London FTBs with a DC - to stretch for a mortgage or review my expectations?

[Somethingsgotthagive]

Properties we could have easily afforded a while ago are not at the very top end of our budget and would imply we need to compromise to very high monthly payments and cut on other lifestyle expenses (such as traveling and day outs, which for us are important).
I begin to wonder whether being an adult also means I should stop fantasising about the perfect property and instead settle for something more modest and keep our mortgage payments low in this time of high rates and instability. Would it be a mistake in the long run?
We are a family of 3 (1 DC pre school) in the London suburbs, we don’t want to move too far away from current are for a multitude of reasons.

Monthly repayments at top end of our budget would be around £2750ish whereas if we settled for something less “nice” or smaller, it would be more around £2200 (still a lot but feels low in the current rates climate).

We are FTBs in our 40s so not exactly expecting to climb the housing ladder much if ever.

I think the thing is have you even looked at moving out and what you can get as well in order to make the choice
what zone of London are you looking in

Hi OP, i understand your question. We're in the same boat but without a child. We've given up on the idea of a 2 bed with garden in our preferred part of London (could have afforded a year ago but didn't move quickly enough) and are now looking at bigger than average one beds and might eventually put in a garden studio or loft as home office. That change in plan feels much less scary with all the uncertainty in global economy and allows us hold back a nice amount of savings for any shocks. I'd go for the more modest option, enjoy still having days out etc. Better than being stressed about money and having a bigger home!

I appreciate the advice people are trying to give me but this post really isn’t about whether I should be moving further out and get a bigger place… maybe I didn’t explain myself well enough or perhaps the majority of people here in the UK can’t understand why we’d make a choice like this if we could get a house elsewhere!?!🤷🏻‍♀️

We are similar age, two kids and about to downsize to save mortgage payments and have better liftstyle. So I would go for the cheaper option especially as houses/flats can be expensive - have you included any maintainance costs in your budget? Our house that we are selling is old so has needed lots of stuff fixing

People in the UK are baised against flats, probably because leasehold is confusing.

As long as you understand your lease and what service charges can be, it’s fine. You don’t spend zero money on maintaining a house, this is often equitable to the service charge over time, and actually with the council as leaseholders you have a process to raise concerns if charges are unreasonable. Private freeholders are harder to hold to account.

Anyway, rant on that over, I totally get where you are @Somethingsgotthagive, I am slightly further down the line from you in that I have the “first version / cheaper flat” and was considering a move to the “second version / more expensive one” and I am now not doing that for now as interest rates and childcare make it feel like too much of a stretch at the moment. I’ll reassess in a few years.

@RulaLenskasHair thank you, wishing you luck if you end up moving. Do you have DC and is it a flat you are considering next?
TBH I think my main struggle is to fit in with the british mentality, I don’t get this obsession with houses, it baffles me as in Europe living in a flat is the absolute norm for the vast majority of families of all incomes.

I’m not biased against flats at all, but there are no associations or standards that management companies have to either belong to or adhere to. You can understand the terms of the lease but if the freeholder decides to change management companies for one that charges enormous call out charges for every little thing it is an unknown cost. Or demands a fee for every consent you are required to obtain before you want to make changes to your own property - new kitchen/bathroom/ window/ front door etc. there is a reason that the government is considering bring in changes to this area at the moment and that is owing to the Wild West of companies that exist out there. That is my point. You are rightly considering your fixed costs but these are unknown and very often not within your control.

@Netaporter I assume these charges will be listed in the leasehold contract? (The management fee I know can change but I mean having to ask permission for a nee kitchen etc. Is this standard across all leaseholds?)
We are hoping to find a share of freehold tbh

The specific types of work may not be explicitly listed but the requirement for consent may well be. Some investors buy freeholds for consent fees, pack prep fees and for prospective lease extensions which can be lucrative. Consents for work could include fees for surveyors to check plans, solicitors fees for wording of consents (say for a sublet) but more importantly consents may be chargeable for each part of the works. Fees have to be ‘reasonable’ but there is no definition of ‘reasonable’. A share of the freehold may be more desirable but if a property of 4/5/6 leases the majority of leaseholders want to move to a management company but you do not, you could be out voted. Whilst a share of freehold property may sound more logical. You should be aware that without a defined management company in place it could be more difficult to find a lender because there are no defined maintenance plans for the building - hence the instruction of a management company. These issues used to not be a concern years ago but as lenders become more cautious they are now.

