Is it worth buying short-term just to get on the property ladder?

[BoysRule]

We have just moved from a less expensive area of the SE to a much more expensive area of the SE due to DH's job. We sold our house in the less expensive area and are currently renting in the more expensive area. We are keen to get back on the property ladder asap as prices are rising, wasting money on rent, keen to have our house as we want it etc.

However, we can only afford something that we don't really like. The compromise is size, area, style etc. The house we sold was a house we did up and had exactly as we liked it.

So - is it worth buying a house that is a total compromise just to get back on the property ladder? Things going well financially we could afford to buy a house that we are happy with in around 3 or 4 years. We are going to be spending a lot (£20,000+) on stamp duty so it concerns me that we may not be there for long. Are we mad? Should we just hold on? Or is it just better to be on the property ladder and stick it out.

Obviously if we can we will find somewhere that we can extend or improve but that may not be possible and it also may be the location that we have to compromise on.

Hmm it's a difficult one as you can't really double guess the market. Obviously stamp duty is just money down the drain.

If I was you I would play it safe and sit in rented which might afford you time to save? I would only want to buy a house I loved (or at least liked) just in case the market crashes.

I hope you get some more useful advice.

The idea of seeing it as a 'ladder' is dangerous. No, I wouldn't do it.

I wouldn't do it either. It is so expensive to buy and sell and the market is unsure. I think you'd really have to sell at a reasonable profit to make it worth your while in terms of the overall cost and there is no guarantee of that happening.

Ok I obviously see property different to the pp...I think it is a ladder - you don't buy the biggest, family sized home, in a nice area first time around...(unless you've got loads of money!) The idea of a ladder is you buy a modest house when you are younger, and then as you pay down your mortgage and save (key word SAVE) more money you can sell you first home and move up to a bigger house and generally at this stage you've had your DC or have a very good idea of how many you'd like and what sort of house you'd like to raise them in, and can afford to do so.

I think people get into trouble when they say I need to buy my 'forever' home the first time around because of stamp duty etc. Yes it can be money down the drain but you said 3-4 years, divide that £20,000 by say 3, would you spend more than that on rent? Which IS money down the drain (unless you are footloose and fancy free and like to move around a lot which was me pre DC)

I am not saying buy or not buy. Only you and your DH know what position you are in, whether you are likely to want to stay in a particular area.

I am in London and was in your position nearly 3 years ago and we bought.

I think London is a completely different kettle of fish. The property market is always going up.

Everywhere else is much more vulnerable and there is the same risk that property will go down just as much as going up again.

I wouldn't want to get stuck in a house I don't like in a falling market. You risk negative equity which is fine if your view is long term. 3 years is no time in the scheme of things.

I would tbh, in the se - just strip your requirements down to the most basic and work out what you can live with first.

it's not just London though little - it really is the SE going mental. Commuter towns are just as expensive as zone 3 properties offering the same layout house (more land though for example).

In economic terms, rent is the same as the interest on a mortgage. Of course with interest rates so low owning is generally cheaper than renting at the moment... but £20,000 in stamp duty is a LOT.

Can you knock up a nice spreadsheet including maintenance costs etc and see how it comes out?

Ooh, I like a nice spreadsheet MooncupGoddess and already have loads on the go so I think that sounds good. It is a good point Whatasook about the money in rent over 3 years and the amount of stamp duty.

DH has his own business and tbh it could go either way - at the moment it looks like it is going to do well and we could afford more but equally it could get worse in which case we would struggle to buy at all if we left it too long.

We are in a commuter town which is going up at a similar rate as London, so what is affordable now might not be in a few years. I don't actually think that negative equity is an issue but we might not be able to sell for much more than we have bought it for.

I think we just have to buy as there are too many variables and we could end up renting for many years.

We are in a commuter zone as well. When we bought last year we couldn't afford exactly what we wanted, so our bare essentials were somewhere big enough to live in forever if necessary/space for extension or loft conversion. Reception space over bedroom space.

We decided things like parking, large garden, kitchen etc were luxuries.

I'm glad we did because prices are still going up, and just to keep renting our old place (which was far too small!) Would be more than our current mortgage, even though our deposit was fairly small etc. To rent a house the same as ours is an insane amount we couldn't afford.

