Facing loss on new build flat sale in Clapham, London

SophieLondon

Hi all, new here but looking at other threads it is a great community for advice. In 2020, I bought I one bedroom new build flat in Clapham, London for £435,000. It was a help to buy so didn't take me long to realise that my mortgage could be much lower than what I was paying for renting a room in a house share. However, now my job has moved to another city and I would rather sell than rent.

I haven't put it up on the market yet because I am a little worried about the price/ market. Someone else in the same block (almost identical flat, but a slightly awkward layout) has had hers up since April and now dropped it to £385,000 because it hasn't sold. I would be willing to take a small loss (probably go down to £415,000) but any larger a loss would be heart-breaking, and almost all my deposit. Does anyone have any advice? Do you think we over paid? or could it be that the market just isn't right for one bed central London flats right now?

I am trying to work out whether it is best for me to rent out for a year or two and then hope the market grows, OR whether I accept the fact I made a bad investment and cut my losses.

Thanks in advance.

silvercar

The problem is that new builds are slightly overpriced because (a) lots of people love the idea of moving into a brand new place (b) HTB forced people to look at new builds only so increased demand vs second hand properties.

So in all probability, you didn’t overpay as your price was reasonable for what you were getting - a newly built property - that enabled you to use HTB.

Now 2 years later you are competing against many not quite new properties and the the demand is less. So there is often a slight drop in the property value. You could wait a couple of years until the market picks up again or cut your losses and sell. Either way the current comparisons on the market and sold will dictate the price.

AFF8879

Well, you have only owned it for 2 years - the general rule of thumb is you should try and keep a minimum 5 year horizon when buying a property to live in (ideally longer), though appreciate life throws us curveballs from time to time! 

Combined with the fact that 1) it was a new build bought with HTB (which are typically over inflated in price to begin with, 2) the market for London flats has dampened significantly since the work from home era began, I’m definitely not surprised you’d face a loss if trying to sell now.

Do you see yourself living long term in the new location? If not, I would be a lot more comfortable renting the flat out. If you do, I’d still personally want to rent for a while to get a feel for the new area before jumping in and buying, which would give more time for the London flat market to hopefully improve. With huge rental shortage and landlords exiting the market, I have a feeling yields will eventually recover enough to make flats like yours an attractive investment again (but that’s just me guessing).

Also be careful with the HTB clauses, sometimes they don’t allow you to rent the place out (or have a bunch of additional restrictions if they do)

Good luck

pinkshoes

SophieLondon said:

Hi all, new here but looking at other threads it is a great community for advice. In 2020, I bought I one bedroom new build flat in Clapham, London for £435,000. It was a help to buy so didn't take me long to realise that my mortgage could be much lower than what I was paying for renting a room in a house share. However, now my job has moved to another city and I would rather sell than rent.

I haven't put it up on the market yet because I am a little worried about the price/ market. Someone else in the same block (almost identical flat, but a slightly awkward layout) has had hers up since April and now dropped it to £385,000 because it hasn't sold. I would be willing to take a small loss (probably go down to £415,000) but any larger a loss would be heart-breaking, and almost all my deposit. Does anyone have any advice? Do you think we over paid? or could it be that the market just isn't right for one bed central London flats right now?

I am trying to work out whether it is best for me to rent out for a year or two and then hope the market grows, OR whether I accept the fact I made a bad investment and cut my losses.

Thanks in advance.

A 1 bedroom flat only has a very limited market when selling - those wanting to let it out or singles/couples without children.

As above, you paid what would have been the market rent for a shiny new property. Since then it is now 2 years older (so no shiny and new premium) and prices in lots of areas have dropped due to the increase in interest rates and thus limited lending. 

If your neighbour hasn't sold at £385k then it's unlikely you will get over this. 

If rental demand is good in the area, then I would perhaps consider renting it out. You will need to find an agent if you won't be living locally (make sure any tenants have references as well as affordability check and a decent deposit), plus make sure you comply with all the landlord rules and regulations. 

MobileSaver

SophieLondon said:

I bought I one bedroom new build flat in Clapham, London for £435,000. It was a help to buy ... Do you think we over paid? ... I accept the fact I made a bad investment and cut my losses.

As others have said, you didn't overpay, you paid the market rate at the time.

If you bought it as an investment then yes you have to accept it was a very poor choice and no-one here would have recommended a one-bed help-to-buy new-build flat as a good investment that would generate a return in two years. You have the double whammy of having paid a new-build premium to get a brand new shiny flat and appliances and a HTB premium so you could take advantage of HTB.

