Is this the wrong time to buy in London?

[silversixpence]

We have an offer on our house (not accepted yet) and have made an offer for a house in the exact area we want at an affordable price for us. There are only 3-4 streets with nicer housing than the road we currently live on and most of the houses are out of our budget and rarely come up for sale. This house needs a lot of work but will be perfect once finished.

However I'm a bit nervous as keep reading doom and gloom articles about the housing market and a new global financial crash. We don't need to move now - should we wait a few more years? Or would we risk missing our chance to live where we want if prices rise further? If we don't sell now we might be able to keep our current house and buy our next property using the rental to cover the mortgage (if house prices fall).

Mortgage is approx 2 times my husband's income, if we both work it would be 1.5x our joint incomes.

[aginghippy]

Prices will undoubtedly rise further in London IMO. It's a matter of supply and demand. There is already a housing shortage and the population is predicted to increase significantly.

Yes you risk missing your chance to live where you want in the future. Prices will rise further.

You have made an offer for a house you want at a price you can afford. Go for it!

[Whatthefoxgoingon]

2x income is a small mortgage for London (your income must be very high!) and if it will really improve your life, I would advise you do it. When there is lots of talk of a crash, it doesn't come. Most crashes are sudden and largely unexpected. Even if there is a crash, if you can ride it out, you'll be fine.

[Wuffleflump]

If the house you want is available now and you can afford it, buy it.

Everything else is speculation on forces beyond your control, and beyond the understanding even of experts.

[howtorebuild]

Go for it.

[silversixpence]

Whatthefox our income is ok for London but not that high, we are just fortunate that my husband bought in an up and coming area in his 20s! The house we are buying is a very average semi detached anywhere else in the UK

That puts my mind a bit more at ease. I know that the house we are buying is on a very desirable road and we plan to extend so the value wouldn't drop but my husband is very cautious financially and keeps worrying about it.

[Whatthefoxgoingon]

If you plan to stay put for 10 years plus, it's a no brainer!

[cunningplan101]

I would say the biggest risk in London right now would be to buy a new build flat. There is going to be a glut of new build flats next year on the market at over inflated prices and they aren't going to sell (IMO). Some Asian investors in new builds are already selling up as they think this. So there may be a 'crash' in new build flats.

Whether this will spread to period properties is another question ... It may spook people a bit. Lots of headlines about 'falling prices' may turn sentiment. On the other hand, if interest rates remain low, which they probably will, there won't be many forced sellers. BTLers may start selling off - yields are pretty low right now so most BTLers who have bought in the last few years are counting on a capital rise; if they stop believing in that, they may rush to sell before prices drop further. But BTL stock that goes will prob be the grottier, poorly maintained end of the period property market - badly converted flats with cheap laminate floor and kitchen in living room, etc

Home owners of nicely maintained period houses may just dig their heels in and wait it out, if interest rates remain low. Transactions will drop off, and it'll still be very hard to find a bargain.

So, you could end up making a paper loss for a few years. But I really doubt you'll be sitting in your new house and seeing lots of beautiful, cheaper houses that coming into the market all around you. As long as you're not over stretching yourself, and not seeing this as a purely financial investment and will really kick yourself if you happen to end up buying at the top of the market and have to stay put for a few years, I wouldn't worry.

[Dungandbother]

Just posting to say what a great post cunningplan

Very insightful, well said and put together. Just thank you.

I agree. I own a period Victoria terraced property in greater London, been here ten years. I thought the same way as OP ten years ago and what you have said is certainly relevant where I live.

The availability of decent maintained period property in London is always placed at the top of the market.

[ledgeoffseason]

Cunningplan says it well, but also remember there is a lot of pent up demand in London, people with extremely good jobs and good incomes who cannot buy what they want… if something other than restriction in mortgage lending or hike in rates occurred to depress prices (e.g. mass disappearance of overseas buyers) you might well see the market saved from collapse by London buyers who see their chance to improve their lot.

