Should I continue to Rent or Buy now - London

MoodyFirstTimeBuyer

Hi all,

I’m facing a tough decision and need help.

I’ve been renting for the last 6 years and now pay £1600/month in London. My tenancy is due for a review in May. I am guessing it will go up again to around £1700 - £1750.

I have an opportunity to buy a 1 bed flat in the building I live in for £356,000 (last sold in 2016 for 395k).

I can only afford a 5% deposit and only 1 bank will lend to me (Nationwide Helping Hand at 5 yr fixed term). This will mean I pay a mortgage of 1680 a month. Annoyingly there is a high service charge of 2500 every 6 months (which includes gas, hot water, 24 hour concierge, on site plumber, security, etc.).

I will be buying on my own and have savings of 22,500 to cover the deposit with other costs (like solicitors etc. coming from friends and family).

I'm on a decent enough salary at 75k a year but find it difficult to save currently given costs of London living, rent etc.

I would like to stay where I am living and would most likely stay in London for another 10 years or so.

Using online calculators suggest I am in the red regardless of buying or renting but that I would still be less in the red if I buy.

What are your thoughts? should I take the plunge and buy now using a 5% deposit or should I hold fire and look to try and save as much as possible in the next few years.

My immediate thoughts are:

- Stamp duty relief ends in April 2025 - will this make me worse off?

- As rates go down prices may go up - Does this mean that I need to save even more to be able to afford the same property I am looking at now? given it last sold for 395k (so wouldn't be able to afford it back then).

Any help would be much appreciated as I have had the offer accepted on the property and a mortgage in principle.

JM68

Without knowing where you want to buy its hard to 356,000 is fair value.  If it was a new build in 2016 then less likely than if its was not (and others sold for similar amounts).

If it is fair(ish) value, you like living there, and can get the mortgage you need then buying probably makes sense over continuing to rent.

However, with those service charges I assume your outgoings will be even higher than now as you will be paying not your landlord.

Personally I would buy but something lower in price (even if a bit further out), with lower service charges, so I would not be so maxed out.

On your two points.

I was not aware there was an end date to first time buyer stamp duty holiday, but if there is that again makes buying sooner rather than later more sensible.

In my view, interest rates may gown down a bit but are unlikely to return to the historical lows of recent years.  I doubt it will significantly affect prices if they do, in the same way as the recent increases over the last year seem to have had only a small (less than 5%) impact.  Plus on your salary with current outgoings (and your self admitted track record) I doubt you will be able to save a huge amount in the next couple of years

Martico

I'd go for it if you like the place - once you buy, the debt is inflation-proof. And on that salary you should be able to service the mortgage and service charge comfortably with a bit of budgeting, without too much of a hit on lifestyle

MoodyFirstTimeBuyer

JM68 said:

Without knowing where you want to buy its hard to 356,000 is fair value.  If it was a new build in 2016 then less likely than if its was not (and others sold for similar amounts).

If it is fair(ish) value, you like living there, and can get the mortgage you need then buying probably makes sense over continuing to rent.

However, with those service charges I assume your outgoings will be even higher than now as you will be paying not your landlord.

Personally I would buy but something lower in price (even if a bit further out), with lower service charges, so I would not be so maxed out.

On your two points.

I was not aware there was an end date to first time buyer stamp duty holiday, but if there is that again makes buying sooner rather than later more sensible.

In my view, interest rates may gown down a bit but are unlikely to return to the historical lows of recent years.  I doubt it will significantly affect prices if they do, in the same way as the recent increases over the last year seem to have had only a small (less than 5%) impact.  Plus on your salary with current outgoings (and your self admitted track record) I doubt you will be able to save a huge amount in the next couple of years

Thank you for your reply. 

So where I’m looking is in Balham in South West London. I have considered looking further out but value having both the underground and overground stations at my doorstep. 

I did ask about service charges and apparently they only went up by 2k in 20 years and if was due to the price of gas going up. I’m told that they are looking to bring it down slightly. 

I looked at the stamp duty and apparently it’s due to end in April 2025 meaning from then the threshold will go back from 425k to 300k (unless the current/new government extend it) 

one thing I was holding onto is the fact the property previously sold for 395k and others have sold upwards of 370k in recent years in the same block - so I’m hoping I’ve got a good deal from the price I may be paying. 

What I will say is the property itself isn’t a “dream” home - but it’s difficult to find anything in London when only 1 bank is happy to lend to me at 348k max 

Albermarle

Although prices in that area did not move up that much between 2016 and today, it is surprising this one has actually gone down by 10%, so I would be wondering why ? Was it a new build, or is the lease starting to get a bit short, or some other reason ?

