The struggles of climbing up the London Property ladder

[helen1819]

My partner and I are in our late 20s, would love to have a family in 3 year at the latest and are struggling to decide whether to:

1. Buy a flat in London now to avoid the miseries of renting - 70k deposit, budget of 340k

2. Wait a while, continue renting and have a joint gross income of 120k in 2.5 years, which could afford us a 500k property.

A few weeks ago we decided we were fed up of renting, and starting going on viewings in Bromley (South), Wimbledon Chase (South), and Tufnell Park (North). Our plan was to buy a small flat, and then work our way up the ladder every few years.

But quite frankly so far the search has been really frustrating! The older, period freehold flats are a bit dingy and we worry about taking out a 25-year mortgage on a non new-build.

A new build we looked at (refurbished 1930s) in Wimbledon Chase called "Vision House" seems like the materials used on the inside are super cheap. Also, half of the flats in the building are still unsold despite completion pending in July!

The developer (Chinese) also seems a little suspect, having listed the same flat for 325k and 315k, even after we made an offer on it via the estate agent, which was accepted.

We worry about being able to resell the flat at a profit in 3 years, and make a climb.

What do you think we are doing wrong? Should we rethink our strategy? Should we prioritize freeholds over leaseholds?

Thank you so much

I wouldn't look at new builds in London, they are so overpriced because of the HTB equity loan which has inflated prices. I also don't think you would recoup your costs in 3 years. Lots of threads on here about this topic.

I live near one that was built 8-10 years ago which is now horrible - badly maintained and loads of anti-social behaviour.

Why would you worry about a mortgage on a non new build?

An older period flat is more likely to still be there in 25 years time so why would it be a problem to have a 25 Yr mortgage?

You are more likely to be able to climb the ladder by buying a dingy flat and doing it up.

I think you should stop looking at the internal condition and start looking at the size of what you get. Decor can be sorted, kitchens can be replaced, but size is everything in London, and besides, you need to get out of renting. Who's to say you'll have a well paid job in 2.5 years (except if you're in healthcare)? If you can buy, do it now, that's what I say. And be wary of new build - it's hard to add value.

The idea of a property 'ladder' and 'climbing' it is outdated. What Leafy said, size is important as you may find yourself stuck there for a while, especially if there is a recession. Freeholds are usually easier to sell, too.

@rilette This is one of our concerns, so thanks so much for echoing this. We noticed even new-builds that are just a few years old can worsen drastically with bad management.

@IndecentFeminist and @Frenchfancy: Our thinking was that we were not sure what condition an already old building would be in in the long-term. But rethinking now, this makes little sense as 1) we would love to move on towards our dream property over time and 2) Older builds were constructed in much better quality than the new-build we viewed recently, for example. So you make a lot of sense.

@Leafyhouse We agree with you - in fact our most important factors are the location, safety and ease of commute given our busy jobs. Why do you think size is important - are you thinking of resale value? We are still childless, so would not mind a smaller flat in a better area/with more caring, respectful neighbours.

@Leafyhouse Both of us started well-paying jobs in finance this year (Interestingly, Corona has resulted in a lot of hiring for certain types of positions) which is why we expect a relatively high probability of continued good salaries in the future. Nothing is certain, but as we are doing fine so far!

@highmarkingsnowbile Can you expand on why this notion is outdated? A number of friends are doing quite well on this strategy.

we worry about taking out a 25-year mortgage on a non new-build.

This is one of the most bizarre things I've heard!

@Biglittlethings I am not sure how helpful this comment is - we are inexperienced, and so a lot of what we think will be wrong. We would prefer constructive thoughts on why we are wrong so we can learn! Thanks so much!

Size is important because moving is so very expensive (especially after 1st move) that most people don't want to do it frequently to ove up the ladder, as they did in past. It's difficult to buy bigger to start with, when everything's so expensive, but cutting our rungs saves vast sums of stamp duty and moving costs.

