Rent or Buy - that is the Question!

ArunM

Dear All

I want to pick you brain :A on my situation :

I am on a Tier 2 General with one of the largest professional services firm in London. I am in UK since January 2013 and have the validity of the visa until September 2017. Now I am in a window where I have just stayed in UK over 2.5 years and have 2 years validity left on my visa. I recently started looking into some property in to the elementary market around zone 3/4 in London. My budget is £270-£280K for a 2 bedroom flat where I have around 10-15% of the deposit to put in. I have got AIP from Natwest, Halifax and one of independent mortgage advisers. I have very good credit rating and I am hard-user of credit cards (got an iPad Air 2 earlier this year with Amex and MBNA rewards combined! :T). I am renting a decent sized one bedroom (two bathroom, separate reception, separate dining, balcony, caretaker, etc.) flat just next to 5 mins walking distance from East Croydon Station and paying £1000 as rent. My questions are :

1. Shall I buy a property now in this window of opportunity at higher rate of interest (~3-4%) and pay £1250 for an apartment or keep on renting @ £1000-£1100 for another year or two until I have good amount of deposit (25-35%)?
2. If I buy now and want to sell the property in next 2-3 years, will I be in loss or profit? (considering the standard market conditions and like-for-like economic situations. Also when I mean loss I am talking anything more than £5K)
3. Is it advisable to rent for another couple of years when you have 10%-15% deposit to put in?

I don't want anyone to quantify my situation, but any ideas or any thoughts would be helpful.:A

Thanks in advance.

Please let me know if you need more information.

HappyMJ

In 2-3 years instead of selling you could rent the property out. It'll require you to get more equity in the property so you'll have to pay as much as possible off the mortgage as you can. Would you be interested in becoming a non-resident landlord?

ArunM

HappyMJ wrote: »

In 2-3 years instead of selling you could rent the property out. It'll require you to get more equity in the property so you'll have to pay as much as possible off the mortgage as you can. Would you be interested in becoming a non-resident landlord?

Not trying to be landlord really. Also not interested in investing in property, but interesting in investing children's (yet to come!) future and education - best private schools, great area to live in.

One option is
1. To buy an OK type 2 BHK flat and in 2 years upgrade this to 3/4 Bedroom house in a decenet area with best private schools if everything goes alright.

Pro : Stop rent going into drain, have a flat of our own
Con : High interest rate, tie to a area which might not have great schools

Other option is
2. To continue renting (which gives us flexibility of space and area) for another 2 years and then buy an 3/4 Bedroom house in a decenet area with best private schools

Pro : Flexibility in moving and living where we want, might afford a bigger house in 2 years
Con : 2 years rents going in drain, still depends on landlord's/agent's will

So the ultimate Qs which option to choose which makes more financial sense and good for (future) kids?

Thanks in advance.

libf

Interest rates are currently very low. If you think interest rates are too much now then do not buy.

gentlewoman

Nobody has a crystal ball to tell you where property prices will be in 2 years from now, but the general long term trend is up :-)

"the elementary market around zone 3/4 in London. My budget is £270-£280K for a 2 bedroom flat"

Not sure what you mean by this but in zone 3/4 London 2-br flats are more expensive than 280K as far as I know. I'm zone 6 and they are higher than that, but it's true I'm in one of those 'sought-after' overpriced suburbs...

From my own experience - I'm on my third property (bought, sold, repeated etc), the earlier in life you get on the ladder, the better. Obviously there are risks, but if you do your homework and buy in the right area, and buy longterm-ish*, you should be fine.

Think of it like this: the £1250 that goes towards rent is all lost. If you buy something and pay £1250 monthly for mortgage, some of that will go to the lender, but some will build equity. And then if property prices go up, more equity for you... to help you buy that 3/4 bedroom house you are planning to get.

Given that mortgage rates are low right now, I would buy if I had 15%. In 2-3 years from now mortgage rates and property prices might be much higher... so you might not afford what you can afford now.

But then it's true... prices might also go down


*I always bought long term - as a plan - but sold after 2-3 years. Got lucky with property prices going up though :-)

ArunM

libf wrote: »

Interest rates are currently very low. If you think interest rates are too much now then do not buy.

I meant interest rates for myself
- first time buyer
- 10% Deposit
- 2.5 years UK residency
- 2 years remaining on visa

See I am standing on thin lines, you see! The rates I have tentatively offered so far around 3.5% - 4%.

libf

ArunM wrote: »

I meant interest rates for myself
- first time buyer
- 10% Deposit
- 2.5 years UK residency
- 2 years remaining on visa

See I am standing on thin lines, you see! The rates I have tentatively offered so far around 3.5% - 4%.

That's still a relatively low rate. Try again in the same situation in 2 or 3 years and you'll be looking at a higher rate, assuming interest rates start to creep up as it's predicted they will.

ArunM

libf wrote: »

That's still a relatively low rate. Try again in the same situation in 2 or 3 years and you'll be looking at a higher rate, assuming interest rates start to creep up as it's predicted they will.

What I am guessing when I will come back in 2-3 years, I will have 30%+ deposit and may be an increased base salary to play with the rate and the amount I can borrow!

libf

And interest rates will have gone up to maybe 2 or 3%.

ArunM

After considering all feedback - this is my final Qs and I will keep shut after that :

Is it worth settling for a mid market 2 bedroom flat @ £250K in a not-so-good neighbourhood and wait for 6 months (to 1 year) to go for a 2 Bed Flat/House @ £300 in a decent neighbourhood?

Thanks in advance.

libf

Depends if you're prepared to spend twice on moving costs like solicitor fees and stamp duty.