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

[Schg1911]

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?

surely they are going to drop further then considering the economic turmoil we are heading into

We bought our house in the middle of the 2008 financial crash. We didn't manage to sell our old house simultaneously so for a short period had 2 houses in a falling market.

On paper that sounds terrifying but the reality is that it was a home we were buying not a money making investment.

As long as you can afford the repayments and don't intend to move withing a few years, I'd not worry at all about the housing market predictions.

I’d buy it. In 10 years time it’ll all be very different. You are in a secure job. Don’t be scaremongered.

The repayments would worry me- that's 50% of your income. The other 50% will need to cover council tax, utilities, insurances, groceries, travel costs, savings for if something goes wrong and fun money. Is there a management fee if it's a flat?

If you're not desperate; I would wait.

I would wait tbh. We were stuck in negative equity in the early 90’s, not fun at all, I would hate anyone else to go through that. I know you intend to stay in the flat, but sometimes life changes the course of events. Good luck with whatever you decide OP.

I'd buy, you are happy to live there, you are happy to stay there over a long ish term and you have the option to rent out a room if required (which you could do immediately to start over paying mortgage).
Chances are your pay will go up. As people (eventually) get pay increases to keep up with inflation the value of property will shift too.

Even if there is a dip as long as you can cover the payments you will be fine. London is unlikely to have a house price crash for an extended period of time. As others have said if you bought a cheaper property next year you'll likely pay a higher interest rate and I think they'll be fewer properties on the market to choose from.
Historically nearly everyone who has ever bought in London has profited if they held onto the property over a longer term.

Historically nearly everyone who has ever bought in London has profited if they held onto the property over a longer term.

this is true & Im sure if one holds out long enough it will be true again. However I think it's prudent to be aware than today is very different from yesterday. We have high house prices, low wage growth & now increasing interest rates. Plus a huge demographic shift & even more pressure on public services. To me it's uncharted territory.

Massive caveat though- I would be more nervous if planning to have kids. People massively underestimate how much they change finances

You say it’s a 2-bed - is it configured so you could take in a lodger if things get tight?

If so, I would do it. Inflation will mean you may not get into that much negative equity even if the value of the property declines in real terms. You may not want a lodger but it may be a good plan b in five years time if interest rates are still high in 5 years time and your income hasn’t shifted.

If you work in cyber security you there will always be work for you and it is likely you will be able to get an ever increasing pay package. There is a such a demand for these roles and usually not enough qualified candidates.

I would not worry and just go ahead with your plans. If you plan to stay in the property for a few years, things will stabilise by the time you sell and prices would have recovered.

Maybe check if there is any way the property could be reduced further without the buyer if you really want but the buyer might decide you are wasting their time if you do that.

With a 2 bed you could even rent a room to a lodger if you ever need additional funds.

If you're fixing your mortgage for 5 years you don't need to worry about what the flat is worth in a year. You'd need to worry about what it's worth when you need to either remortgage or sell. Personally I'd go for it if you can get this mortgage - I can't see a flat in that location going down in value in the long term, and I also think (hope!) you'd get a better mortgage deal when you come to refix in 5 years.

I had a flat in Bow from 2010-2016. It was a one bed new build near Bow Road tube, bought for just under 200k and sold for 330k. I bought just after the financial crash and before they properly regenerated Stratford, so those things definitely helped its value, but I'm sure it would have gone up anyway. I also rented it out for 3 years during that time and never had any trouble finding tenants. It's a great area with great transport links, very underrated in my view!

I would go ahead and buy. You like the place, want to stay for a good few years and can afford it. As pp said, it will be your home, not a money market investment.

I don't think prices in London will fall by as much as 40%. Even if you end up with negative equity next year, it's only on paper because you are not planning to sell then. Things will look very different in 5-10-15 years time.

What's the service charge? Is it in a block of flats, and if so what is the management company like? A high service charge or expensive repairs to the building will eat into your spare income.

I wouldn't buy in this situation because there's a high likelihood you'll want to sell within 5 years, especially if you meet someone (do you have a partner at present?) and want to have kids. I do think there is a risk of a 10% fall which would wipe out your equity, and you would be paying more in mortgage interest than your current rent.

But I am naturally cautious. You may be fine.

