Should I buy a flat in London right now?

Snakey

I bought last year and have not regretted it. It's so much nicer being a homeowner than a tenant! Even though everything is now my problem and not the landlord's.

If I were buying today I'd be looking at one of those ten-year fixes, and then even if things go pear-shaped for you you know that you will always be paying less for your mortgage than you'd have been paying in rent (for the next ten years anyway). I fixed for five years and I think that was the right decision, for me anyway, being fairly risk-averse - I could be paying less right now, but at least I know it won't start sneaking up in a year's time leaving me worrying about where it might end!

Buy for a home, not for an investment. Once you're in, as long as you can afford the repayments then you made the right decision for you and that should be the end of it. It took me a while to wean myself off Rightmove and Zoopla, but you're only going to be able to see patterns over a timescale of a few years so better not to torment yourself (there'd be little point in me selling while in the fixed rate because of the penalty charge, so why was I even looking?).

ViolaLass

agrinnall wrote: »

That's unlikely to be the case with any standard mortgage product, where the point is that your repayments are fixed (assuming no change of interest rate) throughout the life of the mortgage. The proportion of the repayment allocated to capital and interest will change but the total amount stays the same.

And thus reduce with inflation as time passes i.e. £500 a month in 5 years' time will be worth less than £500 a month now.

agrinnall

Bluebirdman_of_Alcathays wrote: »

You mean £937k of course, unless the OP pays £500k to the penny they will "save" money.

http://www.thisismoney.co.uk/money/mortgageshome/article-2859114/Stamp-duty-cut-homebuyers-Osborne-kills-hated-slab-tax.html

Yes, you're right, I hadn't gone into the details and just used the MSE calculator which showed the payments being equal at £500K so I wrongly assumed that anything over that would pay higher SDLT in the new system. But the chart you link to shows that's not the case (and in fact some people paying more than £937K will also be better off).

agrinnall

ViolaLass wrote: »

And thus reduce with inflation as time passes i.e. £500 a month in 5 years' time will be worth less than £500 a month now.

Assuming we continue to have inflation.

Philuk

markyjames wrote: »

I've got 100k deposit and am thinking of investing in a 2 bed property for around £450-500k. I'm a first time buyer so I'm currently wasting lots of cash on rent (1200 per month.)

I'd probably buy in East London (Hackney/Finsbury Park etc).

Would this be financial suicide or is it a great time to buy right now?

Thoughts?

I don’t know who ingrained the idea that rent was lost money as opposed to paying interest on a mortgage...this is scary how many time we come across this incorrect assertion on what is meant to be a money expert forum.

There isn’t much difference between renting a flat or renting a lump sum for money from the bank (mortgage), they are both cost of capital. Just doing quick maths:

Rental

Rent of £1200
Interest on deposit: 1.5% hence £125 a month
Total rental cost £1075

Mortgage

I assumed 3.5% for a 5 year fixed mortgage on £350,000:
£1021 of interest
You are slightly better off, but if the subsequent interest rate after the deal expires in year 6 jumps to 5%, your monthly interest payment will jump to £1,458 a month (assuming you haven’t repaid any capital to compare like for like). In this scenario, it is also very likely that some ISA will offer 3%+ on the balance hence £250 a month on your 100k deposit

As mentioned before, the only way you win by mortgaging is if price of capital goes up and interest rate stays low (they can’t go any lower). No one know how long this will last with the stellar price in London and the historical low interest.

Fraise

ViolaLass wrote: »

Yes, 'might' buy freehold but if you don't, you need to think about the fees. Maintenance 'might' cover gardening but it might not cover new windows etc.

My point was that the OP didn't appear to have considered these factors.

And they need to be able to cope with interest rates being a lot higher than 3%!

But the OP hasn't said he's buying leasehold? So I don't see the relevance. If he does buy an apartment that has maintenance fees he just has to check what it covers, and usually maintenance fees have a sinking fund for things such as new windows etc, but how often do you need them replaced?:

Whether he buys a leasehold flat or a freehold house he's going to have to pay to maintain it, isn't he?