If you are considering a flat, do as much groundwork as you can via the LR to establish what you might be in for before you start to pay out for conveyancing or freeholder legal packs which can take ages to arrive. Each leasehold property will have 2 entries on the LR - one for the freeholder and one for the leaseholder. It is the leaseholder’s entry you need to read. It will cost you £3 to download. Ask lots of questions to the current leaseholder as to how the maintenance is managed when you view. Good luck in your search!

@Somethingsgotthagive I mention these costs not to be a nay-sayer but you are obviously giving the financials a thorough review so awareness of potential issues might be useful when you make your decision - especially if you intend to stretch yourselves financially.

In short - yes, permissions etc should certainly be covered in the lease. I would recommend using a solicitor that does a lot of leasehold purchases when buying AND reading the lease yourself, they are not usually complex.

@Netaporter is right to raise all this, but the simple fact is in London, most affordable properties are flats, and most are leasehold. Share of freehold can be better if the other freeholders are reasonable!

Yes it’s a shitty system, which I would dearly like to see reformed, but largely if you read your lease, understand how your service charge works (sinking fund or not etc), save money each year for works (that you would have spent on house maintenance), it will probably be absolutely fine.

Ive also thought about it in the past in this way - it would cost me another £300k at least to buy a comparable two bed freehold house in my area, which I don’t have, so even if I spend £10k a year on service charges for ten years say I live here, I’m still better off.

Yes one DC, and yes it would be another flat, I just can’t afford a house. But I also like a lot of things about a flat, in a world where leasehold wasn’t shit I think I’d still choose a flat?

But largely I agree with you, I don’t want to live further out to have more space. I want to live where I live and the space I have is great for that.

I would stretch. If it’s 5 years fixed that means 5 years of (hopefully) annual salary increases, either just inflationary or higher if either of you can get promoted. So the hardest time to pay a massive mortgage is the first year and then it should get easier.

if your circumstances change (like if you one of you lost your jobs) you have options if you own - you can get a lodger, you could go on interest only for a bit, if you really had to you could rent it out and then rent somewhere else.

I'd never stretch myself to buy a property. Seems so silly to put yourself in such a precarious position.

Hey OP just to pick one point, you're absolutely not failing as a parent. 60-70sqm isn't too tiny for a small DC. I'm from a Scandinavian country originally where flats that size are very standard for one-child families in the cities. You're making a decision to prioritise financial security and lifestyle above having the largest possible home, and those are both important factors.

Unless you're very savvy and/or lucky there are no guarantees of equity increases in housing at the moment so personally I wouldn't overstretch in your position (and my position is quite similar so I do sympathise that the options don't feel great, in London it's just not the case that you can move slightly further out for double the space!)

That sounds so expensive! I wouldn’t want my mortgage to be over £1000 per month

@DonnaBanana where do you live?

@Toomanyemails thank you! I agree we just need to stick to our priorities and do our best <3

@RulaLenskasHair thank you. Yes same, even if I wanted a 2 bed house where I live, I'd have to consider at least another 100K on top of my budget so might as well have a flat for the same square footage. I am used to flat living so don't mind it at all either and see a lot of benefits to it, bar the lack of outdoor space.
I will make sure we read the lease carefully and select a good solicitor, I assume these are quite easy to find? Never actually dealt with one before so it's all very new to us!