Wherever you buy, you may well be there with one or 2 children and space is vitally important for quality of life and allowing you to remain longer if needed. A 2nd bedroom of a decent size can house 2 children, whereas a 2nd bedroom in some newer properties really is just a nursery for a cot and nothing more.

You should be prepared to accept a less good or grotty area so you can afford more. Most places are not unsafe and if you compromise a bit on area and needing to do some work to a place, you will get lots more for your money meaning you can add value and also have scope to stay longer if needed....it's the taking of the longer term view that is som important and not just thinking about what suits today or is easiest today.

So often when people buy they look at different areas to where they rent. Often renters live in pretty expensive areas and get used to them and think they want to stay in them...but can get so much more by being more flexible and perhaps a bit less snooty about things like area or surroundings. Lomdon is obviously expensive but there are big variations and you would be surprised at how much more you can get by not being too snobby about it.....remember anywhere in London is expensive and most people can't afford any areas.

Most places are safe. You should be willing to travel some distance ffrom a first property - if you insist on a very short journey time and very good area you will find you can afford nothing or what you can get is so tiny as to be of no practical use to you within a very short period of time and therefore involve you moving quickly (probably to a property you might have had at the start) and incurring al those huge costs.

First time buyers, even with good jobs just need to be realistic. Don't go for shiny new build (often tiny with those crappy one room living, eating,kitchen rooms, where the food smells permeate the sofa and sound of washing machine or dishwasher can't be escaped) which are over priced and unlikely to rise in value. Look at blocks built in the 60s and 70s with good sized rooms and often pleasant gardens - might not be beautiful outside but you'll get a decent kitchen and good sized bedrooms and no one needs ensuites when somethings only got 2 beds. Some conversions can be good too. Check out ground rents and service charges carefully as they can add hugely to your costs.

@helen1819 I had a £70k deposit. DH and I also work in finance. We bought a 2 bedroom period flat in East Finchley for £400k and do not plan to move in the future (the houses in our area are £800k).
Our flat has gone through collective enfranchisement and now the flat's freehold is owned by the leaseholders. I wouldn't buy a flat without a share of freehold or at least in a development where the residents have bought the freehold (sometimes not all flats participate to buy the freehold, that was the case for my flat as the previousowner was in her 90s and probably didn't care too much, but the freehold of the flat is still owned by the other residents, and my DH can also participate by being a director of the resident management company).

Good article in the FT on why the housing ladder doesn't exist anymore -www.google.com/amp/s/amp.ft.com/content/5c49931e-9ddd-3db3-8a67-3fc2bc18f0d2

@WombatChocolate How useful, thank you! We will consider these suggestions, especially on being less snobbish about the area, and more focused on space and quality of life.

Would you say that freeholds are preferable over leaseholds based on your experience?

Option 3.
Buy in another cheaper area outside London. Rent it out until you have some equity. Then sell up and find somewhere in London for yourself.

Helen, do you have family members who own property who can advise you? Asking basic questions like 'why does size matter' and having worries about mortgages on non new builds are rather basic but odd questions to be honest, especially from people working in finance.

This is a good time now for first time buyers. Personally I'd wait 6 months and review prices and spend the time really getting a sense of different areas and what you can get for your money. Identify what a reasonable journey time is and then see all the places you could live that don't exceed that journey and what you can get in each for your budget. Spend time in those places - look at things you value now but also have a look at local schools and their ofsted reports. Definitely look for good sized rooms over ensuites. Most flats will be leasehold but a flat with over 100 years on lease and without onerous ground rent and service charges can be okay. If you look at anywhere ask The EA to give you those figures in advance and don't even look at shorter leases or ground rents which will escalate above £250 per year or service charges which exceed £150 per month.

Get reading on websites about being a first time buyer - you can quickly gain a lot of info by reading..and you sound like you need to do that.

@helen1819 freehold is of course better but often freehold means a commute and rail season tickets... A common compromise is often zone 5, in a place like Orpington you could get a small 2 bed for £400k (maybe post covid it would be £340k).