I personally I would wait till spring I would never buy anything at this time of year it’s likely to be what’s left over from the summer and didnt sell.

I would wait if I were you.
Imo things are about to go rather rapidly downhill.
Recession, high interest rates, financial system in obvious trouble, public services in huge trouble, strikes. It all looks very unstable. House prices are bound to fall. Obviously, no one can predict exactly how much or exactly when but I think a fall is certain.
If you have a comfortable rental set up and are only paying £500/month which sounds good for London, I would hold on and see what happens. It sounds as if you think your job is relatively secure (I don't know this sector at all). This is obviously really important as banks are likely to tighten their lending criteria as prices fall and we enter recession. At 29, there is no need to rush into ownership unless your current housing is impossible or there are other significant reasons.

"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."

• Most importantly - you like the place and would love to live there.
• Good transport links - in London
• 2 bed and 2 bath so could take a lodger without living on top of eachother if required
• Fixed for 5 years at a low fixed interest rate
• 29 therefore time is on your side if plans change
• Meet current lending criterion in an increasingly tightening market.
• Secure job in an important critical area Cyber Security
• if you pay rent you'll be paying into someone else's asset rather than your own.

Even in a recession people will still need a roof over their heads and therefore you'll be at the mercy of landlords increases.

A bird in hand is better than none OP - In your circumstances would go for it if the property suits you.

If you're comfortable and happy where you are, I'd wait and pick up a bargain later, but otherwise I'd buy thinking long term and be mentally braced for the drop in value.

In 1988 I purchased a 2-bedroom flat in north London for £85k at what turned out to be the peak of a boom. Within two years it was valued at £60k: interest rates were 12%+ and people were losing their homes all around me. I sold in 1998 for £110k. I would have liked to have moved earlier because the neighbourhood changed and the area wasn't as nice as I'd hoped.

Advice to you. Check the area around your Bow flat: do you really like it? Stake out 'your' flat at night and in the early hours of the morning. One of the things I hadn't realised about my flat was that in the road behind my property there was a restaurant and at the weekends the staff were noisily washing up and shouting to each other until 2am. If your flat's worth less that you paid for it and you have neighbours upstairs who play drum and bass loudly all night, you're not in a position where you can sell up and leave without incurring a loss.

Your flat isn't a new build, so it may need money spending on it. Around the time my flat hit its lowest value, it became obvious that I needed to have all the windows replaced. I had to take the decision whether or not to invest another 6k into what felt like a sinking ship. Go for another viewing, cost up all the things that'll need doing. Are the electrics okay? The windows? Any big communal bills scheduled? If so, you might want to reduce your offer.

You have a lot on your side: you're a high earner in a sector where you'll always find employment. Think about a strategy for coping if rates were to rise to 7-9%, which was what I and my contemporaries were used to paying. Would you be prepared to rent a room, do Air BnB etc?

The other thing to bear in mind is that as you're in a very strong position work wise, if you wait till the market crashes you may be able to pick up a significantly better property in 18 months' time. You could jump that 'first flat' stage and go straight to the home you'll want to be in for the next 20 years.

Why do people think 50% of monthly income is a lot? In absolute terms op still has plenty to cover other outgoings and her income is going up in two years anyway. In London you’ll be hard pressed
as a single person to get a mortgage that is much less than that as a proportion of income.

In the event of this imaginary recession that we’re going to have where house prices are plummeting and people are struggling to pay their mortgage is are we envisaging that in this fantasy people will still require an Airbnb in central London ? I would thought that would have been the first cut back.

Why do people think 50% of monthly income is a lot?

Because it is. Obviously 50% of 5k is different to 50% of 2k however to be in the situation that young people need to pay 50% of a good income for housing isn't a good thing.

@AuntSalli do you think we will avoid a recession?

It's a good area with excellent transport.
What's the service charge like and how much has it risen year to year so far?

You'll be paying off your mortgage, you've a second room for a lodger if things got really tight.

Lizzie’s plan could work. Theres a chance.
Whether it should or not is another matter

People are so fickle (thick tbh) that if it does come off in the short term, 2 years for example then they will win another term … all the current angst will be forgotten and then the real damage will be done.

I'm not convinced the plan will work & really don't think cutting services to fund it is the best policy but agree people are fickle.