Sell London flat, or no?

[CuteKinn]

Hi,

We moved out of London last year to Wales, and we have permenately decided to live here. We have a 2 bed flat in London (zone 3 - no mortgage) that we were planning to sell once we had settled down in Wales, and buy a much larger permanent property here. We are therefore currently renting.

DH is having second thoughts about selling the London flat, saying it will increase much more in value in the next few years, especially after brexit. I'm not on keen on taking a mortgage out for a new property here (we have been there, done that, and we are also on flexible contract work so it's easier not having a huge mortgage) but at the same time would also prefer to buy our own place here now that we have settled down. What would you advise us to do?

Depends what your short and long term aims are and your attitude to risk.

In the last year average properties in greater London have dropped by 2.5% - so on £400K thats a £10K loss to date.

www.thisismoney.co.uk/money/mortgageshome/article-5076951/rightmove-37-cent-properties-market-price-slashed.html

This trend could bottom out or drop further over the short term and medium term. Over the long term 5-10 years they could recover and grow.

But in the interim BoE have said that interest rates will rise over the next few years - not great news if you take on a mortgage in Wales.

And rents in London (if that is what you are doing with the flat) have fallen for 6th month in a row alongside incoming legislation which will increase LL costs.

Thank you both. What about say after 10 years? Is the property likely to increase in value drastically?

@kangaproo sorry, DH meant two or three years after brexit the property price will increase.

If you can afford a mortgage on a property you like in wales - hold tight. Having a property and foothold in a capital city will stand to you when times get hard.

It's a tough one, and may depend on your income. Do you know that you are now taxes in the total rental income rather than the profit as before? For us in a similar situation it used to be our zone 3 flat paid our rent but that would change. I do understand the sentiment that once you leave London it's hard to buy again though !!

Could you not rent out the London flat? And use the rent income to pay for the Wales mortgage? Considering that London rent prices are extortionate you might pay your Wales mortgage in no time.

Your ‘permanent’ decision might be reversed because of Brexit though

There will always be work in London, far more concerned about areas not London particularly Wales

We are in exactly the same position and so will be keeping an eye on this thread. Have you tried modelling various scenarios using Excel? Fixed interest, variable interest, stamp duty, rental income, house price increases/decreases, etc. I haven't been able to come up with any set of circumstances under which we'd be wealthier selling the London property now rather than continuing to rent it out and taking a mortgage outside. The only thing that might really change this calculation would be if you were already high rate taxpayers and so wouldn't stand to gain much from rental income (agents can take up to 17%, then tax at >40%, cost of maintenance and ground rent, then a capital gains tax liability when you sell because you rented the property out for a period).

If you buy a property in Wales while keeping the London flat then you will be hit by the penalty 3% stamp duty rather than 1%.

The market in London is - I think - much worse than the official figures show. Our property started out at £525,000 pre-referendum and has trended downwards since then. We recently accepted an offer of £420,000 but then the buyers walked away anyway... We are rapidly losing enthusiasm for selling in the London market and will probably end up renting it out long-term.

Estate agents won't be upfront about quite how gloomy things are because they are all desperate for properties to sell (and people to look around them!).

Do you rent out your flat in London? If you remortgaged to a BTL mortgage, for a sensible level to buy a property outright in Wales, what would that look like for your finances on the rental income?

We sold a one -bed in London 2 years ago to buy a permanent home not too far from Wales. It sold at a brilliant price. It would sell at an even more brilliant price now, 2 years later, still - Brexit notwithstanding.

We decided to sell because A) not guaranteed to get a mortgage on moving to flexi-contracts/self-employment etc on moving out of the city, so it was a bit now or never and B) didn't want the hassle of managing the rental once we'd moved so time was right.

I miss having a foothold in London, tbh, and if we could have afforded to buy somewhere permanent here and keep the flat it would have been best of all worlds. Circumstances vary, and you need to crunch the numbers, but a mortgage-free 2-bed in Zone 3 is a great asset and you don't want to squander that for lesser value property in Wales, where the capital appreciation is always going to be much lower over the long term, despite vagaries of politics, than the capital.

Crunch the numbers. I'd definitely look to remortgaging on a BTL basis if it meant I could own both properties, but you need to understand what risks you are willing to take.

"We sold a one -bed in London 2 years ago to buy a permanent home not too far from Wales. It sold at a brilliant price. It would sell at an even more brilliant price now, 2 years later, still - Brexit notwithstanding."

I wouldn't be so sure. I am supporting a young relative in a hunt for a London flat in zone 2/3 at the moment. The market is a stand-off between buyers and sellers. I think things have deteriorated since after the summer and this data is not in the public domain yet.

Yesterday on viewings we found out that an apartment has just sold for £350k which is £85k less than the same apartment sold in March 2016.

Prices are definitely coming down to some extent in a market I watch pretty closely - non newbuild 2 bed flats in a non fashionable part of SW17. But then prices of those more or less doubled between about 2010 and last year, so a correction was well overdue. It's not just down to Brexit IMO, though that is the popular excuse - sheer unaffordability surely plays a part - hardly surprising after they reached £500k plus. And these flats are not the type sought by overseas investors.

I think that in the long term (10 years plus) London property in particular will always be a safe enough investment, but in the short term I certainly wouldn't bank on prices going up at all. I am old enough to remember previous property slumps and periods of stagnation.

