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?

You can afford it, you are buying a long term home, and if you wait, yes, prices might dip, but mortgage rates rise… and meanwhile you will have spent £xxxx in rent with nothing to show for it.

Plus…. Your rent might rise.

The trope about having nothing to show for spending money on rent also applies to mortgage interest, though. The OP is currently spending much less on rent than she would on interest payments if she bought the flat.

Over 10 years any drop in price will correct itself. Meanwhile you'll save rent, have a good interest rate, be happier. Totally worth it. Speculation doesn't always help.

I would absolutely do it in your shoes OP. It is a high LTV but that's often the reality for first time buyers in London, and if you're buying in Bow (the hip East End) you're not going to end up in negative equity, you're just not, I mean it might not increase in value either over the next few years but whatever that's fine.

You're young so your earning potential is likely to rise (this was explicitly taken into account when I got my first mortgage), and you have a second room so could potentially take in a lodger if things got tough.

I don't think you've quite missed the boat yet, so hop on board. Good luck to you, in London terms the numbers stack up for me.

I'd try to negotiate a discount due to market conditions, but go for it. We did this in 2008, sold our house and rented thinking the crash would be huge. It did go down slightly for a couple of years, but the same house is now worth 2.5 times what we sold it for. London prices always seem to bounce back as the demand is always there and supply is limited.

Also - in the meantime your rent will definitely go up, and you won't be able to get that back!

"If this flat was to drop in value next year to say £375k I would be screwed."

Bingo, you have answered your own question! A lot of the cheerleading nonsense on here is exactly what got us into this mess in the first place, but it is a more dangerous gamble with rates moving up, you are in the big playground now kids, watch yourselves.

Personally I would hold off, at least until the spring. The shock from the recent interest rate rises have not filtered through to price reductions yet, but they will. By next April we will have a better idea of the impact once the current pipeline of purchases, of which you are on the tail end of, completes.
You are fortunate that you don’t need to buy, you just want to buy. Stay put and keep saving!

@SuperCamp makes a good point.

There WILL be bargains to be had in the next few months as prices cool, on the other, however, rising interest rates and more expensive mortgages may well cancel out the savings.

BUT, A) what supercamp says, and
B) you're young, in a great sector, with great earnings potential;
C) you can rent out a room or even the whole place;
D) You're not planning to sell it for 10 years so prices will have risen anyway, especially in a popular area such as Bow.

What I would advise, if buying leasehold, is to find out what the service charges are, the ground rent and how often it will increase (very important as it can affect the saleability of your flat - get advice from solicitor), and the remaining years on the lease.

If you plan to keep the flat for 10 years, I would be wary of anything with less than 100 years remaining on the lease because you don't want to be stuck with a low lease, as I was. (I've just forked out £16k to extend it.)

And if it has cladding, I would check whether it's a building that qualifies for help from the government's Building Safety Fund, which protects owners in buildings of at least 18m high from paying for cladding remediation work. (often running into tens of thousands of £££).

Good luck!

If. As you say you would be screwed if the price dropped 10% then you have answered your own question. Don't buy it. If you are planning on staying for 10 years you shouldn't worry about that. Also owning your own place might be something you would get pleasure from so it shouldn't be just a financial decision.

Go for it. Don't worry about housing values if you're staying 5-10 years.

In your position I would go for it (I have lived in Bow in the past). Rental market is very tricky in London at the moment, you’ll have more security and the ability to live fairly centrally. Bow is a popular area for rental due to proximity to the city and Canary Wharf so you’ll always be able to rent that second room.

How much is your rent ?

She said £500p/m.

Yep, you are just renting the money from the bank at an increasing interest rate, the only way to avoid that is to buy for cash, but doing that now would mean massively overpaying IMO.

If you can wait, you would be insane not to in the current market. Especially on a flat. Help to buy chickens are about to come home to roost, in 6 months time in a stable job you'll be able to grab a bargain.

50% of your income going on a mortgage? 😳

A big fat nope from me I’m afraid.

What is the service charge? How long is left on the lease? Did you manage to save the deposit yourself out of income? Are you planning on having children or changing your lifestyle in the next five years? If everything went pear shaped, do your parents have spare cash and have they said they would help you?

I would 100% go for it. People have been doom and glooming about the London housing market since I was an FTB in 2004.

50% on a net salary of £2k - something to worry about.
50% on a single person's take home of £3900 when you have £1.5k left for food, savings and fun - not so much.

I would go against the trend here and say you should renegotiate, unless your offer is already signicantly below the current market price of that flat. It's quite certain the price will not go up anytime soon, and likely will go down. Even though you can afford the flat, it is silly to pay a high price now if it's likely you can buy the flat at the cheaper price next year.

A caveat here is affordability, although it's difficult to know without crunching the numbers, so you need to check with your broker.

I don't know much about about the London market, but I know two first time buyers in the north who still keep getting outbid on everything. The crap stuff is sticking around, but anything nice goes very quickly. It really depends on how much you like that particular place OP.

You need to remember that in a falling market, most people will sit tight and not move, so even if prices do dip a bit, you probably won't have a great deal choice.

Or she could sit tight for 6 months and have £3,400 a month after rent.
There’s another bond market issue brewing today. Now is not the time to be buying someone else’s problem ( over priced flat).

we are in leyton...the purpose built flats with gardens are holding price...few sold today over asking price....huge demand for them....the new builds have sat empty for over 2 years....very few sold...all depends on the area and demand.