I would buy. We are in a similar situation in that we might want to relocate in 3-5years but are flexible. Money saving expert has a calculator which shows how much you pay down your mortgage year by year and the figures are startling. Even with no change in the market (which in our area is always on the up) we would be many many thousands better off in those three years versus renting even taking into account stamp duty and moving costs. I don't think we should view property as a ladder but it is a good saving pot and better bet than renting if you are in SE I think.

what utter rubbish travel there is a ladder, just not how it's been thought about for the last 10 or so years in the UK. Ok it's harder to buy now but it's not impossible, if you plan.

The mindset of inflation and rising house prices will help me get to the next rung on the ladder is so wrong. You shouldn't really expect to make money on your house, you should expect to pay down your mortgage and continue to save. (which is why IO mortgages are so bloody stupid and no better than renting only that you get 25 years until you get kicked out). If you can't save then you can't afford a bigger house and all that comes with it (leaving aside stupidly low interests at the mo making everyone think they can afford it, I'm talking about heating the house, up-keep, council tax etc)

Can you give some areas in London that have fallen? (geniune question as I've previously posted that I live in a grotty part of London and house prices here have risen at least £50,000 since we bought in 2010)

Look at the local market, and speak to estate agents.

For example, if Russians and Chinese are buying in the local area, then the property market will probably go up, and it will be worth your while to buy.

I was not aware of any areas in the SE where prices had fallen since 2008, but if your current area is a more expensive area, I'm guessing it's not one of them.

I wouldn't generalise, I'd look at my specific circumstances.

One thing I'd want to be sure of is that I was definitely going to stay in this new area - are you?

The other thing I would ask is how much of a stretch it would be and how viable the 'now' property be for how long. If you've got a massive improvement in your finances round the corner, then you might want to wait for that improvement to buy. If not, then you might as well have a property that 'matches' the growth in the local market and keep the dream property as a long term aspiration.

For instance in my case, we were unsure about selling our flat and buying a way more expensive house last year (in London) so we looked at a range of scenarios across five years, looking at our situation in the event of dip in market, real terms stagnation, rise in market and went for what felt lowest risk for us personally - which was to buy the expensive house.

We settled on this because interest rates were low and even real terms stagnation (eg a rise just reflecting inflation) would take a lot of saving to keep up with, and because in London, houses were outstripping flats in terms of price rises.

Because we'd just had a child and were planning another, we thought that it would be five-seven years until our finances improved a lot (OH's salary is rising, but would only likely keep track with childcare costs) which we felt was too long to wait.

Apol for detail, but this is the way I'd think about it.

I live in a commuter town in the SE. The prices have not drastically increased but the market is relatively competitive.

Ugh, it's a difficult decision. What have you done with the proceeds of the last sale? Will it hold its value compared with inflation/house price increases? (I realise that's largely guesswork). Do you have to pay capital gains tax on any of it if youre not immediately buying??? And how much will you fork out in rent over the course of those 3-4 years? That all has be set off against what you'd pay in stamp duty and fees for the extra buy/sell operation.

On the other hand, there's also the possibility that you'll be able to rent something nicer than the interim house, versus the option to make it your own, which seems to be important to you. These are even harder to put a value on, and you really have to judge for yourself.

Sorry for the completely ambivalent answer... If it helps, I do sympathise!

I would buy something that needed a bit of work and try to add value to the house. I agree that the property market is a ladder. You'll probably make a profit in the SE.

There is no ladder anymore? Er..that's an interesting viewpoint...

I would probably do it but only if I were prepared to stick it out for the foreseeable future if I were unexpectedly to end up in negative equity.

A article in the Evening Standard last night stated that houses prices in London have risen 9% in the past year alone with some areas of London now greatly exceeding their pre-crash values of 2007- 2008. I live in East London and my part isn't exactly gentrification city but values have risen sharply over the past year probably in part due to the Olympic effect and since 2010 my house has risen by 75k.

I'm not sure savings could ever keep up with this and i'd worry that I might in terms of buying miss the boat. We've seen this happen to friends who kept holding out for a dream property in a nicer part of N.London but who now are totally priced out of the market

The chances are in London you will make a capital gain over three years, maybe a substantial one. If your mortgage is similar to what you pay in rent then it is obviously better to buy, even allowing for stamp duty. Prices are rising fast, no question about that.

I'd do it because (a) renting is insecure (b) you can always adapt a house to make it more suitable/desirable (c) it is a rising market and you may find yourself priced out soon (d) the stamp duty on a house worth c. £500k is negligible, you'd be unlikely not to make it back when you sell if the house had been improved sensibly.