London experts: is now a crazy time to upgrade?

[Houseporn]

We have been searching for two years for the right house in a handful of target streets in a ‘nicer’ area than ours.

Potential new area is far more expensive despite dodgier transport links. However, it’s in zone for a few great state schools and close to leading independent schools (one DC already catches bus there but it’s a longish journey and I expect homework will pile up in years ahead, making a 5pm return to home a bit too late).

Very little stock on, a bit going off-market though but not enough to satisfy demand. I figured we would wait for the market to slightly cool/tank and then hope the spike in rates is offset by lower asking prices.

However, a decent house in the perfect spot has just come on. We are viewing it this week.

Mortgage on new place will be a shock on paper - stamp duty is astronomical and would buy a one bed flat alone on fringes of London.

We are both ‘high earners’ but mid 40s and 50. We would be going from end of terrace Victorian to big semi in decent area.

Brokers have told us that we more than qualify for a massive mortgage, even on interest only, as we owe current house outright and have two rentals (both with mortgages but with about half a million equity in both combined).

Love our current street, OK about our current house (though feels too narrow to me) and area is well connected, lovely homes but a bit gritty. Mediocre secondary schools will always suppress values here so over time, I suspect our price rises are capped which could imperil an onward move.

Current set up works for now (14 years so far) but the longer I stay, the more I think ‘is this it?’. And also, the older we get, the more the chance to upgrade slips away.

Is now a crazy time to put in an offer in? Bear in mind that this new area is massively in demand and while nowhere is recession proof, it attracts people with money and I don’t get the impression anyone living there is desperate to sell. While our area is ‘cool’, our price point is perhaps more vulnerable as it’s a second-time buyer type place whereas we are looking at forever home.

Looking for feedback from people familiar with the London market as it is so idiosyncratic!

Bump! I guess everyone is either in the same position or it’s been done to death

It's probably hard to say without knowing the areas you are talking about? As you say, the London market is so varied that what might be an ok risk in one area is a big no no in another.

I'm not sure what you are asking? Is the question whether you will make lots of profit?

We’re in a similar situation, we’re overstretching ourselves to buy a large home in a nice area. Paying a horrendous amount in stamp duty. I’m not too worried about house price crashes as London hasn’t risen as much as other areas in the UK, but it’s still possible, of course.

This is, for me, the chance to buy somewhere ours will consider their childhood home - big garden, big rooms etc. maybe we’re crazy, who knows!

I posed the original question to try and solve the dilemma about whether it’s worth taking a massive plunge for a better area. We are looking at going from a nice part of SE London which is in a rubbish borough to a leafy area (Dulwich). The bump up in price is enormous. Housing stock in our part is arguably nicer - large Victorian townhouses. Prices in our area are from just over 1m to about 2.2m for a detached. In Dulwich it’s all early 20th Century nudging 3m for a large ish semi on a good road.

it’s not about pure profit. It’s more if we stick to our current area to room for growth is limited eg if it were to double in value in ten years that final amount would be less than if a more expensive home were to double.

It’s also lifestyle - Dulwich feels safer, closer to good schools.

BUT if the market tanks what sort of lifestyle will we have anyway?

Do people think expensive areas in London will tank? I don’t mean Chelsea but the next tier down like Richmond, Dulwich etc?

If it's your "forever" home ie. for the next 20+ years does it matters if prices will potentially drop a bit in the short term? Long term they will increase.

We are in a similar position in a way although not in that price bracket as outside of London, but currently in the process of buying a huge detached victorian house that will be one of the most expensive properties sold in our city. It's a risk as prices may well drop but we can afford the mortgage and are not planning to move ever again so a temporary drop in value, whilst not ideal, wouldn't really affect us.

I don't think property will tank but I also don't see it doubling in 10 years. Those days are gone imo for the majority of places especially areas that are already expensive. Stagnation is most likely. So much price growth has been driven by huge equity gains & cheap borrowing.

I don't think affordability sounds like an issue so if it suits you it makes sense.

From your OP it sounds like you are pretty keen to move - you say you’ve been looking for 2 years, worried about quality of local schools etc. Is it possible you’re just getting cold feet because something has (finally) come on the market?

FWIW I doubt Dulwich will devalue any time soon - being in catchment for excellent state schools should help you retain/increase value, as private schools become less appealing due to living cost increases. You also say you think the value of your current place is capped by poor schools - so you don’t stand to gain a lot by staying where you are?

I would go for it….

We’ve chosen not to make the kind of move you’re talking about because we’re not willing to go back to having a mortgage.

If the logistics get tricky with schools later on we’ve got more than enough in savings for me to quit work and become the family taxi driver. I say that half joking but I actually feel very comfortable knowing that in the teenage years when my kids are likely to need more of my time and support I’ll be in a position to retire.

Personally I wouldn’t go back to having a mortgage in 40s/50s.

I don't know SE London very well, although know that Dulwich is £££. Are there a couple of nice-ish areas nearby there, in which you could get a forever house for between the price of yours and Dulwich? It sounds you would be making a really big leap, and today's pool of buyers in the £3m+ range is much much smaller than in the £1.5-2m range, so even with everything moving up over the years, you're still looking at the same buyers relatively speaking. I'd stretch a bit, but not too much.

Definite food for thought @NewYorkLassie

Great point @Starseeking that’s what we initially thought too. But there is nothing in between and we would stick to our area rather than move elsewhere. Areas next to Dulwich are no less scruffy than ours.