If it were me, I'd hang on to it if I could afford to do so, bearing in mind the extra 3% stamp duty on any 2nd property and now increased taxation (assuming a mortgage) if you were to rent it out, also letting agency fees if you were too far away to manage it yourself. If you thought you might need to sell it in the next few years then you might well have to accept a price somewhat below peak valuations, not forgetting any CGT payable, too.

We’re zone 4 so not central but nothing is shifting. I’d be inclined to keep hold of it if you can.

another20 Are you able to give an indication of where that apartment with the 85K price cut is located? I'm also supporting a young relative r with a flat purchase - in Leyton, E10/E11 where prices are most definitely soft.
She first offered at the beginning of the year on a flat which had been on for a month or so, but vendor would not negotiate at all on the asking price even when obvious issues appeared (length of lease; major alternations done without freeholder consent or building reg sign off).
Relative pulled out of the flat - which is still being marketed at same price and has been under offer twice more but not actually sold. She is now onto a different flat, more competitively priced and without big issues but I am wondering if any room to ask for further reduction as I feel prices are only heading one way. . I think not, as she wants to get going, and agree with your view that she will get locked into a standoff as vendors not yet up to speed on market realities and so little property on offer that they are able to wait as they are still getting viewings (even if offers will eventually be lower than expected).
What do you think?

What about say after 10 years? Is the property likely to increase in value drastically?

If people KNEW that then we would all be super rich playing the markets.

However, generally speaking I think that a property in London isn't going to loose value over 10, 20 years.

I think that in the long term (10 years plus) London property in particular will always be a safe enough investment, but in the short term I certainly wouldn't bank on prices going up at all. I am old enough to remember previous property slumps and periods of stagnation.

Agree. I don't think there is going ot be a crash but certinalty a sofening/slump followed by a long period of stagnation.

OP - do your sums on realistic rental yield, fees taxes etc (inc extra stamp duty on your wales purchase) and don't include capital appreciation in your yield.

Also think about the hassle of managing a flat you are not geographically close to.

Only you can decide if this is 'worth it'.

That flat was in NW2. We knew the market as soft -- but it is much, much worse than we thought. I will be going back to my young relative to advise making substantially low offers, or sitting it out. The EA said that many sellers have just not accepted that the market has already shifted significantly and they will not budge. This is understandable as it is early days, however FTB's sail close to the neg equity wind and can get trapped in place at a time of their lives that they need to move on.

See advice on this thread.
www.mumsnet.com/Talk/property/3087471-Buying-a-purpose-built-1982-flat-what-do-I-need-to-know-FTB-London

@ancientandmodern I keep my eye on Leyton right move - prices are def soft versus when I bought 18 months ago. Some much more realistically priced houses on the market. When I was looking people were wanting 650+ for 3 bed terraces in SHIT condition (near enough full renovation needed) near the station, things much more sensibly priced now and reckon there is more room to come down.

The EA said that many sellers have just not accepted that the market has already shifted significantly and they will not budge.

@another20 yeah people don't like to admit this, that's why volume of transactions massively reduces in any downturn.

A lot of people think that the London market has peaked and is already starting to drop. I personally think London will now experience what many other places outside the south-east have experienced for the last 10 years: flatlining house prices, while prices in the rest of the country rise slightly but not astronomically. Anyone who thinks that they can keep rising at the rate they have been is barking mad.

If people have access to broker notes via a subscription at work its worth analyzing Foxtons and the listed housbuilders

Whatever happens to the market after Brexit one thing is certain - a London property will be much more likely to hold its value than one in Wales. In fact I think Wales is going to be in quite a lot of trouble afte Brexit. So it depends if you see your property as a vehicle to make you money or a home to live in.If you are really sure about your permanent move to Wales you could buy a lovely house and be mortgage free. If you are going to live in your home then whether the price goes up or down is immaterial (because you don’t intend to leave it). If you are gambling on making lots of money on your property to cash in at a later stage then London is bound to be a safer bet.

@Silverspot - yes this often happens in London - people just then choose not to sell and sit it out for years (another 7 year cycle?).
Maybe they even rent it out in the interim and move on that way if they need to or can afford to - until prices pick up again.
For people already with property and significant equity, moving up and down the chain any cuts are just passed on /absorbed over the long term. But it is entry and exit from the ladder eg FTB or retiree who are probably likely to absorb any hits in a falling market.

I'd keep it especially as it's mortgage free. But that would depend on what property I could afford in Wales as a result. It would be a great pension.

@another20 and SilverSpot thanks for the info - v useful.
In my daughter's case she is buying with her partner and has a hefty deposit - so access to v low mortgage rate and also a cushion if prices drop very markedly. they are both on rising salary scales so not so likely to get stuck (could happen but risk is low).
My view is that to get vendors to come down substantially on price she'd have to sit it out for some months; they are currently staying with us and have been for almost a year (saving London rental costs) and I think they - understandably - just want to get going.
My one reservation is that if they stretched themselves they might be able to buy a freehold small terrace house rather than a leasehold 2-bed flat which would mean they avoided all the leasehold worries (although probably bigger maintenance bills etc).

@ancient -- are you me?? I think that the current stand-off will be very obvious in 6 months time and will fall in the buyers favour, so properties will be priced more realistically. I would def wait for that - save more money and buy a house first time - they might not need to stretch themselves at all. In my case I would feel physically sick if the very, very, very hard earned deposit was eroded by a falling market for my young relative. I actually think that he is really lucky that he didnt buy in the past year or so.