza

Cornucopia wrote: »

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.

This is absolutely true in the longer term - locking in your "rent" in nominal terms, and having it reduce it as you pay down the capital rather than rise in line with inflation, does give an advantage to owning over renting. Inflation is also good news for capital gains arising from house prices - even if prices stay static in real terms, they'll nominally rise by 2-3% per year, which with the leverage from a 20% deposit is a 10-15% nominal return on capital.

However, none of this really kicks in during the first 2-3 years. As princeofpounds' graph shows, there is very little capital repayment, so interest expenses don't really move. And in the short term, the fluctuations of the housing market have a bigger effect than the 4-6% expected nominal term increase. Which is why I emphasised the short-term effects above.

The financial benefits of owning arise from returns compounding over the years, enough that they more than offset the upfront costs of buying. And quite simply, this isn't going to happen over a short period of time.

Cornucopia

I suppose it's about what years 1-3 actually are - how certain to move etc.

Obviously, you need years 1-3 in order to get to years 4-25. Or in other words, there is a cost to delaying purchasing, and the question is whether moving costs at year 3 are more or less than that.

orcocan

coming to London and buying in an area you know nothing about when you already know you're moving back in two or three years is absolute nonsense if you ask me

orcocan

singingkettle wrote: »

If you want to buy, Id do so up norf, then rent the place out whilst you are in that there London, and rent in London.

it would be a good idea if it wasn't tax inefficient, and if house prices weren't falling up north (at least in real terms)

Fire_Fox

singingkettle wrote: »

If you want to buy, Id do so up norf, then rent the place out whilst you are in that there London, and rent in London.

This, pick the place right and you can make a profit. If you have a decent deposit - assume you do if you are considering £200K London place - you could buy a repossession at auction for a steal.

jeffrey_williams

Hey there,

In london according to a article published in this money you can possibly buy a property somewhere near South East London's Thamesmead areaeven though profit is not something that you are looking at but the property must reap some profits as it would help you when you are buying a property up north. First time buyers you can surely try the available schemes to get an idea of the mortgage that you eligible for then you can think about weighing those options to come to a decision.

Thomas George Cardiff.

ozzage

I say forget about it.

Rent in a decent (not posh, but not completely crap) part of London which gives you a reasonable lifestyle for your 2 or 3 years and enjoy your time in the city.

Financially I reckon you won't end up worse off after all the buying/selling costs (I doubt prices are suddenly going to JUMP) and you'll have a better time than living somewhere out in zone 63.