MoodyFirstTimeBuyer

Albermarle said:

Although prices in that area did not move up that much between 2016 and today, it is surprising this one has actually gone down by 10%, so I would be wondering why ? Was it a new build, or is the lease starting to get a bit short, or some other reason ?

It’s a good question. The lease is 163 years. I think the reason for the inflated price was potentially because it had a refurb prior to it being sold in 2016. New kitchen fitted etc. 

The only other thing I can think is due to the spike in service charge going from 3.8k to 5k a year when the gas rates shot up - perhaps it’s put people off? 

For me, I’ve lived in the block renting for the last 5-6 years so know it inside out, it’s pros and cons etc. and for the price it’s probably the only thing I can afford that near to an underground and overground station as well as shops. 

The only thing that makes me hesitant in buying is whether now is the right time or whether I’m better off holding out a bit longer in the hope more first time buyer schemes come out, or that I can save more to put a larger deposit down in a few years. 

Emmia

There are lots of places with tube and underground, I live in NW London with both within a 5-10 minute walk, but if the area is good for you in terms of commuting to work, hobbies etc., then buying could be a good option - I would however go and see other properties in the area that are available for sale to compare them, and the costs involved as it's a hefty service charge you're looking at.

MoodyFirstTimeBuyer

Emmia said:

There are lots of places with tube and underground, I live in NW London with both within a 5-10 minute walk, but if the area is good for you in terms of commuting to work, hobbies etc., then buying could be a good option - I would however go and see other properties in the area that are available for sale to compare them, and the costs involved as it's a hefty service charge you're looking at.

Agree with you, although I’ve been assured that the service charges will come down this year as gas rates come down (it was 3.4k a year prior to energy bill increase) as the service charges include heating and hot water. 

I’ve already viewed a good number of properties across London. Only issue I have, there’s very little I can get for my small budget which is within a good area

BlueonBlue

If you can do it ...do it right now .
London changes very very fast it only gets more expensive and you may not be able to buy in the future for lots of reasons that time as it passes becomes more obvious but may not be obvious now  .
When buying in london the stars will never all line up when buying ...something will always be wrong or sub optimal  .
The greatest point to consider is you can do this right now ....so do it while its possible.... or you may regret it later  .
In twenty years the rent will be double ,your work or income and health is never safe at any time .
If you have your youth health income  buy it before its too late dont sweat the small stuff just do it ...get it done .
Then you have security to plan ahead for your next step.

mark_cycling00

Most people spend about 20 mins viewing the most expensive thing they'll ever buy. You've lived there and so you have a really really good idea of whether you'll like living there and if it's actually convenient and not too noisy etc.

I really wouldn't try to time the market. You'll just get gazumped when things pick up and end up paying way more for a place that's less good 
Election coming you're gambling against unpopular government trying to win votes with new buying schemes.

Does the service charge info come from leaseholders or the estate agent? Do you have block directors or block reps who go to meetings with the managing agents? They'll usually give you honest advice and also know about any planned works or regular refurb costs.

It's rare but sometimes people sell low to dump a flat quickly before they get hit with a big bill for expenditure 

MoodyFirstTimeBuyer

mark_cycling00 said:

Most people spend about 20 mins viewing the most expensive thing they'll ever buy. You've lived there and so you have a really really good idea of whether you'll like living there and if it's actually convenient and not too noisy etc.

I really wouldn't try to time the market. You'll just get gazumped when things pick up and end up paying way more for a place that's less good 
Election coming you're gambling against unpopular government trying to win votes with new buying schemes.

Does the service charge info come from leaseholders or the estate agent? Do you have block directors or block reps who go to meetings with the managing agents? They'll usually give you honest advice and also know about any planned works or regular refurb costs.

It's rare but sometimes people sell low to dump a flat quickly before they get hit with a big bill for expenditure 

Thank you Mark, really appreciate it. 

I did hear of the government toying over 99% mortgages for first time buyers, but I suspect this will cause more issues than it will resolve. Inflating house prices and risking negative equity. 

The service charges come from the leaseholders and the block does have reps that attend with the managing agents. A recent letter went out in December to advise that service charges would be coming down this year (hopefully due to a reduction in gas prices) I’ve also been informed that there is over £1m sinking fund which they have available for maintenance, repairs etc to avoid fluctuations in charges. 

The current vendor has lived in the flat since 2016 and I think is now wanting to sell as she’s met her partner and they are wanting to buy a place together (which I think they complete on soon) so it’ll be a chain free purchase for me.