Persuade me that I should buy a flat

[Gwenhwyfar]

I'm middle aged and now is the first time that I think I MAY have enough earnings and savings to buy a small flat. I keep reading on here things like 'nobody would choose to rent if they could buy', but my problem is that I understand the arguments about money down the drain, having somewhere to live in your old age, etc., but don't actually want to buy.
I don't want the stress of renovations etc. and I don't want the commitment. I'm not in the Uk and I would have to stay at least 5 years in any home I buy no matter what happens in my life or pay back a huge stamp duty discount. Legal fees are enormous here so buying is a huge responsibility.
My colleague suggested going to a mortgage broker to see what I could get, citing the example of her aunt having to move into a tiny studio because she doesn't own her home.

"Bad advice with mortgages. "

I'm scared of this. I don't know if I should get a variable or fixed rate, etc.

Not wanting to downsize seems to be very common with old people. Hopefully, I'll never have that problem as I'll never have anything big.

If you bought then part of every mortgage payment would go into interest payments to your bank. You're only investing in your own asset with the part that goes towards the principal.

As to stocks and shares, they're not inherently riskier than real estate. Quite a few European real estate markets especially in metropolitan areas, have been considered overpriced for years. The main trouble in recent years has in fact been stocks and real estate rising in tandem for lack of other investment opportunities such as decently-priced bonds.

Ultimately what you decide will depend on your local conditions. You say your tenure in your current place is secure. How about cost compared to owning? Typical calculation is the number of annual rent payments required to buy. If you're in NL it's lowish and hence it makes sense to buy. If you're in South Germany, considerably less so. If I were you I'd invest a few hundred in some sessions with an independent financial advisor- somebody who doesn't live on commissions- and go through the specifics.

So a financial adviser rather than a mortgage broker? I've always thought of financial advisors being for rich people, but you are probably right that this is what I need. The advice I want goes further than, can I get a mortgage and with which bank.
(I'm in Belgium btw).

Renting is very secure where I live. You can't be kicked out.

I'm mystified as to why anyone would choose to be a landlord there. Where do you live?

If you aren't even sure where you are going to live in retirement you need to urgently sit with a financial advisor - moving later in life can cause serious financial issues if not carefully planned. In the U.K. you will not likely be eligible for much support as you won't have paid in sufficient (unless recently moved) you need 35 years work for a full pension. Depending on where you live have do many implications. If living in the U.K. in retirement, where you live makes a difference as to whether owning matters a lot too, but finding £1000 rent out of a pension income is a struggle for many

Ok, when I say you can't be kicked out, it's not absolute. You can be given 6 months' notice to leave if the LL or a member of their family wants to live there and I think they can start eviction procedures after six months of non-payment of rent.
The main reason why LLs do it is because their income is not taxed here. Despite all the regulation, it's still a good gig for them.

"In the U.K. you will not likely be eligible for much support as you won't have paid in sufficient (unless recently moved) you need 35 years work for a full pension"

Yes, but I will also have my pension from the country I'm living in now.

"finding £1000 rent out of a pension income is a struggle for many"

This is my worry.

"If you aren't even sure where you are going to live in retirement you need to urgently sit with a financial advisor"

Why urgently? I'm at least at least 20 years away from it and see no point making retirement plans when so much can change. I think I have to work on the basis that I might retire here or go back to the UK.

Hey OP,
I'm not in the exact same situation but like you I pondered buying a flat for years. It's not so much that I was doubting that it's a good idea, more that I was building up a decent deposit, pondering where/what I should buy, and hesitant to take the plunge and have a mortgage (i.e. be hugely in debt to my bank).

I did eventually take the plunge, a couple of weeks ago in fact. And I'm really happy with my decision. I didn't buy in Belgium but in France, but it sounds very similar based on what you've said so far.

• I'd rather own a flat that will gain value than money in the bank that will lose value
• I'll also perceive rent (I live in another country so I'll be renting out my property in the meantime). This means the flat will essentially pay for itself. Granted, I am in the fortunate position of being able to pay my own rent and the mortgage at the same time. But if you live in the property you are essentially "saving" the rent each month by adding to the equity.
• This gives me the security of knowing I'll always have a roof over my and my children's heads no matter what.
• When I'm old I can either rent it out and rent myself somewhere cheaper (so gaining extra income each month) or live there rent free.
• If something really really bad happens I still have the option to sell and free up the equity. Obviously not interesting in the short term as legal fees are huge but an option in the long term.
• I am very pleased I got it done now (wish I'd done it last year !) as interest rates are flaring up and have already increased over 0.4% since I signed less than a month ago. As inflation is also going strong I doubt if prices will go down much if at all. Even if prices did go down the difference would be swallowed up by the extra interests. Now is a very good time to buy (best time to buy, again, would have been last year but hindsight is 100%...) but I think the situation will be less advantageous every passing month, so if you're gonna buy I suggest you look at it seriously now.

