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

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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.

The renter also wouldn't have had to pay for maintenance in the flat, and white goods that needed replacing.

Flats are down now, it’s true, but they will come up again.

in terms of your monthly cost, you need to mentally take off the amount you are repaying in equity as that’s not money that’s gone, it’s merely moved from one pot (your current account) to another (your equity in the flat).

Generally speaking, if it’s your home and you’re not being forced to sell I’d recommend not over-thinking the finances after the event. You bought it, it’s your home. It’s different for a rental where eg buying at the top would be a mistake. You bought a flat at the point in time you needed a flat. It probably wasn’t the best time from purely financial perspective but it wasn’t a purely financial decision, and over a lifetime it will all come out in the wash.

I can’t see flat prices increasing in any significant way. Too much awareness of the restrictions of the leasehold tenure, and the dreaded service charges.

Yes if mistake I’m afraid. There was an article recently about the majority of 1 bedroom flats losing value and worth less than they are purchased for. Post Covid people just don’t want 1 beds and £6k annually on service charges is ruinous - what are you getting for that? Unless it’s a heated pool and gym you are being robbed!

Heated pool is 10-12K in London I think

I think a lot of people bought flats thinking it would lead to a later "jump up the ladderr" or something, not sure what the thinking is TBH as if everything is going up in price the next house is also getting more expensive. The housing market is definitely a debt ladder, I will say that much.

Agreed, and without loads of cheap mortgage debt sloshing around the average person can"t offer silly money for basic accommodation anyway, definite end of an era feel to things now.

How do you see this playing out then with flats in London? If the BTL LL exit the market and OO need to move on for life stage - will prices plummet? Everywhere and every type of flat - eg share of freehold?

Well the big assumption is that people can actually sell the property to "exit" or "move on" at a price they can stomach,, many OO will be stuck where they are I think, many landlords won!t be able to shift their flats at anything more than fire-sale prices, so this leads to rent reductions to get/keep tenants as we are already seeing. The various types of flats will sell on their individual merits, so a high service charge flat is less valuable etc. etc. but with more expensive credit becoming the norm prices have to adjust downwards, whether that develops into a full blown crash is another matter because people who can hang on paying down the mortgage or can suck up the double council tax on empty property will be very reluctant to sell at big losses.
Ultimately the bond market decides because if the debt cost is forced up people can"t borrow and sentiment starts to shift, we are still at the stage where loads of people think things will soon "get better".

Yes, sorry I think you did.

That said if you are happy and healthy it’s not the end of the world. You could have been renting somewhere with black mould/ homeless etc.

If you’re intent on selling and cutting your losses is there anyway you could add value? Could you turn it into a 2 bed if that would increase the value or then rent it out as a 2 bed? Or could you buy the freehold (maybe with other leaseholders) and get rid of that extortionate service charge?

If you’ve not got the time/ money/ inclination then yes I’d get rid of it and chalk it up to experience.

Pretending it is a two bed won"t increase value in this market, it will just annoy buyers.

I think you are far from alone OP. I noticed just last week when browsing Rightmove that modern purpose built apartments in both the city I live in and my home city (which are a few hundred miles apart, neither London) are listed for around the same price as they were bought for several years previously (often 5-10 years). I went down that searching rabbit hole when I saw a flat listed for £160k and thought that seemed cheap - it sold for £165k in 2015. Older flats seem to have risen in value slightly. I think the high service charges and council tax on the modern flats means a 'cheap' sale price doesn't translate to low monthly costs.

That"s right, so obviously a lot of these prices are not yet "cheap" enough?

Confirming what we all know about flats:

Why are there so many flats for sale?

https://www.thetimes.com/article/d112bcb7-21eb-4bc9-b427-a9fe1c9fc8a3?shareToken=50b6415051d23aa29b73d51158a369d7

Good article, definitely not enough buyers for all these cheap units that were thrown up, I think we are heading for a commercial property type meltdown with big big losses.

I think with a lot of working from home during/after Covid the price premium for London and other cities has reduced as people can live further away where their money goes further. But you own a property so can't be held to ransom by potential rent increases. Our first house hardly went up in value, but you do have that security. I think a flat is a worse option than a house pretty much always.

London flats have not done well. Compare to a 3 bed semi further out for the same price (will have gone up more and no service charge).

You say the flat is in a conversion, so I am picturing a house divided in to flats? Can you and the other flat owners buy your freehold? Your expenses would reduce dramatically if you did, and your flat would become more attractive to buyers.

With more rental available you can"t be held to ransom, with the mortgage unless you fixed for ten years there are some tasty jumps coming to the monthly payments for people coming off their fixes.

The number of rentals will go down as more and more landlords will leave the market especially with new tenancy legislations coming through.

Not enough buyers out there now to bail out all the landlords, Big Corp certainly won"t be buying as immigration plummets.Everyone viewing a house to rent already lives somewhere.

If the LLs manage to lower the prices and sell, more rentals will free up. If they don't sell, the properties will go back into rental market.
So nothing will change, really. These properties will not sit empty forever.

That is correct, like a BTL mortgage debt the flat won"t be disappearing into thin air any time soon.

Yes, service charges and council tax will not pay itself. The LLs are the most motivated sellers.

But if the landlords are selling because of the hassle of being a landlord, they won’t be wanting to go back into the sector, will they? If they can’t sell their flats. I expect there will be an ever increasing number of flats sitting empty and landlords waiting for the market to improve and sucking up the council tax and service charges on those flats because that’s better then selling at a huge loss. There will always be people who want to buy flats but that number is decreasing.