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Original poster

FTB in London, if you were in my shoes would you go ahead with purchasing or wait till next year?

114 replies

Schg1911 · 01/10/2022 22:24

I'm absolutely crapping myself with the news that there will be a housing crash next year. I've been looking for over year and just last week found a place that I really like. My offer was accepted and now I am wondering if it will be better to drop out and wait to see how interest rates affect the housing market.

I'm not desperate to buy right now as I have a comfortable long term renting situation. However, my offer was accepted on a 2 bed 2 bath flat in Bow, London right next to Bromley-by-Bow tube station for 425k (it is not a new build). I would be fixing my mortgage rate for 5 years and I have applied for a mortgage with a 3.9% interest rate. It seems crazy that this flat could potentially drop 10% -40% next year that is a lot of money!! But the flat is so nice I would be upset if next year predictions fail to come to fruition and I am unable to buy a flat of the same quality for a lower or the same price. But at the same time I'm terrified of going through with this purchase and being in negative equity.

To give you some background to my finances:

  • My job is pretty secure as I work in the Cyber Security industry.
  • I am currently aged 29 and would like to keep a hold of the property I buy for at least 10 years.
  • I currently take home £3900 after tax and pension deductions etc. (With an annual bonus after tax of around £5k which I haven't included in the above figure).
  • If I get offered the mortgage with a 3.9% interest rate my mortgage payments will be £1800.
  • After mortgage payments and all bills such as council tax/service charge/gas/leccy etc. are accounted for I will be left with £1500.

Taking into account the above it seems affordable to me. But I am terrified, could I be buying in the worst time ever?! If this flat was to drop in value next year to say £375k I would be screwed.

If you were in my situation would you wait to see what happens next year or just steam ahead with the purchase?

OP posts:
KylieWasHere · 01/10/2022 22:30

I really don’t think anyone knows what will happen! I find it hard to believe prices will drop 40% in London, when has that ever happen? Maybe 10-20%, and if you could weather that then I’d go for it.

MarianneVos · 01/10/2022 22:38

That's a high percentage of your salary on the mortgage, but you are a high earner.

If it's taken you a year to find something you like this much then I'd go for it (unless price reductions would mean that there's loads of stuff you'd like that's currently out of your budget?).

sunshinesupermum · 01/10/2022 22:42

I'd go for it. You've got a good 5 year fixed rate and property in London in my long lifetime has never dropped as low as 40%. Even when I've bought at the top and values dipped they returned to the top level before 5 years elapsed. If you are staying put then just ride the next few years out.

Houseplantmad · 01/10/2022 22:48

I’d go for it and I’m in London. Even in the late 80s negative equity time our flat sold for what we paid for it - and it had lots of negatives (above a shop, no garden etc). Your flat sounds a good buy.

humdingle · 01/10/2022 22:52

I’d go ahead on the proviso that you’re happy to stay put long term and therefore not be hurt by price drops in the nearer term. Why would you be screwed if it dropped to £375k next year? You want to hold it - and live in it - for 10 years, not sell it next year. I think there will always be demand for property in London and the SE.

However I do think you’re treading a fine line on affordability. That size mortgage repayment on your take home pay is quite high. Is your £5k bonus annual/quarterly/monthly? If monthly you have nothing to worry about, if annual I’d say it’s tight. Do you plan to rent out your second room? But that bit is all down to you and what you feel comfortable with.

floorida · 01/10/2022 22:53

how are prices in the area? some flats near me sold recently for the same or less then they were a few yrs ago.

what's your deposit?

Original poster
Schg1911 · 01/10/2022 23:01

It is a high percentage of my take home which I am slightly worried about long-term... but right now it seems OK. I will have paid off my student loans in 2 years so my take home will rise to £4300 excluding the bonus which is annual. I have said if worst comes to worst I will rent out the 2nd room to a lodger.

OP posts:
Original poster
Schg1911 · 01/10/2022 23:01

It is a high percentage of my take home which I am slightly worried about long-term... but right now it seems OK. I will have paid off my student loans in 2 years so my take home will rise to £4300 excluding the bonus which is annual. I have said if worst comes to worst I will rent out the 2nd room to a lodger.

OP posts:
Original poster
Schg1911 · 01/10/2022 23:04

The flat next door to it sold for 420k in 2017 and the nice flats in Bow that have 2 beds 2 baths have been going for 425k+. I viewed a flat a few weeks earlier that eventually sold for 450k and another one for 440k. My deposit is only 10% so 42500.

OP posts:
floorida · 01/10/2022 23:08

tbh the high LTV & high % of income would make me a little anxious.

