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

I live in London and I have done since I left University, which now equals approx 35 years.

I would not buy a flat for £1.2m when I was hoping to start a family.

I would buy a house with back garden for, say £800,000 - £900,000. Don't stretch yourselves to the max and don't buy a property that will be tricky with children.

Thanks @Legomadx2!

Not buying bang on the absolute peak doesn't mean that you haven't bought near the top of the market.

Yes property prices have dropped since c. 2015 - that doesn't mean that they aren't likely to drop significantly more post-Brexit and thus buying now means you may pay more than the property is subsequently worth.

As I've said, the fact that property prices have been falling steadily in London since the referendum isn't something I'd somehow find comfort in.

Bare in mind there's no such thing as a job for life, what happens if you have maternity leave, nursery fees, private school fees? What if one of you cannot work? They used to advise 2.5 x joint income as a max to allow for fluctuations income. You have substantial income, do you want to live a good lifestyle or be struggling ?

Ok no idea why I'm so invested in this 😂

Sorry but we are nowhere "near" the peak with transactions going through at 20% less than they were. 5% and less I would classify as "near" a peak but not 20% sorry. Maybe that's where our opinions differ, on what we would classify as near! As the numbers speak for themselves.

Fingers crossed there isn't a crash post brexit!

I have read a theory that prices will drop when the baby boomers downsize/die as supply of family homes (the average size house for a baby boomer is a 3 bed) will shoot up therefore depressing prices. Who knows though.

20% off 2015 prices in pounds
35% off 2015 in most other major currencies... foreign nationals are the biggest buyers of prime central london property and for them we are at bargain prices.
Prime central london lives by a complete set of rules to the rest of the country

Interesting, haven't heard that theory, makes sense! Hold onto your houses baby boomers!

Yeah London is it's own bubble isn't it...

Yeah there will always be foreign interest in London and compared to what it was it is bargain prices for them... (comparatively... London is not a bargain! 😂)

Another former dweller of Mayfair. Hated it with an absolute passion. I’ve retreated back to what I know and love - London Fields.

I am on the hunt for a property too, I pulled out of the last one due to a sudden death in my immediate family and consequently have a different financial situation so I can stretch to a bigger property.

3 bed flats in Hackney are around £850,000 with a good garden and a decent sized 4/5 bedroom house is around £1.5m.

I have no idea why you're so invested in arguing with me either Fancy.

If property prices fall significantly post-Brexit then OP may regret buying now. 🤷‍♀️ I didn't think it was that complicated, or controversial, an opinion.

I'm not arguing with you 😂 just stating the facts, which btw are facts. Just a google search away!

Yeh very true anyone who buys a house that then goes down regrets it!

But we are not "near a peak" (sorry 😂)

I never thought of Mayfair as an area people lived in but obviously people do. I can see there being a problem with no community. I used to work in Canary Wharf and knew some colleagues who lived in Canary Wharf too. I guess there would be the same problem where it's super convenient, but quite transient so a community never really gets built. Although, I can imagine that living in Mayfair in your early/mid 20s would be super fun!

OP it's not a question of affordability per se, even if we earnt your salaries we just wouldn't spend that much on anything but a forever home, ie a house with min 3 good bedrooms and 2 reception rooms and a loft to extend into.

I would seriously consider a 1 or 1.5 bed flat in your desired area - just enough for you both and a baby / toddler - for around the £700/750k Mark and keep the rest of the equity (and lending potential) back for your next move or better still use the spare cash to buy a BTL somewhere up and coming and then you'll already have a pension income in place or a place to pass on to your kids if they stay in london.

We/our friends are also (slightly less) higher earners and a lot of our friends bought 2 bed Islington flats in 2013-2015 for around 800k. They all have a baby or a baby on the way now and none of them can shift them. Without exception. I privately thought at the time (and continue to think now) 'who buys an 800k flat when you can get a £1m 3 bed house 1mile away?'

I don't know your local market but I suspect your 1.2m maisonette is the equivalent of an 800k Islington 2bedder. There are so few people for whom that kind of price/property ratio is a sensible option. I think you may really struggle to sell it when you need or want to in a few years.

I'd give it a miss personally

I would be renting for now if prime London is what you’re looking at.
Invest money elsewhere or even buy a fantastic family house somewhere you rent out and then rent in prime London whilst you want to be there

I agree with PP that there may be a limited market for resale.

Prime London is a bubble but the high-end residential end has become less attractive to non-residents for a number of reasons. Firstly economic uncertainty but more than that a number of tax changes has made buy to let less attractive - non-residents now pay capital gains tax on their sale (they never used to) and that with the restrictions on deducting financing costs against income, the higher SDLT rates for properties over £1m and the 3% SDLT surcharge for additional properties have all impacted foreign investment. Foreign investors can get more square footage for their money in a number of other markets.

With Brexit, the value of the pound is likely to reduce (at least temporarily) - meaning bad news for our holidays overseas but could mean lower, more attractive pricing for investment properties for investors from the Middle East/Far East (where a lot of investment Currently stems From). However there is no certainty with this (as with anything on Brexit)!

so demand for prime London real estate could increase post Brexit due to increased demand from foreign investors and this has been seen time and time again whenever the pound has slumped recently.

But that is still a risk to take and the market for a 1.2m flat upon resale is still limited either way.

OP says, The flat itself is in a very special and desirable location and can be turned into a gem with a little TLC (although subsequently clarified it's a maisonette).
So it does sound very desirable! How long has it been in the market and has there been a lot of interest in the property or not?
I'm no expert but London prices seem to have dropped and the problem is that theres not much on the market. I'm looking for a 2 bed flat in NW1 or NW3 and it is getting closer within reach. A while back it would have been out of the question. Whether is continues to get closer within reach or not is a big question! @EllaWt if you love it and can afford it why not? You are from overseas and not all people have the Brit obsession for owning an actual house. Lots of flats offer share of freehold anyway. I for one would happily swap my big house for a flat in central London.

P.s. my budget is £800k so it is basically the north london 2 bedder referenced by PP!

Op you asked if buying a 3 bed 2 bath maisonette was future proofed.

I would say no leasehold properties were future proofed unless they come with a 999 year lease.

The longer you live there the lease reduces and unless you buy more time you get into the territory of it being unsaleable if some wants a mortgage and so only being for cash buyers only.99

Would love to know where it is because real prime areas I would expect to pay way over £1.2 for a 3 bed flat.

We have a flat in our area that is well over £10 million and we are in what you would call the suburbs

Let’s not over-exaggerate - lease extensions aren’t that much of a problem and you can even buy a share of freehold. Admittedly, management company issues with leasehold flats have made my blood boil a number of times.

Also, a good maisonette could be much nicer for a family than a pokey terrace.
If the flat is anything like the one below, then I’d prefer it to the 1.2M houses that we’ve looked at upthread.

www.rightmove.co.uk/property-for-sale/property-82736108.html

Hi Everyone!! Sorry I didn't respond work was manic yesterday!

I'm so sorry I wasn't clear - being french the difference between a house and a maisonette is't that clear to us.

It's basically a three bed two bed with a small garden and we'd own the first , second and top floor.

You've got Highbury Fields on the doorstep for those wondering.

In any case , vendor made a big u-turn yesterday and won't budge until it's within 1% of asking price which is more than the aforementioned price, our budget and more than we're willing to pay in this market with all the uncertainty. We're a bit floored by this news but you all made some really helpful observations so maybe it's for the best.

I cannot thank you all enough for your insights. Thank you so much

Three bed two baths

OP, FIY a freehold house is when you own the whole building and the land it’s on.

A flat is when you have neighbours below or above. Some are share of freehold - so you and the neighbours own the place. Leasehold is sort of like a very long rent with the freeholder owning the land. You pay them rent for the land + they charge you fees and control maintenance etc.

@JoJoSM2 yeah it took us so long to figure that out. This one is share of freehold! we'll let it lie for a bit see if the seller reconsiders