Stamp duty in London makes renting better

[templee]

We rent and have been renting for a couple of years. We have a big enough deposit to buy a decent 2/3 bed flat for about £800k. Both first time buyers in our late 20s.

There is no first time buyers relief on stamp duty. An £800k property would attract a £30k stamp duty bill as well as moving costs and fees. So that means stamp duty is equivalent to a full year’s worth of rent.

With interest rates as they are, the amount paid in interest alone will be more than the equivalent rent. Then there’s service charges on top.

We calculated that excluding principal payments, the cost of buying somewhere with a mortgage and interest payments would be almost 2x the rent

Maybe, but from year 2 onwards you’d be better off and from year 30 you’d only have service charge. 🤷🏻‍♀️

And what do you anticipate will happen to rents in London over 25 years?

Have you looked at how much flats have gone up since 2016?

So don’t buy?

I don't know where you're looking but if you have a budget of £800k why don't you look at houses and not flats? I agree about service charges nowadays, they're insane.

You could get a decent 2-3 bed house in Zone 3 outwards for that budget.

Buying a property is a long term thing so while in the immediate you might be right, your calculations are based on what you pay in rent now. That will go up, while interest rates might come down and in the really long term you're growing an asset. And what you're gaining is the security of your own home and not being at the whims of a landlord and their rules. I guess it depends how much that matters right now.

That's being short-sighted.
Renting for the rest of your lives means living on someone else's terms.
Stamp duty is a one off, same as moving costs.

Renters still pay the latter, so if your landlord decides to sell, you'll be paying that over and over again.

Service charges are extortionate, but as others have said, 800k can buy you a lovely house.

I always think buying a house is about independent lifestyle and, eventually (preferably before retirement) having a home you only have costs to pay on. No rent. No mortgage.

That's simplistic but it's all the things renting isn't.

The value of our home is irrelevant unless we move or die. While we are here it's a home - painted in any daft colours we love and we've been here over 30 years. We've strong roots and memories here. And we paid it off when we were late 40s which helped when the kids went to university soon after!

You don't have to buy. We probably shouldn't have bought our first house as we lost money. But we wanted a home.

I would also.prefer a freehold house to flat or leasehold.house. avoid those extra charges, some of which are out of your control but legally payable.

It really depends whether you are in London short term or long term. If you plan to leave then it makes sense to rent. If you want to stay long term it absolutely makes sense to buy as the stamp duty is a one off

Buy a place and vote Tory/Green with pride.

This is very different to my experience. I bought in (outer) London 5 years ago and my mortgage is 2/3 my old rent. Service charge brings it up to 4/5 of the old rent.

When you say you have enough deposit for a mortgage on a property of £800,000, do you mean for the minimum deposit? I put down a 25% deposit on a more modest property, which may be the key difference here

What happens if you rent for life and want to retire will your pensions cover the rent ? Stamp duty is insane and weighted against the whole of south east as is inheritance tax but you will still be better off in the long run owning your flat. Rent is dead money and someone else’s mortgage.

I can't believe anyone would prefer to rent over buying if they can afford to buy an asset which will appreciate

Long term buying is best if you can afford to otherwise your just paying someone else’s mortgage also if they decide to sell you will need to start again landlords might start selling up over next couple of years with the new tax rules coming into force next year. Buy something without management fees.

Buy somewhere cheaper then?

I’m a landlord in London, plenty of 2-3 bedroom flats (and houses) available in nice bits of Z1-3 for under £800k. You could live in Brixton, Dulwich, Elephant, even Battersea for less than that. Nobody is forcing you to spend £800k.

Why would you buy a flat in London? They are usually leasehold, so never really yours. Move a bit further out and buy a house.

Flats in London have not appreciated in real terms over the last few years.

The market is in absolute turmoil.

My flat has reduced in price by £80k since 2019 and that's in a "naice" area of London. Also unless you've got a very long lease you have to top it up which costs ££££££.

I can't say renting is much better. £1800 pcm for a crappy two bed flat round here. Ffs. I'm having problems selling my flat (divorce settlement) because of the service charges but if I can get that sorted and sell, I'm foxtrot oscar-ing out of Dodge. This city is ridiculous, especially for an older, single person. (If you sense bitterness, you'd be correct).

Yes I have. They have not increased a penny. Apart from all those new developements marketed as "luxury" marketed for suckers. There are flats still for 250k-300k in zones 4-6 built in early 2000s with great insulation you hardly need any heating in winter. And ex-council flats in zone 2 still worth 450k like 8 years ago. You can buy some great houses for less than that and no service charges.

Buy and pay off until you can buy again and rent out to others.. Repeat.

There is quite a bit of info missing from your story. For example, we know you have the deposit (but not how much - 1%, 5%, 10%, etc). We don't know what your rent is per month. We don't know what % of your income is your rent. Or how easy you are finding it to afford your rent. Or how easy you would find it to pay a full repayment mortgage on the desired property. Or whether you have already sorted out your pensions. Or whether you are in jobs with an exponentially increasing salary as you develop your career.

Are you trying to make a statement that rents are too cheap or that prices are too high? Or that the fees only put you off buying? My hope for LVT would strip away the SDLT elements of your concerns but introduce an annual charge based on the value of your home. Be careful what you wish for!

What type of flat are we talking about? Modern block, converted house, etc?

I can never imagine renting as a choice and I avoid properties that have a service charge.

For me there is nothing that can replace the knowledge that your home is yours, no-one can suddenly kick you out, it’s safe.

When you buy you have an asset that you can then sell, renting is money down the drain. One of the next massive issues this country is going to have is all the people who rented all their lives, retire and now can’t afford the rent, it’s going to be carnage.

I wouldn’t buy a flat in London again - Leasehold rules and service charges are ridiculous.
But there are plants of maisonettes that are share of freehold (still a pain but less so) in zones 3 that are still affordable.
I also wouldn’t buy a house in London. I can’t imagine spending that much on a property (usually old and full of structural issues) even if I could afford it.
But definitely want to own a place to live and not have to pay rent when I retire.
Im not counting on the value of the property in the long term. Im not really looking at “moving up the ladder”.
Bumps in house prices are always going to happen and it’s unfortunate when we lose money because we are force sellers (it happened to me in 2023 when I had to sell my leasehold flat during Ms Truss nonsense).
Today, my mortgage is less than what I would pay in rent and I’m planning to be in my property until I can (I bought a ground floor flat already, so I don’t have to worry about stairs when I age)
Interest income I would have if I left the 25% deposit in an investment account would taken years to be significant enough to cover my rent on its own. The math did not work. The opportunity cost of buying a property considering transaction and moving costs basically means it takes around 4-5 years to break even.

In this scenario, if you have to move in the short term, it makes sense to rent. And also if you already have £800k, that’s a different story.

Ah, yes banks are happy to let you default on your mortgage and interest rates are peanuts (only 5% relative to 3% London rental yield!). Clearly maths isn't your strength.

I think renting it’s good whilst you are not sure where you want to live and lots of flats haven’t made or lost money over the past few years. In today’s market which appears stagnant then to me it makes sense to save for a much bigger deposit and house so you miss that housing ladder. There is one more thing and that is in some places flats and houses are in short supply if you want to rent. Also some flats won’t let you have pets.

Well, foreclosure procedures do take ages.
It’s way harder for a bank to be able to kick someone out of their homes, than a landlord.
London rental yields are under ridiculously low, but mortgage rates are down and you can find deals below 4%.

I would say that what clearly doesn’t make sense is being a landlord in London these days!