As for interest rates they affect everybody, whatever you're buying, so I don't see the point of that, either. Interest rates will go up one day, no doubt, but even if they went up to 3 or 9% it's still not high. Interest rates were once 17%.

If everybody failed to buy for fear of maintaining their property and interest rates, everyone would be renting, and rents would be even higher than they are now! Rents are already more expensive than most mortgages, so it's a no brainer really

Fraise

agrinnall wrote: »

That's unlikely to be the case with any standard mortgage product, where the point is that your repayments are fixed (assuming no change of interest rate) throughout the life of the mortgage. The proportion of the repayment allocated to capital and interest will change but the total amount stays the same.

You're forgetting something.....inflation.

If your mortgage repayments are, say, £1000 a month now, in 10 years from now that £1000 payment will probably seem very reasonable as wages increase, so you have MORE money left over after you've paid your monthly mortgage whereas if you're paying rent it goes UP with inflation.

That's a fact:)

Fraise

Philuk wrote: »

I don’t know who ingrained the idea that rent was lost money as opposed to paying interest on a mortgage...this is scary how many time we come across this incorrect assertion on what is meant to be a money expert forum.

There isn’t much difference between renting a flat or renting a lump sum for money from the bank (mortgage), they are both cost of capital. Just doing quick maths:

Rental

Rent of £1200
Interest on deposit: 1.5% hence £125 a month
Total rental cost £1075

Mortgage

I assumed 3.5% for a 5 year fixed mortgage on £350,000:
£1021 of interest
You are slightly better off, but if the subsequent interest rate after the deal expires in year 6 jumps to 5%, your monthly interest payment will jump to £1,458 a month (assuming you haven’t repaid any capital to compare like for like). In this scenario, it is also very likely that some ISA will offer 3%+ on the balance hence £250 a month on your 100k deposit

As mentioned before, the only way you win by mortgaging is if price of capital goes up and interest rate stays low (they can’t go any lower). No one know how long this will last with the stellar price in London and the historical low interest.

You're assuming the tenant will get his deposit back in full. He may not if he accidentally damages something.

As for interest rates, they don't make any difference to FIXED RATE mortgages.

And as history proves, property always goes up in value. Always. You may have the odd dip here and there, but if it's your home and you're not intending on selling every five minutes it doesn't matter, because eventually all property increases in value. Certainly in London and the South East it does.

Check out the property prices for the last 100 years....:)

buglawton

You mention buying a flat as opposed to a house. Owning a flat has many things in common with rental - high uncontrollable management and ground rent charges, no control over building issues and exterior maintenance - you depend on having a good management company. See if your budget extends to a house albeit further out.

Fraise

buglawton wrote: »

You mention buying a flat as opposed to a house. Owning a flat has many things in common with rental - high uncontrollable management and ground rent charges, no control over building issues and exterior maintenance - you depend on having a good management company. See if your budget extends to a house albeit further out.

It all depends on the flat. Some flats are freehold, usually large Victorian conversions that have been turned into 2/3/4 flats. If you buy one of those, and you own the freehold with the other flat owners, you're in charge so to speak. Neither would you have ground rent charges as you own the land.

It's usually apartment blocks and estates that require a managing agent to carry out repairs etc, and that's obvious why. But if it's just a house that's been converted into a few separate flats, and you're the freeholder along with the other couple of freeholders, it's a different ballgame. You're not going to effectively 'fine' yourself each month by paying high fees to an agent....to pick up a telephone on your behalf and call in a builder if your drains are blocked or your gutters are leaking :rotfl:

That's all an agent does...call in workmen on your behalf, but if it's just one house you can phone a builder yourself. Usually, you get three separate quotes and then choose with your other couple of freeholders which builder you want.

You can't do that if there's 100 flats on an estate of its a giant block.

So there's lots of choices really.