Honestly, I am in my thirties and we have managed to buy a house in a nice area, but with huge compromises (beside quite a dodgy area - I mean, I've always lived in/beside dodgy areas in London, it's what makes the city, but this is a new level! Also needs a lot of work that we currently can't afford). All of my friends, who if compared to the rest of the UK have proportionately large incomes, are making enormous compromises too, either in size, condition, or area. That's just life here. If something happened to knock 200k off the price of houses on my street, I'd imagine there would be a queue of people down the street - not because it represents a better or worse investment, but because people are so desperate here to get a reasonable place to live and most importantly to bring up their children. Something that affected rates/mortgage availability might dampen that, but considering a friend just sold her nice period two-bed in a reasonable area for a million in cash to a first time buyer , there is definitely still demand.

Anyway, I am rambling but if you have the chance to buy a house you want in an area you want for a feasible and not ruinous salary multiple, GO FOR IT! It would be a rational decision to make anywhere in the country, let alone here in the centre of the madness! But get on it! Our next door house was put on at a crazy price (cue all of us neighbours tutting even though you'd think we'd be pleased - it's all gone too far to be pleased, it's like a very depressing game of high-stakes monopoly!). They had thirteen offers in a couple of days, went to sealed bids for obviously higher sum than the crazy headline price, even though all knew it needed at least 200k work. The man who bought it didn't even have time to get a survey - apparently this is quite common now? . It is in such bad nick that they are spending far more than 200k taking it back to the brick and reroofing etc.

Go get your house.

[MummaGiles]

So long as it is a house you can grow into and could be a long term property if the property were to crash and you were in a position where you couldn't move, then go for it.

[LittlePie14]

We have 2 in East London. OH bought in 2012 for £226k, valued in 2015 (early) at £360k (it's a 2bed flippin terrace for god's sake!!). That's not bragging - it shows only going to go up for the next couple of years. We're renting that out and used a large chunk of equity from it and bought an absolute shit hole of a house along the Crossrail route, we were so lucky as houses round this particular couple of streets are owned for 30+ years and it's very neighbourly and lovely. Previously a drug den (no lie) and it's a wonderful Victorian terrace that's currently having an awful lot of money ploughed into it. We've knocked down walls, chimney breasts, moved a bathroom upstairs, are doing a loft conversion.....and it'll increase by another X,Y and Z by the time we're done. And that's before Crossrail comes in in 2018. If you wait too long in London you'll find yourself priced out regardless of if the market crashes or not.

Best thing to do is look on zoopla/property sites, find the nicest house on that street that's pretty much the same as yours, and see what it's worth now, compared to what yours is. Should give you an idea of it's potential before you extend, then do the same if anyone else has extended. Very exciting - good luck!!

[BabyGanoush]

Careful with owning 2 houses, look at the tax side

You may end up paying hefty tax once you sell the second house (on the value increase between you buying and selling it) a few years down the line

[LittlePie14]

baby obviously we considered all things, Capital Gains Tax being the big one. Which does not apply to the second purchase as this is our home, just the first one.

[TFPsa]

I don't think it's an amazingly good time to buy in London, the current ultralow interest yields are suggestive of some fairly serious overvaluation, but if you're borrowing 2x single income, presumably at less than 50% LTV, then provided that your husband's employment prospects are reasonably steady [and, e.g. that he's not, say, too far the wrong side of his late thirties or something] the downside risks don't really seem all that bad.

[Hairy1]

I'd be wary of London right now. If you aren't on that high an income and a new purchase stretches you any further, just please do factor in the fact that interest rates are at their lowest ever and the only direction they can go is up, that there is already pressure on the BoE to do so.

Please also note that even the investment banks are stating that London is a housing bubble of enormous proportions.

Warren Buffet states of investing: be greedy when people are scared and scared when people are greedy.

My viewpoint would be to stay put and if the market does rise, it rises on the property you own.

As for CGT on houses let out, remember too that you now have to pay income tax on the earnings, without expenses taken into consideration.

For the record, I sold up this year, selling my house and one BTL. We've moved out to Somerset into a rental. Stagnant here, nothing moving as prices, even here, are well out of reach of the local people.

[Betty4321]

Is this the wrong time to buy in London?

