Have we made a financial mistake buying our flat rather than renting?

[squalle]

We bought our flat in 2016 for £670k. It’s a one bedroom flat in a conversion with a terrace in zone 1/2 borders. We spend around £6,000 a year on service charge. Our interest rate is now 4.8%.

The total monthly cost of running and maintaining this place is £3,700 a month. On the open rental market, it would fetch around £2,800.

We have just had it valued for £650k.

We have therefore lost a significant amount of money vs if we had rented and invested our deposit in stocks and shares.

Yes, in your case it would appear so. My guess is one beds have a limited market. It's also has a hefty service charge, does that equate to reasonable upkeep?

You would need to calculate costs over 10 years but you might also have to factor in costs of moving from rental as most rentals don't last for that length of time. Having stability is a benefit of ownership.

The sooner people stop treating houses as an investment the better. I know someone who assumed "you always make money developing" not so, he has lost money on 2 houses but still feels property is always a winner.

I’m in a similar position, I’m never going to buy a flat again. Flat prices near me in London have stagnated or dropped since pre pandemic.

That’s a hefty service charge.
Flats have not done well in London. I bought a small two bed in Fulham for £660k in 2016, spent £40k renovating. Service charge £2000. I started to rent it out in 2019 and currently charge £2900/month. I would guesstimate the value to be no more than £750k, so it really hasn’t gone up much at all in ten years (my current house in zone 3 has increased by close to 25% in four years as a comparison).
But even with the house, I’m selling next year as moving abroad and doing the sums I’ll make more on interest if I invest the money than I would in rent and none of the hassle or ongoing maintenance issues. Plus the added problem of then getting the tenants out on my return. Even factoring in the capital gain should it continue at current rate.
Normally I would have said bricks and mortar are a sure thing as I’ve always made far more from property investment than stocks/shares, however in the current climate this isn’t true.
But in 2016 you would not have known this and you still have had a home that’s yours - that psychological benefit is not quantifiable. When I return I plan to buy, even if on paper I’d still make more if I rented and invested. I like owning my home.

Oh thats a big service charge, mine was less than that and we had a gym and concierge.

I bought a flat for a similar price, but it was purpose built and had two good size bedrooms and was designed for family living, so many aren’t, I turned it into a three bed (one of the bedrooms was huge). We sold it fairly recently and made quite a lot more than we expected on it as I only bought it in 2019.

It really is a lottery and one thats really hard to predict.

Or option 3, you could have bought a cheaper flat with a lower service charge.

Yes, but what can you do now except sit tight and hope prices go up? I did think about buying a flat a while ago but after researching about the leasehold tenure and the dreaded service charges that will only go up, I decided to buy a house.

https://www.thisismoney.co.uk/money/mortgageshome/article-15716157/amp/The-death-one-bedroom-flat-rung-property-ladder-collapsed-sellers-facing-BIG-losses.html

How much have you paid off your mortgage in 10 years? In 2016, your stake in the house was worth your X% deposit - now it is worth X% deposit plus the capital that you have paid off - maybe 30% of the loan value. If you borrowed £600K - would you have saved / earned £180,000?

How much of the £3,700 running costs would you have if you were renting? Renting costs are not limited to simply the rent.. would some of the things in the £3,700 fall to the tenant?

How much is the security of knowing that the house is your's, worth to you? not having to think about the relationship with your landlord, the joy of being able to make decisions about. your own living space without thinking that you are 'paying for someone else's pension'..

While it is in theory, possible, that you might have made more in stocks and shares, you also have to take into account the costs of fund management fees and the risk associated with that strategy.

In 2016, you made the right decision for you and you are deposit plus 30% of loan, closer to owning your own property that you will not have to pay rent on, during your retirement, while and stocks and shares investment, would still hold an element of uncertainty. It is impossible to know what other decisions you would have made in the previous 10 years, if you had continued to rent.

I also bought a one bed flat in London in 2016, and it too has decreased in value. But the rental value has increased loads.
I see it like @Pleasealexa and @ChateauMargaux said.

