to tell my friend I think she's making a huge mistake buying an ex council studio flat for 200k on the outskirts of London at 35 when she doesn't earn much

[entiledornot]

My friend is an estate agent in London. She's currently living in shared houses but wants to buy something. She's had her offer accepted for 200k on a small ex council studio. She has only ever seen house prices rise in her few years as an ea so she thinks this flat will be her way to a millionaire rather than somewhere to live. She only earns 20k and is making virtually no commission as the housing market is dead. Shes looking at it as an investment not a home and can only afford it as parents have given her 60k. If interest rates rise even a bit she will be screwed and she will be paying back for this tiny studio until she is in her mid 60s.it isn't in a great area, zone 3 20 min walk from any tube. Prices are already in a bubble and this could pop at anytime.

Should I just stay quiet or tell her my concerns?

Is a London property crash expected?

Depends who you ask I guess not by most on this thread it would seem.
However by most measures it is long overdue

I'm astounded at some of the advice being given on here.
When i bought my first house, i could borrow 3 my income. We've now moved to a position where 5 joint income seems to be the norm.
However, 7 times single income!!!
There are, sadly, a lot of blind people commenting on this thread.
Your friend, with an income of £20k a year, probably takes home £1340 or so a month. You don't mention kids, so there are probably no tax credits to top this up. Even if she's got a really good mortgage rate (say 2.9%) over 30 years, then that's nearly £600 a month.
So, by the time you add in council tax, bills, travel costs, food, socialising, she's pretty much got nothing left.
Now, let's imagine that at some point in the next 5 years the mortgage rate reverts to its historical average. Some people might consider the current rate - a 300 year low - to be normal, but it's not. So you are looking at another £240 a month.
Then what's she going to do? She can't let a room out.

Here's a big clue: she's an estate agent.
She's on commission.
She's not getting much commission.
What does that tell her?
And what does a business do when it doesn't earn enough to pay commissions.
Hint: she might want to consider a career change.
London prices are FALLING in most areas. Those saying we won't have a serious crash are missing the point. She's able to get a decent mortgage rate now because she has a large deposit. But what happens in 5 years, if prices have dropped maybe 20% (i can tell you in my borough, they are probably down around 5-10% in a year - that's from my brother, an estate agent in N10 - he also says, by the way, that when the media talk about prices still increasing they are mostly talking about the right move index, which is apparently based on asking prices).
So, in 5 years time, her fixed rate comes to an end. She's lost 20% of the value of her flat, which means it's only worth £160k. And be sure, in a falling market, bank valuations are very conservative. So now she doesn't qualify for a decent rate and her payments increase.
Of course, if she really wants to screw up her finances until she's 60 and beyond, she could go for interest only, if they still do it.
I am frankly astonished by people who just read headlines and become property experts because of that. Think about it, guys! Last year, house prices were rising at about 9-10% year on year. Now they are rising at the rate of about 7% year on year. You do realise, don't you, that this actually conceals A FALL?

Hmmm...interesting.
You don't believe London prices will drop.
Install Firefox on your PC.
Install the Property Bee plug in.
Choose a few properties and look at the sale history.
Hmmm....what do you see?
Yes, London prices are dropping.

Surely it has to cool at some point. The London property bubble reminds me of Ireland just before the crash. I suppose the thing is people are convinced it will keep building building and that they have to make the leap to homeownership before they're priced out of the market.

It's crashed and risen like a Phoenix from the flames before, though squoosh. Ireland will probably never even recover to it's starting point. I know barely anyone who's bought in the last 15 years who isn't still in negative equity.

Squoosh - you're right of course. The great thing about bubbles is nobody can see them ending.
We don't have to look too far back into history to see evidence of this either.
Or does nobody remember that for ten years Gordon Brown crowed about "the end to boom and bust". And we all bought into it, didn't we?
An interesting factoid for you: the only countries in Europe that have a similar room to person ratio than in the UK are Spain, Ireland and Portugal.
And all three of them have experienced property crashes.
Which kind of puts paid to the lie that London will always go up because people want to live there.

Ridiculous to compare Ireland/Dublin with London.

