London Mortgage - are we crazy?

[EllaWt]

Hello,
I realise this will seem outrageous to some of you but I could really need your wise advice.

DH and I are about to buy our first flat. We live in London and despite Brexit and all , it's still really expensive.

We both have good jobs and a joint income just short of £300k/year . We also both have good earning potential in our jobs. We're young-ish too being both 32. No kids but hopefully soon.

We're about to buy a flat for £1.2m with 15% deposit and have secured a good rate.

Part of me is excited but part of me think we're mad to take on an approx £1m mortgage. The flat itself is in a very special and desirable location and can be turned into a gem with a little TLC

Doing all the maths, it's do-able on a monthly expenses basis and we're pretty much wiping out our savings.

If all goes well, we should definitely be more comfortable in a year or two once we'd had bonuses etc... but it's still so much money and risk to take on

I really don't know if we're doing the right thing or just being overly optimistic, silly and overstretching ourselves.

Our parents are not in the UK and we have no one to give us advice really. Has anyone here done something similar ? Does this all sound crazy to you ? or do you think it's fine?

Thank you SO much

@EllaWt it's honestly fine, just make sure you have a good fixed rate 👍 and be aware of what the early repayment penalties are. If you get bonuses higher than what you expect it's tempting to want to pay it down but may not be worth it if there is a high repayment penalty charge and you are borrowing at such a low rate anyway. Better to invest in stock market on buy to let if you can get a rental yield of around 4-5%... the money will make you more there than what you would save reducing mortgage amount all things considered.

Bottom line... large mortgages are fine if you have a good rate, are aware of penalty charges and can service the repayments.

Also that first house in Islington is lovely!

You really should check the school admittance rules as French schools here are generally oversubscribed and not easy to get into in which case you need a back up plan.

Also, I wouldn't buy right now if your jobs are in finance and require EU passporting. Because the last thing you need after taking on that mortgage and paying the massive stamp duty is being told your whole team is being moved to, say, Frankfurt (as part of company's Brexitproofing) and your options are to move there too or look for another job.

I wouldn't entertain anywhere in Bermondsey- very stabby round there.

God I wouldn't buy in London at the moment. I think Brexit will likely cause a fall in property prices and you'll have bought at (near) the top of the market. You could be trapped in the property for several years which is far from ideal if you have young kids. Your life with children is so hard to predict - how you'll feel about both working city jobs, nurseries, schools, how the property works for kids etc.... I'd want more flexibility.

How secure are your jobs if Brexit causes an economic downturn? Do you both work in the same industry? Are your bonuses guaranteed?

I wouldn't entertain anywhere in Bermondsey- very stabby round there

you’d hate my neck of the woods!

Sadly I think “stabby” is a London wide problem right now.

@TheDragonFromDreams

Whereabouts are you?

Not everywhere is stabby. In my borough there's only been 1 fatal stabbing in 7 years. And it's also 1 of 3 boroughs with no gangs.

OP - I assume you're thinking of buying near the original Lycee? Have you considered the new one because you will get a lot more house for your money near there and it's an easy commute to the City (Jubilee line is super-reliable)

Brixton! Where abouts are you?

I’m in Sutton.

I hated living in mayfair. absolutely dull as ditchwater. No community at all. Don’t go there!

Whereabouts is it, op? You don’t seem clear whether it’s a flat or a house or a maisonette; are you certain it’s where you think it is??

@Cohle that's incorrect, we are not at a peak at the moment, see below link and attached pic.

s3-eu-west-1.amazonaws.com/airdrive-images/wp-content/uploads/sites/6/20190920113408/Quarterly-London-housing-market-report.pdf

The peak was around 2014/2015 in London. I hope to god prices never go that high again... I bought my first flat in 2013 and 18 months later despite salary increase I would not have been able to afford it as prices went up so much. Would have been great to have bought in 2008/2009 though!!

No one knows what will happen to property prices with brexit, but we are definitely not at a peak at the moment.