Yes for the following reasons.
1, Stamp duty changes have lead to big price falls in high end property in the center and rippling out, they continue to fall. People simply don't want to pay £100,000s on stamp duty.

2, The foreign property buyers have stopped buying. Financial problems in China and Singapore have lead to them now selling not buying. Russia has the sanctions stopping them investing. Greece and France have already moved their money here Huge amounts of luxury flats are being built like Earls Court,waterfronts, Old Oak Common. But now foreign buyers are pulling out despite putting deposits down. There will be a flood of unsold flats flooding market.

3, Buy to let changes. Landlords are losing their tax relief on their interest only mortgages and wear and tear bonus. Its going to mean financial ruin for those highly geared ones. Then you have the buy to let mortgage changes, its going to be like the MMR for residential mortgages and is going to hugely reduce the money they can borrow. Landlords are starting to sell up before people realise the property bubble is properly popping, just look on the landlord forums to see the anger of the changes. They are also talking of not buying new properties and selling off existing ones to reduce debt on the rest

Supply is going to increase, demand is going to fall. House prices are limited by fiance available, if fiance is drying up how are prices going to rise?

I believe prices in London will continue to fall like have the last 6 months and spread out across the country.

[Betty4321]

London house prices most overvalued in the world, says UBS

Bank warns inflated prices are a bubble at risk of bursting with prices decoupled from incomes, and says new investors should expect no medium- or long-term gain

www.theguardian.com/money/2015/oct/29/london-house-prices-most-overvalued-world-ubs

[silversixpence]

Interesting reading.. I think we would be relatively safe as the house is in need of improvement and larger/improved houses would be probably 200k more on that road (none sold in the past 18 months to make a comparison as people rarely move). We would plan to live there for 20+ years. Our joint income (if worst case scenario and I had to work full time) would be 1.5x the full mortgage. If DH is out of work (not impossible as he is "the wrong side of late thirties" and in public sector but at a senior level) then it would be possible to cover the mortgage and bills with my salary alone even with interest rises (to a point).

We had a flat in negative equity after the last housing crash so don't want to make the same mistake twice! However that was a completely different area and style of house.

[CherriBlossim]

aginghippy - are you an EA?

[HarpoBoy]

Prepare for this thread to be deluged with absolute whining nonsense from the wise old owls over on housepricecrash

www.housepricecrash.co.uk/forum/index.php?/topic/207047-mumsnet-hippy-boomer-urges-yuppie-couple-to-buy-in-london/

[Hairy1]

There seems to be some crazy folk over on that forum, but make no mistake, the market is changing, as is sentiment; you do not get the government going on about a 'housing crisis' if there a) Isn't one and b) If they aren't prepping the electorate for changes.

The reason I sold up was notifications from the banks that it was untenable and then noises from the government that there was a bubble. Add to that Gidiots destruction of the BTL market and you've, effectively, got a perfect storm coming.

Just do some reading about it all. Don't go over to that housing forum as you'll come out covered in tin foil, but do take notice of everything that's being said about the market.

[MouseMartin]

You have to remember that unless you own a house you are a 2nd or even 3rd class citizen in the UK. Therefore I think it would be a really good time to buy a house and not to worry about market fundamentals or the small detail that the economy is still on the ropes.

[silversixpence]

Just for clarity, can I ask what the worst case scenario would be for us. I don't want to give exact numbers but we would have a LTV of about 30% and monthly payments wold be 20% of my husband's income.

[silversixpence]

Also, for those from housepricecrash we are already homeowners not a naive "yuppy couple"

[PossumPied]

I used to read that forum a lot (found when we first bought in London in 2010). 5 years on the posts are getting very repetitive! However if l had STR like a lot of them did l would be pretty pissed off too.

2 x one salary is very good OP, especially for London. We are 1.75 x joint salary and it's very manageable.

Personally I'd be annoyed to pay nearly £100,000 more than we did for my house now but people are (neighbours just sold for £150k more and there's is smaller ). But I'm not sure if prices will go down. It's hard to believe they can keep going up though.

Ps Betty4321 you are so clearly a HPCer, that's probably the worst nn I've seen on here.