What's the risk in buying a flat?

Zuzi

Hi all,

I had a thread here some years ago, now closed. I have been living in the UK for 10 years, originally from an EU country. Been renting all this time, lucky to have found an HMO in a nice part of London, love it here and it is cheap. However I am in my early 40s and something about still living in a houseshare doesn't feel right, and our landlady is getting old and I am worried what will happen to the house when she is no longer around.

My salary has increased quite a bit in the last few years and it looks like I should be able to get a mortgage of about 200-250K. It's just me, and when I want to day dream I look online at properties in the area where I live, it is quite popular so I'd really only get a small flat for let's say 300K but that's all the space I need. I have a nice deposit of about 100K. I am really scared of growing old and having nowhere to live or to pay extortionate rent!

What risk is involved in buying a property? What if I move abroad after a few years, am I allowed to rent it out? Is the general expectation that after 10 years or more, that property will have risen in value and as a worst case, I can sell it - hopefully without a loss - and move on?

It feels scary to know that my savings could be wiped out by using them as a deposit AND I would have a huge debt in my name, but I do have a good income, don't spend much and it just feels like I should do this, most people seem to manage it in this country after all 

I know this is quite a general question but I don't have anyone to discuss this with so thought I would post here, I will appreciate any and all advice!

ETA I guess what I am trying to get my head round - how much of a commitment is a flat purchase? Because it feels like a lifetime thing to me, but of course, it doesn't have to be?

macman

Most flats in England and Wales (not Scotland) will be leasehold, not freehold, but as long as your conveyancer establishes that the lease is goods, the risk is no higher than a freehold property. Leasehold flats often incur annual service charges, which should be clearly established before you exchange.

steve866

Zuzi said:

Hi all,

I had a thread here some years ago, now closed. I have been living in the UK for 10 years, originally from an EU country. Been renting all this time, lucky to have found an HMO in a nice part of London, love it here and it is cheap. However I am in my early 40s and something about still living in a houseshare doesn't feel right, and our landlady is getting old and I am worried what will happen to the house when she is no longer around.

My salary has increased quite a bit in the last few years and it looks like I should be able to get a mortgage of about 200-250K. It's just me, and when I want to day dream I look online at properties in the area where I live, it is quite popular so I'd really only get a small flat for let's say 300K but that's all the space I need. I have a nice deposit of about 100K. I am really scared of growing old and having nowhere to live or to pay extortionate rent!

What risk is involved in buying a property? What if I move abroad after a few years, am I allowed to rent it out? Is the general expectation that after 10 years or more, that property will have risen in value and as a worst case, I can sell it - hopefully without a loss - and move on?

It feels scary to know that my savings could be wiped out by using them as a deposit AND I would have a huge debt in my name, but I do have a good income, don't spend much and it just feels like I should do this, most people seem to manage it in this country after all 

I know this is quite a general question but I don't have anyone to discuss this with so thought I would post here, I will appreciate any and all advice!

ETA I guess what I am trying to get my head round - how much of a commitment is a flat purchase? Because it feels like a lifetime thing to me, but of course, it doesn't have to be?

-Try and get share of freedhold
-If leasehold ensure you get a long lease (125 years minimum in my opinion)
-Check service charge & ground rent to ensure it is reasonable
-Avoid high rise if possible
-Avoid new build
-Yes, you can rent it out if required. You should research the obligations of being a landlord, tax implications and risks
-Based on history it is highly likely that your property will increase in value over a 10 year period (however not certain)
-Each month you will be paying interest and part of the capital back so you will have equity in the property after 10 years even if prices don't increase
-It doesn't have to be a lifetime commitment 
-I personally don't think it is a good idea to try and 'time the market' when it comes to buying property as a primary residence, but I do think we are in a unique time where property prices still have high, post covid asking prices whilst interest rates have risen significantly. I think either prices will be lower or interest rates will settle a year from now

Zuzi

Thank you @steve866 for this comprehensive advice! Yes I am aware of the freehold vs leasehold situation, right now I am (very vaguely) thinking about a flat advert that I saw where the leasehold is 125 years so hopefully OK, plus I read that extending that, should I buy the property, should be relatively straight-forward?

I understand and take on board the point about timing the market. I think - knock on wood - that I am safe in my current house for hopefully another year at least, and I don't want to make any rushed decisions, especially not on this scale!

It's just really hard for me to imagine that I could own a property for 300K, when chances are I'll never accummulate 300K of savings in my working lifetime! Having a 6-figure mortgage is a very abstract concept for me, I've never had debt 

LegallyLandlord

The problem isn’t just with the length the of the lease. It’s the lack of control over service charge that is a big problem. I personally had an increase from £1,400 to £2,500 pa on my flat in 2017, during a period of low inflation, and there was nothing I could do. No real explanation. It’s such a problem. 

Some people have even worse experiences and there is very little redress against the management companies. 

