London: To buy now or not

Irishluck

Hi all

Looking for some opinions please!

After keeping a close eye on local property/prices for the past few months, it’s clear London (or at least SE London) property prices are correcting (at the very least). On a daily basis, I see prices reduced on RM/Zoopla. Buyer’s market we thought. Perfect time to invest in a second property- we have a good deposit saved that currently is not earning anywhere near what the local area property growth had been.
Our intention was to find a flat that we can rent out initially, but keep as a long term investment/pass down to the children etc. Therefore a good area & river view were key, as there should always be demand & decent LT growth. We also put a premium on share of freehold, as our view was it should make lease negotiation easier/cheaper.

We’ve viewed a number of properties, made a number of offers & had a couple accepted now.
We thought they were very good offers, but now I am not so sure...in fact, I’m starting to think our offers may have been too high in current market condition/in light of a potential price crash.
Property A we offered 3% under asking. Worth noting it has had its original asking price cut before, though that was clearly overvalued. Leasehold, 105 years left.
Property B we offered 5.5% under the base OIEO price. Seller tried to counter but in the end accepted our concerns re local prices being overvalued/Brexit fears, though I am sure our chain free position was major factor.. Share of freehold.
Property A is much better from a rental yield perspective, although Property B is a more suitable LT investment in terms of keeping in the family, but is dearer so rental yield will be lower.

I started getting cold feet when reading forums such as housepricecrash. It’s not only the Brexit uncertainty & interest rate increases which are a real concern, but also comments that I read along the lines of your first offer being > 10% & almost insulting. The fact that both offers were less than that & accepted relatively quickly, as well as me being a bit of a rookie offering, make me doubt whether we are getting a “good deal”.

Should we walk away & keep looking for a bargain, especially if prices keep dropping?
As it’s not for us to live in now, it gives us flexibility. But then again, we have been overly cautious in the past & not bought for what now seem like great prices in the past.

If only we knew for certain how the property market will react!

What are the thoughts on here about buying in London now under current market conditions?

lisyloo

in light of a potential price crash

What's your view on Brexit.
I think there is a lot of uncertainty at the moment but things won't be as bad as people fear e.g.
https://www.bbc.co.uk/news/business-46053283


There are other issues such as affordabillity, stamp duty, tax changes for BTL etc.

I started getting cold feet when reading forums such as housepricecrash

This is not regarded as a site of great debate by well-balanced individuals to put it mildly.

What are the thoughts on here about buying in London now under current market conditions?

Personally I would not buy investment property right now and definitely not in London.
I don't think there is going to be a crash (apart from somme overpriced new builds) but I don't think BTL stacks up at todays prices and tax regime.


Hopefully some of the experienced landlords will be along to give their view, but I think the general consensus will be that this particular gravy train left the station some time ago.

MaxiRobriguez

You're going to be scared if you read housepricecrash - the clue is in the name, do you really think anyone on there is going to be arguing the case for the housing market to increase?

You have three main issues which you need to judge for yourself what's important:
1) Long Term House price trend - you're buying the property as an investment so you're going to be holding it for years. The likelihood is even if property prices come down 10-20% over the course of the next 18 months then the trend will revert to mean and within ten years prices are above what you paid. In the mean time you'll be getting rental yield. Even if house prices don't revert to mean and stay subdued for a longer period, you still have the yield coming in, and it might well increase over time as there's more demand for rent as people no longer trust housing market as a safe place to buy as an investment.

2) Yield vs interest rate. Depends entirely on whether you're a cash buyer or will have a mortgage. If you get a BTL mortgage you need to play about with calculations on how much yield you would be getting if mortgage rates increased to 3-4% - in that scenario not only is your rent eaten into but your house value is likely to come down a bit too.

3) Additional costs - have you considered stamp duty? What about the continued trend of making BTL landlords pay more whether through tax or stamp duty? What would happen to your margins if the government levied an additional rate of tax specifically on small time landlords? Are you going to pay an EA to manage the property or do it yourself? If doing it yourself you might find it's harder than expected, if EA manage that's another 6%+ off earnings...

I wouldn't worry too much about buying now, if anything this might be a great time to pick up a piece of London property on the cheap whilst people are woried about Brexit - it might be the case in six months time all this panic looks a bit silly and you got a nice discount on prime property. But I would worry about focusing too much on that and not doing due diligence on other areas of being a landlord which will become more important than initial price you paid.

lisyloo

if anything this might be a great time to pick up a piece of London property on the cheap whilst people are woried about Brexit

But does BTL stack up as a business at todays prices, regulatory and tax regime?

There is now a lot more regulation - you need a BTL mortgage, landlord insurance, gas safety checks, tenant checks, deposit scheme.


Properties bought at old prices do stack up but at todays prices, what's the return after costs, work hours and tax? compared say with a diversified porfolio of equities? (that don't call you at 4am with a leak)

Thrugelmir

Irishluck wrote: »

If only we knew for certain how the property market will react!

Perhaps direct property investment isn't for you then. Leverage being a double edged sword. Instead perhaps keep your feet on the ground and stick to something more mundane. Until the fog clears and the opportunity arises again in more appropriate times.

MaxiRobriguez

lisyloo wrote: »

But does BTL stack up as a business at todays prices, regulatory and tax regime?

There is now a lot more regulation - you need a BTL mortgage, landlord insurance, gas safety checks, tenant checks, deposit scheme.