I thought we were at peak because affordability is so stretched, interest rates are low & lending is so much stricter. Personally I think we are in for yrs of stagnation.

Prime central london property does not follow any earning multiples. More property is bought by rich foreign nationals and companies than any other demographic.
Renting in some 1 will probably be cheaper than buying at the moment. As a pp said peak was 5 years ago but then prime London didnt really dip in 2008 like the rest of the country and is obviously not affected by the htb boom as even studio flats are above the 600k max

Be aware that as soon as you have children your socials lives and priorities of being so central will shift massively. I've lived in Fulham and Clapham and both were as far central as I'd go for bringing up children. I would second other posters and consider not having a freehold/house/control of other flats occupants and being at the mercy of the leaseholder red flags if you're planning on this being a 5-10 year home.

Lending has been a lot stricter since the 2008 crisis and they definitely won't lend as much so things are less affordable but I think it's a good thing. If OP can get a bank to agree to lend her £1m now that's no mean feat it itself and they are soo strict these days that she can definitely, definitely afford that. Low interest rates are a good thing for buyers of course, but just this in itself doesn't increase demand so you're right in that prices are stagnant and might continue to be for a few years but I don't think they will drop drastically.

Yes London is a bit of a bubble isn't it. Renting always an option, but it's veryyy expensive... you're paying so much more per month for the same place than you would mortgage if you owned it. But I guess it allows your to try before you buy, so to say.

Banks base their lending decisions on people’s current/historic circumstances. They don’t calculate what’s going to happen if the OP is on mat leave on £700/month and her husband not getting a bonus.

Yep absolutely true. They can't see into the future though and anyone can lose their job at any time so all they have to go on is current and historical income. You need a very good track record to borrow £1m. It's something to think about though... when you're on mat pay can you pay the mortgage... though I'm sure she's thought of this.

Fancy The fact that OP bought at slightly less than '15 prices will be of limited comfort to her if she's stuck in negative equity for years with a young family. That property prices in London have been falling ever since the referendum result is certainly not something I'd be using as an argument to buy right now!

No one has a crystal ball but personally I would wait until after the impact of Brexit has been felt on London property prices. If the impact is as significant as many fear then buying in 2019 will certainly be viewed as buying at "(near) the top of the market".

If you’ve done the maths and it works out then why not. You’re doing nothing different to that which those lower and higher on the earnings/savings scale are doing, surely.
Hope it works out !

She wouldn't be buying at slightly less than 2015. House prices are around 20% less now than 2015. Her £1.2m house would have been around £1.5m in 2015. A 300k difference. That's a lot (at least I think it is). Prices are pretty stagnant. London is a bit of a bubble and I doubt there will be a huge dip, although there may be some turbulence over the brexit period. A lot of people are scared off buying due to brexit but if you are buying with a 5-10 year view (which you should be if you're spending £1.2m) then it shouldn't be a problem. Much better to buy now than 2014/2015. I know a lot of people who bought then and are just sitting it out. If you're buying with a short term view then yes agree wait till brexit is over!! Regardless, in context, London house prices in 2019 are not at a peak.

We disagree - both about the likely impact of Brexit (and consequently what will be deemed "near the top of the market" when we look back in a few years) and about how long it is likely OP will wish to stay in this property once she actually has kids.

I have no idea what the impact of brexit will be. I wish I did! Just have my opinion on it. But the numbers don't lie, right now it's not a peak. Anyone who knows anything about property will tell you that. Or just google London property price trends. Or London property peak times. Pretty much what I did. It's not my opinion it's a fact.

Yeah it's hard to know how long you are going to want to live somewhere, a risk you will always take. I don't have kids but have a baby coming in December and we bought a 4/5 bed to try to figure proof but honestly it seems huge! 3 bed would seem more manageable! But I guess there won't be a need for us to move for a long time.

Absolutely right @fancytiles London prices are way off what they were four years ago.