Here’s a link to an article about houses v flats, although the real distinction is freehold v leasehold. It’s written for landlords and property investors, but the same principles apply to owner occupiers: 

https://theindependentlandlord.com/do-houses-or-flats-make-better-buy-to-lets/

hazyjo

Can't quote, but just wanted to say it's not a given that you'll be able to rent out a flat. There may be lease or local restrictions, or your lender may not grant permission.

pieroabcd

I would search as much information as possible about the problem with cladding and the new regulations that are supposed to be enacted (I don't remember what's the name).
I've already met several leaseholders that couldn't sell their flats because of their cladding, not without extensive and expensive works that they had to pay out of their pocket.
Also beware of some new flats that have a remotely powered energy system: in that case you can't switch providers and you are at the mercy of their fares.

Personally rather than a flat I would take a bigger mortgage and buy a freehold house, maybe in a more remote area (that wouldn't incur in service charges).

ileven1225

I have been living in a flat for years and it was always my favourite choice due to the location, conceirge, etc. However, recent years the service charge massively increased due to insurance and inflation, plus there is a cladding work issue to make the building unmortgagable so the selling price is more for cash buyer which is low. Most residents in the building are currently stuck unless they want to sell for a lower price. Even goverment stated leaseholders would not pay for any cladding work but the whole process seems endless. I would like to move out but currently stuck.

There are some high street lenders this year accept mortgage application for building with cladding issue, however, this under certain conditions and the buyer market is still low for those buildings. You might find some flat with lower price than other building and this perhaps the reason. 

another thing to pay attention is RTM. If the lease states there is a RTM it means the leaseholders could collectively decide to keep and change the current management company whose most interest is to satisfy the leaseholders/residents. If not, it means their most interest could line up with the landlord not leaseholder which could be an interesting relationship to manage.

I would join their group chat and talk with other residents/leasholders  (e.g. facebook group, whatsupp, etc) if there is one and if you find any flat within your interest.

I would prepfer buying a freehold house in a further location other than a leasehold flat, but living in a flat is still with many benefits especially in London that house price can be much higher.

TripleH

My comments about living in a flat are about the noise but as you live in a HMO, that is pretty much covered, in fact a flat can seem more secure.

Sarah1Mitty2

Zuzi said:

Hi all,

I had a thread here some years ago, now closed. I have been living in the UK for 10 years, originally from an EU country. Been renting all this time, lucky to have found an HMO in a nice part of London, love it here and it is cheap. However I am in my early 40s and something about still living in a houseshare doesn't feel right, and our landlady is getting old and I am worried what will happen to the house when she is no longer around.

My salary has increased quite a bit in the last few years and it looks like I should be able to get a mortgage of about 200-250K. It's just me, and when I want to day dream I look online at properties in the area where I live, it is quite popular so I'd really only get a small flat for let's say 300K but that's all the space I need. I have a nice deposit of about 100K. I am really scared of growing old and having nowhere to live or to pay extortionate rent!

What risk is involved in buying a property? What if I move abroad after a few years, am I allowed to rent it out? Is the general expectation that after 10 years or more, that property will have risen in value and as a worst case, I can sell it - hopefully without a loss - and move on?

It feels scary to know that my savings could be wiped out by using them as a deposit AND I would have a huge debt in my name, but I do have a good income, don't spend much and it just feels like I should do this, most people seem to manage it in this country after all 

I know this is quite a general question but I don't have anyone to discuss this with so thought I would post here, I will appreciate any and all advice!

ETA I guess what I am trying to get my head round - how much of a commitment is a flat purchase? Because it feels like a lifetime thing to me, but of course, it doesn't have to be?

Yes, that would be a financial disaster.

NameUnavailable

My advice for buying a flat/leasehold property.

Ideally look for a shared freehold - that way you also own a stake in the property itself and the collective freeholders are more likely to be trying to minimise maintenance costs rather than some freeholders who see leaseholders as cash cows to milk dry!!

Look for an established building of standard construction (no cladding) and preferably 3/4 floors without costly lifts. Purpose built is best IMHO but conversions can have nice character features and feel more like a house, but they are also more prone to noise from neighbours (as they weren't built to be separate dwellings).

Look for a property that has been well maintained and check if any major works are due (i.e. is someone selling up because they know the roof needs replacing).

If you buy a shared freehold flat it should have zero ground rent and a long lease of over 900 years (there are exceptions to this).

Don't touch any property with high ground rent / doubling every 10 years etc. Many lenders are now refusing to lend on flats with high and increasing ground rent. Google AST ground rent issues.

Check the service charges. Ideally buy somewhere that's not likely to incur high charges - a listed building looks lovely, large manicured grounds look lovely, having a gym/pool/porter might seem great but that all has to be paid for by YOU!

If you can't find a shared freehold then look for as long a lease as you can get - ideally well over 100 years, and low or no ground rent. Think about when you are likely to sell it on and how long the lease will be then. Longer the better!

If you buy the right flat in the right area then it should be easy to sell if your life changes down the line. Whether you can rent it out or not depends on the terms of the lease - most allow rental but some leases are strictly no subletting and in all cases you will need freeholder and mortgage co consent.