For me and DH, it would be very expensive to commute as we both work in moorgate/Blackfriars areas. Like £800 per month kind of expensive (£400 per month for each). And we didn't really want to live outside London anyway. So we chose a flat. Its up to you really

We bought an end terrace 2 up 2 down in zone 3 SW London and had 2 DC there.

Originally we were looking at flats in zone 2 West London, but long term a house with a back garden and not leasehold made more sense.

IMO end terraces are better because you only have one attached neighbour, you get outside access to your back garden and they generally feel more spacious due to the layout, than a mid terrace.

Don't worry about getting a mortgage on an older property. Yes, they need maintenance, but they are usually structurally sound and often built to a much higher standard than new builds. Plus they gain value more easily. We bought a two-bed flat in a Victorian terrace in London for around 250k ten years ago and when we sold it eight years later it went for more than 600k (with loft extension).

I would add (I skimmed the posts and couldn't see it): don't forget that although you may have that gross income in 2.5 years, if you do have the children in 3 years, you'll have childcare costs to think about. Especially if you have two close together. Sorry if that's patronising - you may have factored that in, but so many don't! Also, as others have alluded to: stamp duty.
With that in mind, I would wait a few months to see what the market does, then buy somewhere that you could at least have one child in.
If you do buy now and plan to move in a few years, expect to need to move out, as the difference of even one bedroom within the same area in London is usually huge.

I’d say go for it now.

Avoid new builds for your budget- I doubt they will be anywhere near big enough and you pay for top spec fixtures and fittings which you don’t need.
Dingy is good! As long as it is a decent size and in a safe, if not trendy, area. No issue at all with a mortgage on an old property.
I also agree, think about non-typical first time buyer areas. I’d suggest looking at hither green, Mitcham, Sutton, Wallington, Charlton, New Cross, Catford, Crystal Palace in south London. Don’t know the north of london so well but what about Barnet, Palmers Green, Haringey Ladder. Basically look at the tube map and go on a few day trips.
Also avoid upper conversion flats if there is any chance at all you’ll have kids there- many of my friends have had a nightmare with neighbours and noise, especially when kids are on the upper floors.

Those vision house one bed apartments are tiny.

You cannot bank on turning a big profit in three years tho you will have paid down some of the mortgage.

Buy a two bed somewhere you can afford
So you can have one or two kids if that happens
Or Lodger if finances go awry.

The length of mortgage is irrelevant except to what you pay each month.

You could buy a property for more than that in 2.5 years based on the numbers you gave. Typically, banks will lend 4.5 times salary, so 540k mortgage plus 70k deposit (which I'm sure you could bump up by 10 - 20k over the next 2.5 years) = 610k.

If I had to choose between a 350k property now and a 610k property in 2.5 years, I'd wait and get a lot more for my money. Either way, try Walthamstow or Honor Oak - lots of my friends who are FTB say that's where young professionals are setting up home.

Or you could do what DH and I have done and move further out. We've just had an offer accepted on a home in Bromley.

As an additional FYI as we didn't know this until we started house hunting, you 'lose' the stamp duty benefits of being a FTB once your home is priced over 500k. You'll see if you play around on a stamp duty calculator that your stamp duty leaps up when you change the property price from 500k to 501k.

you 'lose' the stamp duty benefits of being a FTB once your home is priced over 500k

This is influencing us massively now, as FTBs in late 30s with six-figure salary between us! The jump is pretty significant. Also if you have a LISA savings account you only get the £1k/year bonus for buying your first property if it is

Wow I didn’t know that about stamp duty.
We already have two teenagers and were hoping to buy in the next year or so but already 3 bed houses round here are £500-600k so now we have to find an extra £15-20k!!
How is that fair when we’ve never owned before?

The developer (Chinese) also seems a little suspect, having listed the same flat
Why is them being Chinese relevant? Believe me, you get crooks of all nationalities in property.