Reply to: Buying a flat

[Whorty]

I plan on living in for at least 8 years.

London property prices are unlikely to drop in 8 years, and more likely to rise by 2-3 % each year during that period.

Buy a flat in a good area, preferably one that has future extra transport links planned. Check out the Bakerloo Line extension and see what you can afford along that new route (Peckham, New Cross, Forest Hill, Beckenham etc). Easy travel already into central London, affordable property and when the tube goes out there the property prices will rise stupidly

Do a bit more research, BUT ... get on the ladder before you are priced out even further

[heyya99]

I am not staying that at all. 'Anyone' might be perfectly fine buying a London flat for 400k with 10% deposit. It depends what you want to do with the flat. Do you plan to live in it for the next few years? Do you plan to leave the city next summer and let it out? How long is a piece of string? Etc.

I plan on living in for at least 8 years.

[SueEllen]

Anyone? No, but you with your lack of knowledge and awareness of what the world is actually like (take a look at your posting history)... I'd say save up and buy for cash outright, it's safer.

He will still get it wrong.

He has no idea about service charges, major works, lease extensions etc.

He's much safer buying a house just outside London.

[TykeMerc]

Are you saying anyone wanting to buy a 400k flat in London should ideally raise a deposit of 100k? Or am I reading this wrong?

Anyone? No, but you with your lack of knowledge and awareness of what the world is actually like (take a look at your posting history)... I'd say save up and buy for cash outright, it's safer.

[Peter Loew]

It depends what you mean by "good". When viewed in the context of a typical interest rate environment at this point in the business cycle, the current rates for mortgages with a 10% deposit look very favourable indeed. So, it's all relative. It's anyone's guess as to what will happen with the housing/mortgage market over the coming year or two, but mortgage rates are historically very favourable at present. Your point about long-term intentions is a good one though; it makes much less sense to buy, especially with a small deposit, unless your plans are firmly centred where you intend to buy, for several years at least.

Yes, totally agree.

[Peter Loew]

Are you saying anyone wanting to buy a 400k flat in London should ideally raise a deposit of 100k? Or am I reading this wrong?

I am not staying that at all. 'Anyone' might be perfectly fine buying a London flat for 400k with 10% deposit. It depends what you want to do with the flat. Do you plan to live in it for the next few years? Do you plan to leave the city next summer and let it out? How long is a piece of string? Etc.

[jamesbrown]

Given it's a 10% deposit, he isn't going to get a very good rate is he. This coupled with the fact he will most likely want to let the property out at some point possibly in the near future, and cover both mortgage repayments and maintenance.

It depends what you mean by "good". When viewed in the context of a typical interest rate environment at this point in the business cycle, the current rates for mortgages with a 10% deposit look very favourable indeed. So, it's all relative. It's anyone's guess as to what will happen with the housing/mortgage market over the coming year or two, but mortgage rates are historically very favourable at present. Your point about long-term intentions is a good one though; it makes much less sense to buy, especially with a small deposit, unless your plans are firmly centred where you intend to buy, for several years at least.

[heyya99]

Well it depends on the type of property etc., but generally (and this is very general), around 25%. This should cover mortgage repayments, which will be high given a low deposit, and incidentals, maintenance etc. You really need to do your homework on this though.

Are you saying anyone wanting to buy a 400k flat in London should ideally raise a deposit of 100k? Or am I reading this wrong?

[Peter Loew]

I don't necessarily agree with that part - the deposit only needs to be high enough to take you to the best or good enough mortgage deals - I saw some advertised at 1.99%, but needed a 25%+ deposit - not really that practical in London is it?

Especially with an Ltd income, it's usually more profitable to leave the funds in Ltd as a cushion and only withdraw if you need to.

Given it's a 10% deposit, he isn't going to get a very good rate is he. This coupled with the fact he will most likely want to let the property out at some point possibly in the near future, and cover both mortgage repayments and maintenance.

[Peter Loew]

How much higher?

