My girlfriend and I are currently renting a 1 bed flat in Forest Hill, London. We wish to continue living in this area for up to 3 years, but we no longer wish to put all our money into renting.
Our plan was to buy a 1 or 2 bedroom flat in Forest Hill for around £165k, and then in around 3 years time move back 'home' to Kent where we could afford to buy a 2 or 3 bed house. However we are worried that if we buy in forest hill and house prices crash we will get into negative equity and be stuck in a small flat until prices rise again. We believe Forest to be a fairly nice up and coming area, and we should have around a 15% deposit - so we would only be in negative equity if the value of the property fell below £140k ish in the next 3 years.
We considered continuing to rent our current flat in london and also buy a 2/3 bed house in Kent which we can then rent out until we are ready to move back home. That way if house prices do go down, we will at least have a larger home that we could move into when we are ready. Obviously this option is not without its difficulties such as.. would we be able to charge a rent that could cover the mortgage and general maintanence fees? how would we cover the mortgage during periods when the house? Would the mortgage lender let us do this?
Are we right to be cautious about buying in london, or is it unlikely that prices will fall that much..?
If anyone has any thoughts or advice on any other possible solutions, it would be greatly appreciated?