Properties bought at old prices do stack up but at todays prices, what's the return after costs, work hours and tax? compared say with a diversified porfolio of equities? (that don't call you at 4am with a leak)

Annual Landlord insurance, gas safety check will set you back about £200. Hardly a dealbreaker. Tenant checks are easy enough too and the deposit scheme can be done free of charge.

Tax regime is definitely a red warning signal though, especially for the higher earners.

You're right in that equities don't phone you in the middle of the night, but that's not what the OP is asking. You've also mentioned house prices being high and then given equities as an alternative, when prices are high and room for growth is low.

Personally I just sold the only rental property I had in the east midlands. Mix of house price decline worry, a lot of work on property needed to be done, tax regime changes, going into higher tax brackets and just wanting to crytalise a gain. I'd be tempted to go back into the rental market if there is a decent decline in prices, and if I could wrangle it such a way that my partner (who is not on the deeds of where we live) owns any future rental property.

The difficultly at this point is that pretty much every asset class is now overpriced due to extended QE/ZIRP. There's heightened systematic risk and limited upside opportunity. If you've got stuff, hold it, if you're entering markets - you need to be very very very careful and understand if you can hold your nerve through more challenging times.

lisyloo

Annual Landlord insurance, gas safety check will set you back about £200.

Ok fair enough.
But there will some work (like bookeeping/accounting) that will take some hours not to mention maintenance (either upkeep or repairs).
If you are happy to do all this for free and value your time a £0 per hour then that is fine. Some people will not be happy to do that which is also fine, it just needs to be considered into the equation.


My agent comes once a year to visit to get contracts signed, might take 2 hours of his time travelling across London plus the visit time.
This is not free for my landlord (and of course it's not just 2 hours per years, that's just an example).
There will be getting tenants, maintain the property, arranging insurance, gas engineers, repairs, keeping abrest of tax regime changes, accounting etc.
This is clearly nothing like leaving your investments in a portfolio where you don't need to be actively involved if you don't wish to.
You can delegate practically anything (at a price) but I've always thought that delegating all the jobs BTL wise would reduce profit an unaaceptable amount i.e. properly pricing in all the jobs at a commercial rate.


If you price your personal time in at £0 then of course it's cheaper and if you don't mind that's fine, but personally unless I was loving it I'd at least be considering the lost oppurtunity cost i.e. could I earn more by doing something else with the time?

You've also mentioned house prices being high and then given equities as an alternative, when prices are high and room for growth is low.

Most people tend to invest in these monthly so get averaging on their buying.
I would agree that putting a large lump sum into equities carries some risk with the timing not only with stock market volatility but also recently currency fluctuations in a global portfolio, BUT you don't have to buy equities in one lump sum as you do with a property.

AlexMac

I'm in SE London, with three local properties; our primary residence the (probably) last one of four we've owned here over the years, plus two little ex Local Authority BTLs.

I don't think you can generalise about London, or even SE London, as there is great variation by neighbourhood, but broadly I agree your analysis about minor price drops in the area...

Irishluck wrote: »

...it’s clear London (or at least SE London) property prices are correcting ...Perfect time to invest in a second property-...intention was to find a flat that we can rent out initially, but keep as a long term investment...

and that now's as good as ever to buy. I don't fear major continuing pricedrops, and if you own Long Term things will work out.

I agree "a good area" but I am less sure that

Irishluck wrote: »

a river view is key ...

as in Deptford, Greenwich, the Millenium Village and Woolwich there are so many identical new-build blocks, with (I assume) toppy service charges that I'd assume reduce rental yield, and I'm not sure about resale value?

Case in point; we bought a 2-bed shared freehold period conversion flat in the best area we could afford in 2001 and sold on just over 10 years later with over 70% increase in value; 7% p.a. Friends who bought a new 2-bedder in a block just over the river, with views of Greenwich, at the same price and time, saw a much lower uplift between 4-5% inflation over the 12 years they owned theirs; and compared to ours, the service charge in a managed block was eye-watering.

OK, gone are the days of hyper-house-price-inflation but even so, I bet a well chosen shared freehold with character will outpace an identikit riverside block managed by a profit driven agent/freeholder. And even if it didn't, I'd prefer the control which shared freehold (ideally, self- managed by owners) gives me.

So I'd go for

Irishluck wrote: »

...Property B... we offered 5.5% under the base OIEO price.Share of freehold... more suitable LT investment in terms of keeping in the family,

even if

Irishluck wrote: »

...Property B... is dearer so rental yield will be lower. ...

But then as I was an accidental BTL-er 20 years ago, what do I know; you could use my other Kharmic technque of tossing a coin. As it falls, the lurch in the tummy tells you if the coin has chosen well!

Arklight

There's going to be mad crazy prices after Brexit when the economy takes off as we are finally free of the oppressive yoke of Brussels so best buy now. Alternatively, everyone will be rich after that so better wait.

Whatever you do you can't lose because it's UK AOK.

Jack_Johnson_the_acorn

Arklight wrote: »

There's going to be mad crazy prices after Brexit when the economy takes off as we are finally free of the oppressive yoke of Brussels so best buy now. Alternatively, everyone will be rich after that so better wait.

Whatever you do you can't lose because it's UK AOK.

Was "UK AOK" a Bloodsport reference.... :rotfl: