Should we exchange our flat buying contract

[KatyRyan]

Hi, We are on a process of buying an 1.2 m flat, no chain. We are renting at the moment, the flat we are buying will be our home for next 10 year at least. Our job is fairly secure, but won't expect much increasing in coming 2 years at least, maybe some decrease on bonus. So we will under some pressure to repay this large mortgage, but won't have much risk to fail to pay the mortgage. While, we won't be happy of course if our the price drop for 10-20% after we buy it. On the other side, we are also worried, if we pull out at last minute, we might not be able to find another one, and housing price went up. Both my husband and I are mid 30, with one 3y old boy, no planning to have more kids.

We are only waiting for some minor doc from sellers solicitor, then we could exchange. The seller is very keen to sell the property ASAP. So we will have to go back to seller later this month I guess.

So what should we do?

With all the uncertainty at the moment, there is no way I would buy a property.

We are in a similar situation, albeit the property we were buying is a bit below 1m mark. We have no chain under us either.
Was meant to exchange in mid March but seller’s solicitor delayed a few things until lockdown. Seller is very keen to complete now even offering to move to rented.

We have spent a lot time debating what to do and eventually decided to pull out. I think it depends on how you think price will go - we think it will be down 10-15% at least in next year and when that happens our LTV will be f**ked at remortgage. We can afford the mortgage payment at current rate but not so much if and when we are stuck on SVR.

There is of coz the risk of not finding another property we like (transaction volume post 2008 crises fell by 50%) but staying in renting for another 12 months is way better than stuck with a mortgage at SVR we can not afford. The equation may look different when it comes to cheaper properties

I think the best thing to do in our situation is for everyone in the chain to take a 10% cut and proceed but I don’t think they will agree at the moment particularly at the top of the chain. Even though they may end up doing so anyway if they want to sell after all. Who knows maybe they prefer to sit tight and wait for all this is over.

We thought about negotiating but feel to socially awkward to do at this stage and pulling out is easier.

How will your mortgage payments compare to your current rent?

I have added this link to another thread already, but this is one of the first house price predictions to come out of the major models since CV. It's not predicting things to be as bad as I had feared.

www.theguardian.com/business/2020/apr/06/house-prices-will-not-fall-far-despite-lockdown-says-study

I don't want to convince you either way: buying a house is too big of a decision to leave to mumsnet. But for full disclosure, I am a FTB still continuing with the purchase of my house because the financial sums still work for me when compared to renting. I have been looking for a suitable house for almost a year and ultimately, I want it! I also want the stability of my house and the opportunity to build equity.

1.2m on a flat?!

@MaJoady that analysis was done by an estate agent.

Yes I agree for some the sum would work out favouring buying even accounting for potential decrease in price. The conclusion however tends to change for more expensive properties as 1) potential drop in price can be more severe and 2) lower relative cost in renting.

We pay about 2k rent per month and if we were buying a 500k house we would have carried on because it would work out cheaper. For 1.2m not so much.

Mortgage rate and our rent are at same level

@Adjeoebfwh Knight Frank do have an estate agency arm sure, but the study was done by Knight Frank Consultancy, which are a different part of the business.

Not saying there isn't bias, and with all studies you need to look at the source, but it's no less biased than someone on MN's opinion. I just thought I'd share what one of the models was showing. If I could link to the actual study I would, I'd be interested in their assumptions, but there you go.

The flat is in NW3, would love to have a small house, but we prefer to be somewhere closed to central London, so it is a trade off

I would take Knight Frank's assessment with a pinch of salt given all of the other economic indicators available. The majority of their business model is built on property transactions and they will be the last people to walk around talking about a crashing market! They have conveniently ignored:

1. The fact that unemployment is rising (look at the US numbers - 6.6 million in 2 weeks!) and not 100% of the people who have been furloughed will be re-hired (when things re-start, businesses will have to deal with a full wage bill and zero cashflow from the previous months).
2. A lot of service companies will have missed out on making usual revenue in, usually, the best half of the year and this will propel them towards "restructuring" to become net profitable over the FY.
3. Banks have been forced into mortgage holidays, extra lending etc. which increases the risk they're carrying on their books, and they might not be so willing to lend post-crisis. You can see early signs of this behaviour with them withdrawing higher risk products from the market. Less credit = lower house prices.

The effect of covid-19 has barely been reflected in our measures, as all our indicators are taking readings from the first few weeks of March, but, by all indications, it looks much more severe than the 2008 crisis.

Let's put it this way, if KF's assessments are accurate, you have atleast a whole year to find a similar flat for 3% cheaper, if they're wrong, you could potentially save yourself ~£100k - £200k AND the pain of being in negative equity.

If I were in your shoes, I wouldn't do it. The risk is simply too big. At the very minimum, you should delay exchanging till July when we know what Q2 looks like for the UK GDP.

I agree with @newbie111’s assessment.

Not turning this post into a debate on house prices - OP you need to access your risk appetite for the worst case scenario - how much do YOU think the price may drop? Can you handle the mortgage payment in that case if you are on a different LTV AND banks tighten the lending criteria AND interest rates go up?

On the flip side, how do you feel about losing this flat, see price remain or even increase a little and start over again? Can you find another flat you like equally much?

@KatyRyan As someone who bought a 2 bed flat in N2 last September, I would say, wait. my flat is a long term home too as I only plan on having 1 child, and I prefer to live close to central london and family in north London. I bought my flat for 392K and in 2017, it was 450K. That is a 13% drop and considering that my flat is very cheap for N2 and zone 3 north london in general, I expect more expensive flats could easily go down much more in terms of percentage terms. IMO, Covid 19 would have a much bigger impact on the London property market than Brexit, landlord tax changes and people moving to the sticks. Expensive flats have a much smaller target demographic; many first time buyers would not want anything more expensive than 500K unless it is HTB as we wouldn't enjoy the first time buyer exemption otherwise. Yield is very low for landlords, unless they are buying solely for the capital gain or for the bank account in the sky; and anyway many landlords are exiting the market due to the tax changes (my seller was such a landlord). This leaves the downsizers, but those people are generally not desperate to move as they can easily just continue living in their 5 bedroom house. That being said, N3 is an amazing area so its possible that there would still be demand and even if it drops, its possible that it would go back up much faster than in other areas.

I don't think I would complete on a property at the present time unless I was convinced that it was my total dream home and I wouldn't ever find another place as nice. Prices could absolutely crash and interest rates could go up.

Just to throw an alternative option in there, I think there will be (sadly) a lot of empty houses after this and also houses in the market from couples who come out of lockdown wanting a divorce/wanting to move because their houses are too small. I already want to move to somewhere with two bathrooms!

Having said that the market has stalled on government advice, yes.

I don’t think in the long run house prices will be massively affected but I do worry about the interest rate shooting up.

@Adjeoebfwh @User7764217 ，we like the flat, but we have saw few similar ish ones, so it is not the only one. I can understand why you think the housing price could drop, but don't understand why interest rate might increase when Eco is doing bad....... we should be ok if the mortgage rate increased to 2%, our rate is 1.3% at the moment; we will be in trouble if something much higher than 2%

• Lenders might price in higher risk of defaults (people losing jobs etc) hence mortgage rate might go up even when BoE base rate is low.

• Some hypothetical figures: say you have 300k deposit and 900k mortgage today. LTV 75% with interest rate 1.3% so happy days. Say unfortunately price goes down by >200k when you remortgage in 2 years so your new LTV is >90% and lenders won’t have a product at that LTV and your mortgage size. Then you will be paying SVR which is possibly 3% or 4%

@Adjeoebfwh Thank you!!! This is a very reasonable assumption, we won't go for it for sure now!

Then another question, is it possible to renegotiate the price? Saying ask for 10% off, then we will at least have some buffer if housing price drop significantly. The seller won't be able to find another buyer at anytime soon, and they are waiting to sell current one and moving to a new build. Could they renegotiate the price about the new build as well?

We did exactly that

We offers what we could afford roughly 12% below asking. They shape no. But I suggested they ask for their own discount.

They negotiated got a bigger discount than we reduced theirs by, so they were quads in as well.

If they are buying a much higher priced property it’s worth asking. If not they may say no.

I’d be upfront with the agent. Say you’re concerned in the current climate and don’t wish to move until lockdown is over or restrictions reduced. It may be months.

Say you’d like them to renegotiate with the builders - I’d leave it as close to non lockdown as possible.

Builders will still make a profit.

@GreenTulips We don't know how much the property they are buying, but unlikely to be less expensive than current one, as they are planning to have more kids, so they are buying a larger one.

Was your seller buying a new build?

"leave it as close to non lockdown as possible" , will this make any difference? we cannot move house anyway during this lockdown period.

That’s what I mean

You can’t move

You don’t need to sign until you are able to move.

This will give you a clear indication of the housing market at that time.

There’s no rush. Don’t be pressured into signing.

Anything could happen in the next 3/6 months.

Does it have a garden? Personally I think the high rise high end expensive apartment may be less desirable.

Just bought a house today. £900,000.

One child, going to be on it for 10 years! Just went for it. Don't want to lose the house!

We were renting too and need a house! Our child is 6 months old and needs their own room!