As for your worries about maintenance etc, honestly it feels like you're worrying about it more than is warranted. If you're worried about the costs you can get insurance (in fact you have to !) so that any huge costs can be covered in case of accidents etc. And big works on the place are usually voted by the owners (at least in France) a while in advance so you have time to prepare for it. A lot of people don't have 10k in the bank to pay on the spot for rénovations. So the other owners (who will mostly be in the same situation as you) will consider that when voting on renovations and assigning cost, and probably spreading it out over a number of months.

Do you own a car ? Because if so it's exactly the same kind of issues. You need to pay for a yearly revision, to pay for insurance, to make sure it has gasoline in it, and if it breaks down you can find yourself facing a huge bill. Yet it's still worth it to own a car and most people manage it perfectly fine even if they're not rich.

My mother spent years trying to dissuade me from buying by telling me "now's not the right time." I think personally that the right time to buy is when you're in a position to buy.

Look at it this way - you have savings. Keeping them in the bank is a bad idea (inflation will erode them overtime). So you can either :

• Buy real estate
• Or invest in something else

Personally I prefer to buy as stocks etc are never as secure as owning stone and mortar.

My suggestion is to start by speaking to your bank. See exactly how much you can borrow and what the repayment plan is. Factor in things like tax that can add up. Look how much renovating to keep up with the green laws would cost. Personally I question whether they'll go through all the way with those green laws as too many flats would be impossible to rent out long term, meaning too many people losing their homes over night. I think they're trying to scare people into doing the renovations but they'll step back at the last minute. I could be wrong though so do take into account how much it'd cost to do the renovations (and how much it'd save you in energy costs).

Sorry, that was very long. I'm giving you the advice I wish I'd gotten a year or two ago ! Best of luck whatever you decide.

Thanks very much Jadviga. I also feel it's a bit 'now or never'.
I'm not sure about a flat always appreciating in value. They don't always and house values go up much more slowly here, partly because the legal fees and taxes make buying more difficult and avoids speculation, but I suppose that even if I end up in negative equity, it's somewhere to live that will always be there.
Would you suggest going to my own bank over going to a mortgage broker?

I don't own a car and it would not make financial sense for me to learn to drive, buy a car and insure it, much cheaper to take public transport. The most expensive thing I own is a pair of glasses. I'm really not good at taking responsibility!

No children either, which is why I think I'm not particularly bothered about the 'stability' of owning. Even when I lived in the UK, the possibility of having to move because my LL wanted me out was never something I worried about.

Well it’s better to aim high & own somewhere, rather than plan to live off benefits in your old age.

I'm not aiming to live on benefits, but I'm aware that people can find themselves in a bad position if they have just enough to make them not eligible for any help.

@Jadviga has set out good reasons why buys vs renting is a positive thing.

To add -

1. Most financial experts recommend retiring with a paid-for house/unit and a pension or superannuation fund that can provide them with an income in retirement. Depending on whether you have a defined benefit pension or not there are calculations about inflation and how much you need to have to cover rising costs of living/inflation.
2. All financial experts agree that if you retire with a paid-for house/unit, then the amount of income you need in retirement is less. You have cut off one big unknown payment that does increase for inflation. (You’ve said it doesn’t, or may not increase much in Belgium. At this stage you don’t know where you are retiring, and if you do so in the UK rents can and do increase significantly).
3. A flat/house is an asset that increases in value. Money paid towards it (other than interest), is recoverable if you sell the asset. Unlike rent, which is lost immediately upon being paid.
4. If you find maintenance etc is too much, you can always sell the unit - in 5 years, in 10 years or a few weeks into retirement. The opposite isn’t true - if you don’t buy now, it isn’t likely you will also continue to save enough to buy mortgage free later.

Personally I looked at these options and bought. I am very happy with my decision. I outsource all maintenance on the house and it’s fine.

It’s clear you don’t want to buy, as you are shooting down arguments in favour and citing examples in Belgium, despite clearly saying you may retire in the UK where things like inflation do apply.