HI @Somethingsgotthagive use your local FB page to ask for good conveyancing solicitors. Personally I'd avoid any Solicitors that the EA are pushing and definitely avoid cheap online ones. You will want to get the best advice which won't be cheap. Usually the vendor pays for the LPE1 (Standardised Leasehold Property Enquiries Form) which gives you the basic information. Theoretically these are in the region of £200, but there is no standardised fee and management companies (if there is one) can charge more. Google 'most recent LPE1 forms' and have a look. These set out the associated charges but are useful to establish the costs involved in ownership of the property you are looking at, and establishes when the Ground Rent (GR) will rise etc. Remember, GR is paid to the Freeholder and SC (Service Charge) to the Management Company (which should be separate from the LL's business/account). It will also indicate if the vendor is behind in paying either the service charge or GR which you need to understand before exchange because you will be liable for anything unpaid by the previous tenant. The LPE will also allow you to discover if S20 works (major works - roof/windows/common parts/exterior decorating etc) notices have been issued. If they have, you should establish if there is a sinking fund or how much your share could be. Understanding what parts of the building fall within your demise is also useful - just because you are on the Ground Floor may not exempt you to the repairs to the roof even if your property is unaffected by damage to it. You should also establish who is responsible for management of and repair to pipework between the properties - if the upstairs washing machine floods - can you claim on the Service Charge fund for example? The Freeholder is also permitted to recharge the cost of the buildings insurance and you will need to account for contents insurance. The LL is under no obligation to make the cost of insurance fall within a price bracket. A shared freehold insurance can become tricky if there is an absent LL so check carefully if you are buying at auction for example.

Hope that all helps - it is easier than it sounds if you have got a good solicitor, but before you get into spending money on surveys/mortgage fees have a feel for the proposition by doing as much leg work as you can before committing financially.

I would buy a share of freehold flat. I am in my early 30s and live in a tiny 1930s style 2 bed flat in zone 3 which I would probably have a baby in before i move to a slightly larger flat. the residents own the freehold.

My next flat would probably be around 75 sq m to 85 sq m. My priority is lifestyle and being mortgage free in my 40s. Housing is so overpriced that I don't see it as a sacrifice, i just see it as using our money more wisely. The money you save on the mortgage can be used to do many more important things. Housing used to be cheap relative to income while consumer items and international travel and even food was prohibitive. Now it is the opposite. Which is why you had people moving into big houses but had threadbare carpets and hardly ever ate out and the yearly holiday was just going to Butlins.
So we can load up on waitrose, holidays while living in a modest home. I am not super interested in material possessions.

Different behaviours for different times

you can buy a garden flat?

Not read full thread - and this is not the type of answer that you are looking for, but if it were me, I would look at relocating elsewhere in the country, if there are employment opportunities for you outside of London. A lot of families move out of London when their dc are in later years at primary school, for access to secondary schools, so if you moved now (with a pre-school dc) you would be able to establish friend networks much easier (it is so much easier when children are smaller, ie nursery age or first couple of years of primary). We have friends who live in a much more affordable part of the country than us, and it is astounding, just how lovely some of the 4 bed detached properties are, near excellent schools - whereas here in London you would struggle to get a one-bed flat for that. I do find myself yearning for a slower-paced life as well - and day-dreaming of moving away (but we are fixed here now for a while due to schooling)… good luck with whatever you decide :)
Also - there are some locations that are cheaper but commutable to London, have you considered those? (Eg parts of Kent / Essex?)

I totally get why you wouldn't want to move further out. I'm in Zone 2 in a 2 bed flat and keep thinking about it but it never looks worth the extra commuting and travel costs.

Personally I'd stretch as far as you both feel you can be comfortable with. That doesn't mean the max you can borrow but might mean more than than one would prefer . I started off borrowing 5x my then salary (!), interest rate was 5.44% and mortgage plus service charges was about 45% of net monthly pay. Obviously I have more equity now, access to better rates and salary has gone up but it was very tight in the early years. Even now mortgage + service charge is around 35% of net pay. My only regret is not buying something with a garden or even a little terrace or patio, so if that's important to you don't compromise.

I strongly advise going for share of freehold as you do have a bit more control over spending (so long as other freeholders are reasonable too). Do check not just what the service charges now but the maintenance history of the property and any potential big upcoming costs. And is there a sinking fund for repairs and maintenance.

For example it wasn't picked up by my solicitor that it was planned to spend a lot on repairing the lift within the first year of me being here. That came from the reserve fund but wiped it out and then meant years of building it back up again. Now we are about to start replacing the roof. Service charge is already £4K p.a. (although that includes heating and it shot up in last year or so due to increased fuel costs. Even with the reserve fund, the roof will mean an extra charge (in the thousands) per flat over 3 years. This is not to put you off, just go into it with eyes open.

@Stoufer thank you for this but definitely not interested in other parts of the UK, I'd rather move abroad than leave London &surroundings (I am not British).

@Netaporter super helpful, thanks so much!