In theory, you’re right about more buyers at cheaper price point. Yet there seem to be plenty of people with deeper pockets than us. There are more people who can afford our 1.5m house but they are also more sensitive to a dip than those on the next rung who are probably director level and above I assume, own their own businesses or have inheritances.

Dulwich is also more in demand than our area even at nearly double the house price! Everything we have seen off market has gone.

There is zero in between that is worth moving to. Our area is actually a nice patch in a scruffy borough. Our road is pretty idyllic. But mixed in on neighbouring roads (amongst a few minor celebs) are rehab houses etc which sadly bring a few anti-social issues.

The lovely housing stock of Dulwich has always been pricey. Some sizeable properties with nice drives and decent gardens. My personal view is that they would maintain their value and yes the demographic is very much what you have stated.

Closeness to some very well regarded schools and easy access to London in a nice area keeps prices high.

It comes down to whether you want that level of mortgage at mid 40s and 50. Would you ever get to actually pay the mortgage off or would it be interest only with a plan for the future?

Thanks @friendlycat. We have always been really debt and risk averse but have belatedly realised it has held us back. We paid our last mortgage on this house off three years ago. In fact, we would have been better off upgrading at the time (though we weren’t really looking). I actually think the housing stock in Dulwich is disappointing for the price. But it’s a nice, safe feeling neighbourhood.

Our plan would be to ride the inflation wave so we probably wouldn’t bust a gut to pay it all back (we have two modest rentals that could be cashed up I guess but we would have to pay CGT). Interest only comes in at least than 2k a month whereas to rent a house in the area is over 5k.

@Houseporn you sound very comfortably financially. If you can say with as much certainty as anyone can really have that you won't be in financial difficulty if your equity reduces short-term then j see no reason why you wouldn't do this.

Disclaimer, I tend to max myself on mortgage borrowing to get a house I want. But I can pay it back very comfortably. So my philosophy is life where you want in the house you want, rather than sit there with loads of cash, wishing you lived somewhere wise.

I grew up with great financial instability @WonderWoop and I am haunted by my parents’ going bust and losing a business and the roof over our heads. DH grew up in social housing. His work is about to lay off staff and he is a rung below where he could be. The rung above is a game changer for income but he’s 50 so unlikely to get there now. We are also probably going to face two sets of school fees. Yikes! I am nervous.

I'd have thought you can't go too far wrong with Dulwich tbh.

As you have the rentals as a backstop - to sell or to borrow more against possibly - I think it will be ok to move.

Give no thought as to the future of price of the house you move into during the coming recession. You are in there.

I would be wary of an interest only mortgage myself though.

Could you get some kind of flexible mortgage deal that could be easily, and temporarily, changed to an interest only product if things go badly?

Thanks @Mosaic123 I think we would rather save up and pay off if needed. Otherwise a repayment is more than 4K a month. Interest only is less than 2k. We can then wait for investments to come in and pay it off, use rental income to pay mortgage if we are thrown out of work or retire. I don’t want to overcommit to huge monthly payments because we will probably also face school fees.

There seems to be little point in paying off a one million debt if our deposit is around 1.5 and in a decade hopefully prices will be up by another 500k or so, leaving a smaller debt to pay.

I love the houses on Alleyn Road for instance.

It is a bit of a dilemma as all bills as well at the mortgage will be high including council tax. For me I wouldn’t want interest only as i personally view it as a waste of money. It gets you used to living in a house that you can’t afford requiring it to be sold to pay off the debt.

I would be nervous of the leap at your ages and what you mention about your DH
job. Yes you have your two rentals (albeit liable for CGT) but presumably you have these earmarked for retirement purposes? The only way I would do it would be with capital repayment and not interest only, but then I’m risk averse.

I think you have to really weigh up whether all the additional expenditure is actually worth it to you. Or do you want to enjoy a more comfortable existence enjoying holidays and family time without any additional financial pressure plus loading money into private education and retirement plans. Only you can answer that.

You can clearly afford it OP, given you have a deposit of over £1m. Dulwich is beautiful.

We have a small home (think 2.5 bedrooms and one bathroom). We are of a similar age. Mortgage will not be paid until I hit retirement and h is in early 70's. We cannot contemplate moving to a proper 3 or 4 bed.

Sounds like you’re doing just fine! Not really sure the point of the thread tbh. Both options enable you to live very comfortably, between the 1.5m cash deposit, investments and 2 rental properties 😂

If you're moving from somewhere like Stockwell then perhaps go for it as the schools are always going to be an issue although I guess everyone buying in that sort of an area is always going to factor fees in to their house buying budget (or get religion in a big way to get a church school). Dulwich is always going to be desirable but it does mean that you are likely to spend more time stuck in traffic than if you stayed in an area with good transport links.

With the amount of equity you have and decent incomes i would 100% stretch and move. Even if there is a "crash" traditionally the posher areas don't go down as much

I would strike while the iron is hot before interest rates and prices rise further. If your plan is 10 to 20 years you should be fine.

It’s an attractive leafy area of London with good shops, transport, near good schools - on that timeframe you’re very unlikely to lose out.

We may go into a recession so you may be buying at a peak before a trough but a. We may not be at the tip of the peak and b. If happens we will come out of it eventually and prices rise fast in London.