Max out borrowing to buy a house? Or borrow less and buy a flat?

Hoploz

Greenone wrote: »

What about letting the flat in 5 years time and buying a house then? We both expect (read 'realistically hope') that our salaries will increase at least 20% in 5 years.

In 5 years we can save another sizeable deposit to put down on a house.

Good salary increases expected there! If that's the case then stretch now, you will easily afford it later so it's not a long life of scrimping you are signing up for, it just might be a little tight for a year or so.

Even with this increased salary, what are house prices doing in the area? If its London then you can easily expect (realistically hope?) a 10% increase each year ... Which would make you less well off as prices would have gone up more then your salaries, perhaps?

... And you can still let a house later on the same as you'd let a flat should you wish to do so. Convert to BTL mortgage later with 75% LTV and move on if you like. Or sell of course.

AlexMac

INHO..
...max out
...buy house
... spend disposable income on house not fun...
(because you won't afford fun...)
... and control your own outgoings rather than copping service charges and unpredictable one-off charges from the freeholder for external decs, roof repairs, management fees...

CASE STUDY... 13 years ago, in broadly the same area of SE London, we contemplated a flat or a house; at excatly the same time, and with the same budget, as friends... fast forward... our £350k purchase, with a bit of trading up, means we're now in a house worth three times that...

... their has only doubled... but they pay £4-5k pa on average in service and maintenence charges... And they earn 3-4 times more p.a in salary & pensions than we ever did...

I rest my case

Greenone

I figured that if house prices rise at 10% per year, and our salaries rise 20% in 5 years, then given that we can borrow approx 4x our joint salaries, we'd be ahead of the curve anyway... i'm probably missing something, so please shout!

pinkteapot

If you're comfortable with your job security and your budget could tolerate some increase in interest rates, go for the house.

We bought very conservatively and only kept that house for three years before we wanted something bigger and nicer. It's a waste of fees to buy and sell frequently.

Stretch yourself at the start because it should get easier in time. Mortgage repayments stay the same, while wages increase with inflation and promotion/job switching. So the mortgage repayments become a smaller percentage of your income in time.

The first few years with a mortgage will feel tight and then the pressure will ease.

That being said, as above, I'd still only do it if I could afford a bit of an increase in interest rates as they are still at historically very low levels.

varghesejim

Greenone wrote: »

FTBs in South London having a bit of a dilemma as to whether to buy a house we can grow into, or a 2 bed flat that we can sell 5ish years from now and move up the ladder?

We have £40k funds available for fees and deposit, and can borrow circa £380k - but i'm finding it very difficult to decide whether to buy a forever(ish) home or a flat and have more money in the bank every month!

I appreciate there are so many factors which go into this but any advice welcome.

The popular opinion seems to be buying a house.But if your budget is considerably under the decent house price range in an area, flat can be considered IMHO. If you stretch the budget, you might get a shoe box with a 10 feet garden you can call a house, but you may be able to buy a spacious, much better flat for a cheaper price.

If you get a house with scope for extension , it makes sense to buy a house. But in London and SE, these kind of properties are still expensive!

In fact, I think for the price of buying a not so nice house and modernize/extend/redecorate doesn't make financial sense in property hot spots of South East England. This is because the sellers/estate agents will always make sure they take the scope of extension/redecorate into consideration when valuing the property. So the rundown property you got for 20K cheaper than comparable nice property in the area will probably cost you 40K-50K to do redo to make it to the same standard(and the stress!). And you think you got a deal!

Out,_Vile_Jelly

I borrowed a high salary multiple and bought a house (in a scruffy part of South London). With a garden you can save a bit of money by growing your own veg, and there's the possibility of extending or a loft conversion. I could take a lodger in the spare room if I really needed some extra cash.

The issues with service charges/ground rent/management companies are raised above. A friend of mine is trying to buy a flat at the moment; the vendors have to extend the lease which is taking ages, and searches have revealed that the ground floor flat is extending. There just seems to be more faff with a flat.

benjus

My experience of the flat/house debate in South London was a large 2-bed flat with spacious rooms and high ceilings in a large Edwardian building versus houses with a smaller overall floor area, pokey rooms and low ceilings. So going for the flat was a no-brainer for us.

But if the house you're considering is bigger and better than the flats you've seen, go for it. Owning the Freehold does make life easier...

Greenone

Ok - house it is!

Running_Horse

Look a little further out and buy a house. Chances are you will want to move out of London in a few years anyway. Everybody ends up in suburbia.

katejo

If you can afford it without overstretching yourself, go for the house. My first property was a 1 bedroom leasehold flat. I definitely couldn't afford a house then. I don't regret buying the flat but the attitude of the freeholder and his management company gave me real headaches. He did the following:

Refused point blank to provide any proof of building insurance but I still had to pay for it (probably over the odds). Fortunately i never needed to make a claim as it was a good quality period property.
Failed to pay my ground rent cheques in
Was wholly uncooperative about everything.

This has come to my attention again in the past few weeks as i have remained in touch with the person who bought from me. The leaseholder of the ground floor flat under my old one is trying to sell but needs to extend the lease which has dropped to 77 years. The freeholder is ignoring all communication from solicitors and failing to provide any documents re. building insurance (again) and also re. extension of the lease. He has a buyer but it may well fall through.
It's not my problem now. I sold up when the lease was still at 88 years. however it has really reminded me of the disadvantages of leasehold.
We suspect that he is a crook/conman.