I didn’t buy my flat as an investment.
I bought it for my security, not to be constantly at the whim of a landlord - be that increasing rent or selling, and then having to move. Simple, but super important things - I can decorate and furnish it how I want.
I have overpaid my mortgage, so yes, while the value hasn’t increased due to loads of external factors I never could’ve foreseen, it’s closer to being my own home, outright.
it was absolutely the right decision for me at that time.
There are still loads of positives and I still love my flat.

Yes but this has all changed now - the disadvantages of being at the whim of the LL if renting will be much reduced as of May.

It won't sell more that 550k.

It's not a great time to sell any property at the moment. If you can I would hold onto it. Younger people coming into employment in the city don't want to WFH and want to be close to work. I think you'll see a return but you'll need to hold on to it a fair bit longer.

You would’ve had to have lived somewhere so you can deduct whatever it rents for from the £3700
and then I guess it comes down to whether £900 a month came off the capital or not ?
Have you increased the amount that you’ll have to put down as a deposit next time even if it sells at a £20,000 loss which it may not

It’ll just be hard harder to get through the front door of any rental in the first place if you don’t have immaculate credit and a guarantor, you wouldn’t be getting the keys to my place

buying in London in 2016 you probably did buy at the top of the market. Also 6k a year service charge is wild for a 1-bed; do you get anything for it? Swimming pool / gym etc?

@DirtyGertyy
“Yes but this has all changed now - the disadvantages of being at the whim of the LL if renting will be much reduced as of May.”

It may be about to change. But for the purposes of the Q the op posed, for the past 10 years that was the situation facing renters. So having your own property and not having to deal with that uncertainty was certainly a positive (not to mention the faff that goes with the territory).

Similar position but I try to think of what I’ve cleared off my mortgage.

i’m not sure I would have managed to pay rent and save as much as partially clearing the mortgage has gained me.

This, the real selling situation is likley worse than the valuation at the moment. That service charge is going to be very off putting as it is, plus the likley future increases will make it harder to sell in future.
Its a bit pointless though kicking yourself that maybe you could have made more of your money with other investments. You need somewhere to live and thats rarely free. You had very cheap borrowing rates for most of the period of ownership which gave you a good chance to get ahead and pay down the borrowing.

Doing some very rough sums, say you had £580k in mortgage for 25 years at 1.5% pa, it should be paid down to about £380k now. So you’re getting close to £300k equity. You would have spent potentially £270k in rent over ten years. And the mortgage would have been cheaper in previous years than the recent ones.

I know it’s sad to sell at less than you paid for it, but hopefully you’re still better off.

Most landlords need the income, they either have BTL debt or don"t want to pay upkeep and double council tax , what happens if the minority of people who are debt free and flush with cash don"t want to rent their flat?

Are you okay? You appear to be chasing me around the Mumsnet property boards putting hypothetical situations to me that I’m not in and neither are you
Seems very odd behaviour.
Do you have an agenda of some sort?

Yes, only down 20k since 2016 does seem optimistic.

What was your reason for valuation?
are you looking to sell?
Homes are (usually) long term goals.

And substract service charges for 10 years that renters wouldn't pay, stamp duty when they buy next property, and potential losses while selling, if they find a buyer. I've done this maths - flats don't increase their value the same way as anything freehold in the UK, so buying flat is no better than renting here.
I would get rid of this property while it's still mortgageable. I've read banks are unwilling to lend on properties with service charges above 1% of value.

@squalle I don't think you've made a mistake in 2016 - who could've predicted that management companies will be able to get away with service charges like this in a developed country?

I don’t know the exact sums for this circumstance, I was just saying remember to factor in the equity against a potential rent.

I had a bed flat in London and sold it three years ago - huge service charge also but I had a bidding war. Hopefully it will be okay OP. I remember being worried. Weirdly the mortgage companies are more worried about the ground rent and increases than the service charge, so maybe check how that scales up in your case