Okay maybe not the best comparison in that London prices will inevitably ride again as Flogging said. But not completely ridiculous in that a crash would cause a lot of immediate hardship to a lot of people.

thare's an article form 2013 where it says she lived in Streatham

not that it means, anything, just saying

But the friend isn't on £20k, is she?
That may be her basic and then her commission over the last few years will have been high. Because properties in S London have been selling fast and for high prices.
In our road prices reached a ludicrous level and then pushy EAs like Foxtons and KFH tried to keep pushing and the asking prices weren't matched. But the prices are still high, and property is still shifting.

This is a very odd thread. I wonder how many people on here have bought/ sold in London and how many are watching from a far? There is no "bubble" because house prices in London have been cooling for about a year now. At the end of 2013/ beg 2014 a shortage of properties (and it was a true shortage- it was hard to even find places to view) meant the market was mad. Not necessarily more expensive, but mad. Sealed bids, people buying without seeing etc etc. Now the market has stabilised a bit and the mania has stopped. The shortage hasn't been seen for over a year now. Prices haven't dropped. A bubble means prices go up up up up and POP crash. But they're pretty steady at the mo.

Jamie- presumably the point is the Person in question pays to rent somewhere now- she has to
Live somewhere. If she can get a mortgage at the same or
Less than her rent then she should buy- that's why people are advising it. I guess her mortgage will
Be about £700 repayment and I doubt she pays less than that currently in rent. But ,
It's probably all made up anyway

Dublin is a ridiculous comparison. London has always been expensive. Dublin experienced a property boom for the first time, and is suffering. It's not comparable in anyway.

A lot of posters are just showing a complete lack of knowledge of the city in question

I doubt that London prices can go on rising at the crazy rates they have the last few years. However, the government has rigged the market by not building sufficient new homes. London is where a lot of jobs and opportunities are and, as a global city, it is going to continue to attract people and if they want to buy their home they are going to have to pay what the market demands. I've always lived in London and my parents were in negative equity for a long time when interest rates were very high in the 80s and during the recession of the 90s. However there is so much more demand from people wanting to live in London now than there was when I was younger. I think prices may correct slightly in the next 5 years but short of nuclear terrorism making London uninhabitable it is hard to imagine how prices here could massively crash.

How many bedrooms? as if it had at least another if there was a problem she could get a lodger for a bit.

One of my daughters is remortgaging at present after 2 years. The previous owners of her flat owned it for 8 years and made £35k. She has made (if the current valuation is right) £70k in 2 years. However even if her price goes back to what she paid 2 years ago it will not have been wrong to buy because over the next 20 years or so there will be so many advantages of owning over renting. I suspect my other daughter bought at a high in London over a year ago b ut even there it won't matter as even if prices drop 20% and then rise 20% over the following 20 years they will still have the home. For most people it works like that.

Like another poster above |I remember the difficult 90s. We had borrowed 5x salary and interest rates went up to 12% at one point I think it was from 8% on black Monday when we came out of EMS.

This year is interesting as this month is the first time since about 1930 that the UK has had a year of falling prices - deflation, not any inflation at all - in general ( consumer prices). It does not feel as if we are going into a 1920s or 30s slump but even if we are in my view given most people own property for 40 or 50 years it pays to buy. If you wait around trying to predict the exact point the market is at its bottom you will probably never buy and regret it later.

Lots of people are clueless on here, some saying London market is dead, others very busy and some saying they have decreased!

London is very different to Dublin, the whole world wants to live in London and buy property there as it offers so much.

Can't see them crashing ever as its too important for the UK and most good jobs are there. At worst they will calm down and just carry on increasing with inflation.

If you plan to live in your London home for decades, then a crash doesn't really matter unless you've overextended yourself. If you plan to climb the ladder as your family grows, you are much more vulnerable to the fluctuations of the market.

The market in central London has definitely slowed down a bit lately. My downstairs neighbour paid £365,000 for her flat in July and she was telling me over tea on Sunday that Zoopla now thinks it's worth £350,000. (I told her to stop looking at Zoopla ) So, on digital paper, that's a loss of £15,000 in 6 months. Of course, Zoopla could be wrong and/or prices could go back up again in 6 months - who knows. Certainly not the experts and CERTAINLY NOT estate agents.