Obviously a choice for you, but I think you are making a mistake. I hope this isn’t one that will lead to a poorer retirement with less options for you.

Also, if you think you will retire in the UK why not buy there and rent it out via a management company? You can continue to rent in Belgium, but you are building towards an asset elsewhere. As above, if you don’t retire there you can always sell.

"if you think you will retire in the UK"

I don't know where I will retire to. It's more than 20 years away.

"why not buy there and rent it out via a management company?"

I don't fancy being an absentee landlord and I think buy to let mortgages are more expensive aren't they? Owning property abroad would also have an impact on my tax bill here.

I think that if I do buy, it should be where I live.

"It’s clear you don’t want to buy, as you are shooting down arguments in favour and citing examples in Belgium, despite clearly saying you may retire in the UK where things like inflation do apply."

This is not at all true. I kind of do want to, which is why I started the thread, but I'm not sure I can (the amount of money needed isn't clear to ascertain with the tax and legal fees situation here) and I'm also quite scared of it and of doing the wrong thing.

You're right, real estate does not always increase in value, but in the current context inflation is increasing in every country and this means your money will be losing value (which conversely means your real estate will be worth more nominally, even if the actual worth remains the same). This is why I do not believe prices will go down, at least over the next few years. They are more likely to go up. On the other hand, interests rates have already doubled (at least for loans in France, but I suspect Belgium would be in a similar situation) and are likely to keep going up.

Obviously the current political situation is volatile, especially with Ukraine, so things could change hard and fast. But considering the ways things are going, right now buying is a good idea - and you're losing money every month you wait. I am not saying this to hurry you up - once you've bought something your capital is tied up for a good while so you should be confident that this is what you want to do. But my recommandation is to make a decision to either buy or not very soon.

In my case I negotiated specific items on the mortgage that made it much more interesting to go through my bank, but this has to do with very very specific things about my income. In your case I'd recommand to do both - see what your bank has to offer, that won't cost you anything and your bank knows you best so may offer good terms. Then, with this knowledge, speak to a broker and see what they offer and whether it'd be worth it. Usually a broker can negotiate better rates but you need to know what your bank offers before you can know for sure whether it's worth it. (I did speak to a broker myself and he recommanded I go with what my bank offered).

I was not suggesting you buy a car btw, I was just trying to illustrate that being an owner, be it of a car or a house, isn't such a huge responsibility. It's natural to feel nervous about tying up this much capital, but once it's done you probably wouldn't even think about it on a daily basis.

No children does make you more flexible but in your old age you may enjoy the sécurity owning brings, and the additionnal income (no rent = more disposable income). Obviously you could also invest your money somewhere else but there aren't that many investments that will pay you reliably the equivalent of a rent for the rest of your life.

I highly recommand you speak to your bank and a mortgage broker, as well as a few real estate agency nearby (or take a good look at offers online), and THEN you can make an informed decision. By all means also ask your bank and/or any other financial advisors about other investments.

When you have all of the data, lay out your options on paper and decide.

"This is not at all true. I kind of do want to, which is why I started the thread, but I'm not sure I can (the amount of money needed isn't clear to ascertain with the tax and legal fees situation here) and I'm also quite scared of it and of doing the wrong thing."

I totally understand that, I appreciate buying is a big step/commitment and can seem daunting. But think of it this way - after a fashion inaction is also a choice, and one that rarely goes in your favour. Look at all your options and then decide.

You say the amount of money needed isn't clear - this is why you need to talk to your bank /broker/real estate agency. Once you have the numbers in front of you, it will be a lot clearer whether or not you can afford it and it should be easier to decide. Can't advise wrt the legal fees, in France they're circa 10-15% of the total price, but the real estate agencies and /or online ressources can give you a clearer picture.

"this is why you need to talk to your bank /broker/real estate agency"

I know, but I remember being told years ago that just opening a dossier with your bank cost hundreds.
It's like the person above who suggested seeing a financial advisor for a few hundred. I can see that it might be worth it in the end, but I can't just spend hundreds of euros like that!

Buy an ex council house, at least you would own it, buying a flat you only buy the lease & are always having to have a pot of money in case there are major repairs & have to pay a service charge, it would probably work out cheaper as well.

I live in a city. It's a one bedroom flat or nothing.
I've explained above that I don't think flats where I live are leaseholds. The issue of money for repairs is still a problem eg if I live under the roof and it needs to be repaired, I would have to persuade the other owners to pay up their share.