Another "would you buy this" post - Upper Clapton flat

[MyFairRubyLemur]

I'm looking for some advice from the Hackney/East London people.

Due to a hefty severance pack and a small inheritance and diligent saving over the past 7 years, I'm now in a position to buy cash.

I currently rent near Victoria Park and I've just started looking at Clapton as a good area to buy in. I am considering buying a new flat in Upper Clapton in the Essex Wharf development (build in 2015). The flat in question is a 2 bed 2 baths, 74 sqm, lovely views of River Lea, underground parking, with a service charge of approx. 3k a year. It is listed around 530k but I am afraid that might be overpriced?

My plan is to live at the property for the next 1-2 years until I have a baby and maybe then let the flat when I eventually move back to my home country and potentially re-sell in 5-7 years for now. Here's the breakdown:

Buy for 530k

Rental income in the area is about 2200 pcm // parking spot can go for additional 100 pm

Agent fees 10% (deductible)

Service charge 3,300 pm but deductible once I let

20% tax on profits over 12,000 once I move back to Europe

As someone who has not lived in Clapton before and as a foreigner to the UK, I wonder if someone can provide me with a bit of advice on the area and potential growth/resell value? Do you think this flat is being overpriced and it's a bad idea to pour all my life savings into this?

I would really appreciate any advice as I don't really know who to turn to (I've asked around and most of my friends haven't even heard of Clapton but I've been there and really loved the area!).

All your life savings into an asset that will likley depreciate in the short term, is probably overpriced and may fall further, combined with no landlord experience and living outside the uk ! Sound too risky to me.
If you really like the idea of property why not look at using half that amount to buy a small freehold property in a popular city. Then take a less risky position with the remainder by investing it. Or if you want to play that other money completley safe buy a selection of fixed rate bonds - half your savings would net you 10k income a year. Risk free if spread appropriately. A good deal more if your risk appetite is higher.

Hello!
Thanks for the thoughtful reply.
I did check the returns that S&P had over the past 10 years and I compared it with the price increase for the flats I'm interested in and is indeed unbeatable.
However, what complicates things is that I would like a place where myself can live in as well for the foreseeable future (I'm paying 2.3k in rent each month at the moment 😑). So I'm looking for a nice area in London, that fits my cash budget but might also bring some good returns if I let it for a few years and then sell it in max 10 years.

I don’t know if the flat is overpriced, but I do know the area, and it’s not going down in price there any time soon!

You could have a look at sold for prices on the Rightmove listing to see what others have recently paid?

I think you're taking a huge risk, especially with such a high service charge (which might keep on going up). When you sell you will also have to pay capital gains tax on any increase.

Although the past 3-4 years haven't been good for stocks and shares investments you are looking at 10 years investment. I've done incredibly well with shares over the past 10 years (1573.83% increase in Scottish Mortgage is highest and -16% loss in Murray International is lowest).

That has taken 10 years but without stress of tenants, maintenance etc etc.

Why not look at something like a Legal & General multi-index account where they spread the investment through lots of industries?

I'd pay for an hour of independent financial advisor advice if I were you as too many people are having issues re-selling flats (particularly) in London at the moment.

I think if you are only looking at buying now, and then planning to have a baby and leave the country in 2 years, it doesn't make sense to buy here right now. There are lots of new flats going up, and massive problems with uncontrolled service charges (google that if you haven't been reading about it), and the timescale you are planning is unlikely to coincide with a big uplift in prices. Plus you would be paying for a new flat and then selling one which is not new, has been rented out for 5 years, and in a block which will inevitably be losing it's fresh look.

If you were planning to stay in London and live in the property I would definitely say buy, although not necessarily a new build leasehold, but in your case it seems unlikely to be worth the headaches.

You can get over 5% for risk-free cash, if we assume the FSCS guarantee is solid.

Assuming you're buying cash outright I just don't think it makes much sense.

These new build flats I bet haven't appreciated since 2015, especially in London. It's a dangerous game to take a nationwide HPI figure and apply it to everything.

For example was it £300k when built almost 10 years ago? Where are the gains?

Let's take a look at a flat like the one you're talking about, a new build in 2015.

https://www.rightmove.co.uk/properties/142708541#/?channel=RES_BUY

This was £475k almost 10 years ago. But the flat has been on sale since July last year, suggesting that nobody is interested. If someone owned this and brought a 'why isn't this selling' thread, everyone would say it is overpriced.

There is a comparable flat closeby at £475k, and this has been on the market since August as well. I suspect if they want to sell they are still going to have to settle for under this. You aren't going to get a bidding war on this. In the past landlords would snap this up because 1% mortgage rates made it profitable, unless we return to much lower interest rates flats like this are going to struggle to sell for these prices.

So it's quite possible that the flat is worth slightly less than 10 years ago now. So, so much for capital growth.

Service charges are a law onto themselves really and you haven't factored in communal heating costs, which can be vast as you are forced to take their heating at inflated markups.

It's a bad idea to put all your savings in one asset class, be in shares, gold, bitcoins, property. Sadly for the latter most people have been brainwashed into thinking it's OK.

Thanks everyone for your thoughtful replies.
I guess I need to first decide if I'm going to be here longer term or not - what depresses me is that I keep saying I'll leave London and here I am 7 years worth of rent later :(

Everything you said makes a lot of sense from an investment perspective. It's just coming from outside the UK, I struggle to understand why flats would carry so little value here. It's also difficult indeed to know what the London market will look like in 10 years (particularly when you read headlines like this one https://www.reddit.com/r/london/comments/1bho85z/london_population_at_new_record_high_in_reversal/).

Don't buy a property you don't intend to live in.
I was up until recently an absentee landlord and have just sold my property in another country after having let the place for 12 years. I was extremely fortunate to have a great tenant.
I would advise you to sit on your cash or invest it until you know where you want to live medium to longterm, not 1 or 2 years.

So many things can possibly happen in 10 years that it's not really worth trying to think forecast it, it will have such a huge degree of error.... just do what is right for yourself.

I don't know what you mean about flats carrying so little value though.

That flat posted earlier is half a million quid in a city which is over 10 times the prevailing average wage in the area, so thus unaffordable to many unless they have some kind of donation from parents or are bringing profits from another property.

It actually has held lots and lots of value, just that the increase in value has mainly being gained by those who bought before 2013 when things like Help to Buy, low interest rates and favourable landlord taxation turbo-charged the market for these things.

Even when you consider those factors are not around any more the flat is still very expensive relative to wages. If someone had £100k as a deposit they would still need a £100k salary to borrow £400k (assuming 4x multiples).

Honestly you couldn't pay me to live in upper Clapton though in fairness I'd call that area Leyton marshes. I think you'd be nuts to spaff £3k a year on service charge for something you're not going to love - that'll wipe out any rental income straight away.

With that budget I'd look at buying a 2 bed in stokey (just) or the Walthamstow side of the marshes then at least you've got good transport and not living near murder mile!

Clapton house prices won't be going down anytime soon. BUT £530k does seem quite high for a 2 bed around there. Best thing is to check Zoopla/Rightmove for sold prices in that block and the surrounding streets. It's a buyers market atm so don't be shy to negotiate hard! And also for rentals - my worry would be it's too far from the tube to have a steady stream of renters. You're better off looking at Blackhorse Road/Walthamstow which are by the same canal/towpath but on the Victoria line and overground.

What's the lease - check the terms. If it's got increases every 10 years, lenders may not mortgage it with the new ground rent laws.