On the other hand if you bought as a home then it's probably served its purpose even though there's been a cost to that. You got to live in a swanky brand new place with brand new appliances, in a place that was yours rather than a house-share and your monthly payments were less than rent would have been so the "hit" if you sold today should take all that into consideration.

In your shoes I'd probably rent it out for now if the financials stack up and see where things are in a year or two.

Zerforax

I think instead of just looking at the figures, you need to consider the wider picture. Are you moving to another city permanently or could you come back to London? What if the new role/location doesn't work out?

Would you be looking to buy in the new city immediately? Or will you be renting over there?

Sarah1Mitty2

SophieLondon said:

Hi all, new here but looking at other threads it is a great community for advice. In 2020, I bought I one bedroom new build flat in Clapham, London for £435,000. It was a help to buy so didn't take me long to realise that my mortgage could be much lower than what I was paying for renting a room in a house share. However, now my job has moved to another city and I would rather sell than rent.

I haven't put it up on the market yet because I am a little worried about the price/ market. Someone else in the same block (almost identical flat, but a slightly awkward layout) has had hers up since April and now dropped it to £385,000 because it hasn't sold. I would be willing to take a small loss (probably go down to £415,000) but any larger a loss would be heart-breaking, and almost all my deposit. Does anyone have any advice? Do you think we over paid? or could it be that the market just isn't right for one bed central London flats right now?

I am trying to work out whether it is best for me to rent out for a year or two and then hope the market grows, OR whether I accept the fact I made a bad investment and cut my losses.

Thanks in advance.

You obviously overpaid and unfortunately you can`t avoid or control how much loss you make in a falling market.

LegallyLandlord

One bedroom flats in London are very popular with renters at the moment, esp in a nice area like Clapham. 

It can be fairly easy to let out, but check your mortgage (you will need a buy to let mortgage) and also the terms of your help to buy. 

This is called being an accidental landlord, but you would still be governed by all the legislation that landlords have to comply with. 

You’ll need to do your sums as landlords still pay the service charge and ground rent on flats when they let them. And then there’s the cost of letting agents. You can do it yourself (I do now), but you’d need to get up to speed on things quickly. On the other hand, with a new build, you’re unlikely to have repairs, so it might be easy to manage yourself even if you live a way away. 

I personally was in a similar position to you, and was looking at a loss. I let it for 2 years and sold it when the prices spiked up this year. 

Here is a guide for accidental landlords: https://theindependentlandlord.com/accidental-landlord-guide/

Here is a guide to self-manage:

https://theindependentlandlord.com/self-managing-rental-properties/

here’s one on letting on the portals yourself:

https://theindependentlandlord.com/how-to-find-renters-without-agents/

Good luck 

Sarah1Mitty2

LegallyLandlord said:

One bedroom flats in London are very popular with renters at the moment, esp in a nice area like Clapham. 

It can be fairly easy to let out, but check your mortgage (you will need a buy to let mortgage) and also the terms of your help to buy. 

This is called being an accidental landlord, but you would still be governed by all the legislation that landlords have to comply with. 

You’ll need to do your sums as landlords still pay the service charge and ground rent on flats when they let them. And then there’s the cost of letting agents. You can do it yourself (I do now), but you’d need to get up to speed on things quickly. On the other hand, with a new build, you’re unlikely to have repairs, so it might be easy to manage yourself even if you live a way away. 

I personally was in a similar position to you, and was looking at a loss. I let it for 2 years and sold it when the prices spiked up this year. 

Here is a guide for accidental landlords: https://theindependentlandlord.com/accidental-landlord-guide/

Here is a guide to self-manage:

https://theindependentlandlord.com/self-managing-rental-properties/

here’s one on letting on the portals yourself:

https://theindependentlandlord.com/how-to-find-renters-without-agents/

Good luck 

That was before the base rate hit 3.5% though.

LegallyLandlord

Sarah1Mitty2 said:

That was before the base rate hit 3.5% though.

True. That’s a very good point, and the rates for  buy to let mortgages tend to be higher than for owner occupiers, requiring a minimum loan to value of 75%. 

Margins were very low for landlords before the base rate went up. I personally sold my flat after 2 years of renting as the yield was too low because of the service charge. 

The economics of selling v renting it out will depend on so many factors, and with base rates higher, being a landlord is less attractive now. But properties in London do tend to have good capital growth over time, if they’re in a good location, something else to put in the mix. 

theoretica

How much more would you have paid in rent over the two years than you did for mortgage *interest*?  Does that soften the impact of a falling price at all?