The only questions that really matter to the OP's friend are:

• Would she be happy living there for 5-10 years, if she couldn't sell in the short term because of market instability?
• Would she be able to afford the mortgage if interest rates increased by 2-3% - or would she be able to rent it? What about 5-6%?
• Can her parents genuinely afford to give her this money? What about their retirement plans?

I don't think the OP would be unreasonable to pose those to her friend (ok, maybe not the last one - but the top two). I wouldn't have been upset if someone asked me those when I bought - I'd have appreciated their concern for me. Spending £200k on something is a huge commitment and is always going to be a risk. So I don't see any harm in the OP posing these questions to her friend in a calm, non-patronising way. If she is indeed 'a grown up financially literate 35 yr old woman who has learnt from her past mistakes' as people above are suggesting, then she will have thought all these things through and won't be bothered by them. If she does get upset by them, then that raises a red flag and it was good the OP asked them.

The one thing to keep in mind is - what happens if you give her advice, she goes ahead and buys, and then things go wrong? What would that do to your friendship? But on the other hand, if you're more worried about keeping the peace with your friend than the welfare of your friend, perhaps it wouldn't be a very genuine friendship anyway?

Btw, have you all seen the parallel HPC thread that has been created to discuss this thread? (there were 2, no less, but have since been merged)
www.housepricecrash.co.uk/forum/index.php?/topic/203267-l200k-studio-on-a-l20k-salary-mumsnet-gold-merged/

I won't discuss its content (except to say I actually agree with a lot of it). I just wanted to ask - can you believe how bizarrely sexist some of the posters are? It's rather like they're parodying themselves, yet alas I don't think they are.

Even the milder ones talk about their wives as if they are small children they need to steer in the direction of logic and common sense. 'Now honey, I know your pretty head gets confused by complicated man-science like early repayment charges and amortization tables, so I've broken it all down into really simple language and drawn pretty illustrations next to each point in pink crayon... now do you see?'. How do you think the wives put up with it?

Then there are the ones who just assume all women are some sort of strange cross between Barbara Stanwyck and Waynetta: either out for taking their husbands money in the divorce courts or the state's money by popping out fatherless babies. Don't they know we can earn our own money now? I mean, we can even drive.

And then there are the posters who are so breathtakingly misogynist, you have to wonder if they have ever actually spoken to a real live woman in the 21st century (for whose company they haven't paid). I quote:

Typical female "logic".

You say that because you're a man. Using my special woman-only calculator....

Its only a short hop to "Unreasonable behaviour" on the divorce papers.

Are the mse vi property bullys on there pretending to be women? (The assumption being, of course, that no one on the money saving expert forums could actually be a woman - no all we worry about is marrying the rich men or raising the organic babies and or colour-matching our hair tones with our living room accessories)

Because all their husbands are EAs and bankers? (women ... jobs ... can't compute ...)

Anyway, since they're discussing us, thought we could briefly turn the spotlight on them (I'm kind of intrigued to see how the more sexist ones will react - I expect say I need to lighten up and get a sense of humour? because casual sexism, always way hilarious). Although I don't understand why it has to be 'us' and 'them'. Whatever the pros and cons of the HPC argument, they really undermine themselves sometimes with this neanderthal schtick .

The HPC site has been hilarious from day 1.

I wonder how many of them are actually still waiting to invest after the crash...

Thanks for that cunning.
I like the way that a bunch of people who are posting of a forum simply about house prices are accusing us of being a cult.

And they seem to be misundering that most people are saying that it's none of the op's business rather than its a good idea.

That place in tower bridge down thread looks a better buy. It's near the city so if she does want to move out its going to be easy to rent out, if it's done up. Or easy to sell.

She could buy something bigger outside London but I presume she likes the London life and doesn't want to commute. It's a lifestyle choice as well as an investment. Maybe she plans to do it up and sell it on, taking the hit if there is one from a mortage company.

Surely she would have done her research before making an offer? And I expect she wants her own place. All very reasonable and if she likes the area, and maybe the tube line is being extended? Perhaps her parents want her settled and not renting and hanging on for Mr Right.

It's a bit late in the day for you, really, to say anything, although she could just be blindsided by the thought of her own pad. But she's an estate agent!

There is def a certain type of Middle Aged saddo who seems fixated on house prices. What it's really about is them needing someone else to suffer in order to feel happy(ish) and fulfilled themselves.