Well it depends on the type of property etc., but generally (and this is very general), around 25%. This should cover mortgage repayments, which will be high given a low deposit, and incidentals, maintenance etc. You really need to do your homework on this though.

[SueEllen]

For mere mortals, this probably means getting a leasehold (unless it's a new development) and you should really look into what state you property will at the end of your projected mortgage - most likely a 80 year old dilapidated building, whose leasehold is about to expire..

This is where and why you need to do your research into how you own property in England.

The mortgage company and the freeholder will not allow the building to become dilapidated as it's their investment as well not just yours.

Also as a freeholder of a flat you normally are a leaseholder of the flat but as the flat owner are a director of the company that owns the freehold of the building. This is because in England it's extreme rare to have flats with separate freeholds as mortgage companies require someone to maintain the common parts of the building. This means all decisions on the building are made by freehold company.

In both cases you pay yearly towards the insurance, maintenance and repairs on the building. If works need to be done i.e. a new roof then how it's paid for and your proportion of the cost is stipulated in your lease.

In regards to lease length before a lease gets to 80 years you are advised to extend it. After 80 years the cost of extending the lease becomes very expensive. You have to pay for this extension but it can increase the value of the flat by at least the cost of the extension.

There are issues with disputes in flats with freeholders whether the freehold is an external company, or a company of flat owners in the building so the easiest thing is to buy a freehold house. Even then there are issues with restrictive covenants and you can end up in a preservation area....

[yasockie]

How much higher?

I don't necessarily agree with that part - the deposit only needs to be high enough to take you to the best or good enough mortgage deals - I saw some advertised at 1.99%, but needed a 25%+ deposit - not really that practical in London is it?

Especially with an Ltd income, it's usually more profitable to leave the funds in Ltd as a cushion and only withdraw if you need to.

[heyya99]

IMO you need a higher deposit to buy comfortably.

How much higher?

[yasockie]

I'd looked at buying in London repeatedly as I regularly spend 100+/night in a hotel or 1000+/pcm for renting.
Unfortunately, buying in London, does not seem to be a more profitable option, even in a very, very long view.
There's only two options I had looked at - getting a studio, equivalent to what I am renting, in that, to be more profitable than renting, the mortgage+taxes+insurance+maintenance etc should be less than a monthly rent. When I did my calculation this had sent the mortgage into 50 years+, is some cases beyond the time the leasehold was for.
The other option was getting a larger flat and renting out the other rooms.
Unfortunately, even on my daily rate, I wasn't able to afford that option.
It was better than getting a studio, and a larger place is more useful in the long run, but still, it wouldn't be profitable for many, many years. The only thing that would have felt nice about that, would be slowly acquiring a physical thing that is likely to be worth upwards of 1m in a few years time.
Still, overall, for what I've seen, especially in the very central London area that I was looking at, the market situation is such that many people are renting out places that they have bought at much lower prices. Lower rents already allow them to pay off the mortgage easily so they don't put as much pressure to raise the rents.
On a final note, from what I've seen, getting a single flat with a freehold in London is a rarity and when there is one, it commands such a premium, that it is again arguable whether it is a profitable option (it probably is, just in a timescale that is way beyond useful). For mere mortals, this probably means getting a leasehold (unless it's a new development) and you should really look into what state you property will at the end of your projected mortgage - most likely a 80 year old dilapidated building, whose leasehold is about to expire.

All of the above has contributed to the fact that I am still not a part of London property ladders. I very much wish I were, but I'm just not there yet, financially.
With what you posted here, I don't think you should be, either. All it takes is short break between the contract and you go under.

[Peter Loew]

I am not planning on buying right now. I am taking stock of my income after year end to see when I could buy, if my income stays the same.

I was hoping to buy in the Summer time but I'm not in any hurry. I'm not willing to leave myself short just to buy.

You def should NOT be in a hurry with this kind of cursory number crunching. Also, if you're ever thinking of renting the place out (say you leave London), with this kind of deposit it is highly unlikely you will make back the full mortgage repayments through rental money. IMO you need a higher deposit to buy comfortably.