Foronenightonly01 · 01/10/2022 23:09

Buy it. Your mortgage is fixed for 5 years - you are unlikely to get that rate again in the next 5 years. If you’re planning to hold on to it for 10 years the probability of losing any equity is substantially reduced. And IF you do lose any equity value that may be negated by the increased interest you’d pay on a loan should you lose your current deal. #justdoit .

cloutneerbeout · 01/10/2022 23:10

Personally, with a deposit of only 10%, I would wait. I think at the very least prices will stall even if they don't plummet so you won't be any worse off for it. I would not want to risk being stuck in negative equity and having all my money tied up in an asset that might drop in value with a recession on the horizon.

We were going to buy soon but will wait now. I want my money in the bank where I can access it, and a mortgage would have exceeded the cost of our rent anyway.

Caroffee · 01/10/2022 23:11

Go ahead. Interest rates are only going to get higher and higher over the next few years. There won't be a housing crash in London. Foreign investors will snap up the properties which Brits can't afford.

HundredMilesAnHour · 01/10/2022 23:16

I think you risk overextending yourself. Your mortgage will be almost half of your net take home pay. That's too much. Especially for Bromley by Bow.

TreadSoftlyOnMyDreams · 01/10/2022 23:18

www.standard.co.uk/homesandproperty/property-news/housing-market-house-price-crash-recession-uk-economy-london-b1005887.html?amp

So global collapse and house prices dropped by 20% apparently. Not my recollection - We purchased 3 yrs later and prices had recovered and gone up. If you have a fixed offer for 5 yrs, I'd go for it.

floorida · 01/10/2022 23:21

you're young & have a comfortable renting solution. i would wait tbh.

Lcb123 · 01/10/2022 23:25

I’d go for it. Even if there’s a drop next year it doesn’t matter if you plan to own for many years.

humdingle · 01/10/2022 23:29

90% LTV is high nowadays. How much is your current rent? Obviously you have nothing to show for rent (vs an asset you’re making payments against) so that’s the one bit of information that might sway me one way or the other.

Original poster
Schg1911 · 01/10/2022 23:34

I'm currently living in a 4 person househare paying £500 for the room (+£100ish for bills). It hasn't caused me any issues so far and I could stay here for longer but I'm becoming increasingly keen to have my own space.

OP posts:
humdingle · 01/10/2022 23:57

Your rent is very cheap so a good opportunity to save up and improve your LTV. You’d have to weigh that up against any mortgage offer you get now (and remember it’ll be better the bigger the deposit you can put down)

TooMuchToDoTooLittleInclination · 02/10/2022 00:29

humdingle · 01/10/2022 22:52

I’d go ahead on the proviso that you’re happy to stay put long term and therefore not be hurt by price drops in the nearer term. Why would you be screwed if it dropped to £375k next year? You want to hold it - and live in it - for 10 years, not sell it next year. I think there will always be demand for property in London and the SE.

However I do think you’re treading a fine line on affordability. That size mortgage repayment on your take home pay is quite high. Is your £5k bonus annual/quarterly/monthly? If monthly you have nothing to worry about, if annual I’d say it’s tight. Do you plan to rent out your second room? But that bit is all down to you and what you feel comfortable with.

The clue was in 'annual bonus'.

TooMuchToDoTooLittleInclination · 02/10/2022 00:46

@Schg1911 if you were told house prices would remain exactly as they are now, what would you do?

as far as affordability goes, it doesn't look bad to me.

how well do you know the area? How sure are you that you'll be happy to live there for 10 years? How far from
work is it?

I presume you've looked into the lease/ground rent/maintenance/blah blah??

look at the lease regarding sub letting & letting.

however, re 'crashing'. I personally don't think London prices are going to fall off a cliff & if you're ok with staying there for 10 years it's not really an issue.

LGBirmingham · 02/10/2022 07:39

I would do some hyperthetical calculations based on what it would cost to service a mortgage on your flat if it were 20k, 50k, 100k cheaper but with increased interest on the mortgage. I think I read a day or 2 ago that the BofE suggest the base rate could be at 6% by next year. You may find that waiting it out for a cheaper flat actually results in similar repayment costs in the short term?

Of course there would be less risk of negative equity buying cheaper. IMO higher interest rates will be a fixture now. I don't think we'll see a base rate of less than 1% again for the foreseeable. So it's worth thinking about when your 5 year fix ends. If you do proceed I would personally over pay as much as possible before that fix ends. The big benefit of buying cheaper at a higher interest rate would be that over payments would get rid of the loan significantly quicker.

RedHelenB · 02/10/2022 07:54

How does the mortgage compare to what you're paying in rent? I'd buy it of its similar and you're planning on staying put for 5 years.

DragonMovie · 02/10/2022 08:00

flat prices in bow have already dropped so I’d go for it.

i have a flat in bow which I put on the market and couldn’t sell so now I rent it out and use the rental income to rent another house elsewhere.

my friend sold her flat in bow this year at a 75k loss from when she bought it 6 years ago.

another has had her maisonette valued at 40k less than she paid for it in 2018.

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