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Gee

Second Step - North London

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Hi All,

I've just checked my profile - I may well be 'lurker prime'! 4 posts having joined in 2004! I still check this site almost daily, especially since the financial crisis.

I'm just gauging opinion as I'm running out of patience with my personal situation. We bought our flat in 2004, terrified at the time of negative equity. Of course prices should have corrected around then, but Merv pumped a bit more air into the bubble until 2007, and since then London has bounced spectacularly. We're still in the same 2 bed flat, but now with 2 kids. Bought c.£230K, now asking prices are c.£390, and think people are getting close to that price pretty quickly. OK area, leafy North London, lots of young families squeezed into maisonettes.

Up to now my strategy, given the financial crisis and the potential for redundancy has been to overpay the mortgage and sit tight, in the expectation of taking equity and buying mortgage-free out of London if I/the wife lost our jobs and interest rates were to rise. We've been overpaying like crazy as I'm very risk averse, and now have around 80% equity.

With the kids we're now very settled with schools and friends nearby. Job security has settled down (although in real terms I earn less than I did 8 years ago, with no potential to earn significantly more). We don't want to move area but desperately need more room. Just one more room (and maybe some stairs might be nice for a change). Asking prices for a 3 bed terrace in our street are c.£700k. It's insane.

So, £350k extra on the mortgage (which would be paid off in 3 years time if we carried on overpaying as now) for that one extra bedroom. Kids can probably realistically share where we are for another 3 years but not much longer. Relatively stable jobs, but very London-centric, so moving out would have be a commute and all the hassle of finding childcare, new schools, building new friendships etc.

My gut instinct has always told me to sit tight. But now I'm starting to think.... if we were to stretch, on a long term fix, we could probably get a 3 bed with around 40% equity. If London pops, we would lose equity on the flat or a new house, as they're in the same street. If London doesn't pop, we keep the same or more equity until that move out to the sticks at retirement. If we lose our jobs we sell or scrimp or go on the fabled SMI. :D Short of a crash that takes 40% off London prices, plunging us into negative equity at the same time as both of us losing our jobs, I'm struggling to work out what we gain from staying where we are anymore, as we already have 'skin in the game' whatever happens to the housing market. I'm desperate to be mortgage free though, and not sure I could stand the risk.

What would you do? :unsure:

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I'm struggling to work out what we gain from staying where we are anymore

Apart from the very obvious point that we'll have a spare £1700 a month to do whatever we want with when the mortgage is paid off, as opposed to shelling out £2k plus to infinity and beyond of course! :P

London house price madness can make you a bit stupid sometimes...

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Looks like you've been making the right calls so far, so well done!

How overstretched would you be if you bought the house and then the children got more expensive (they tend to do that as they get older :) ) or a third one popped up or one of you lost your jobs? Not end-of-the-world scenarios but just things going slightly less well than it sounds as if they've done so far.

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Apart from the very obvious point that we'll have a spare £1700 a month to do whatever we want with when the mortgage is paid off, as opposed to shelling out £2k plus to infinity and beyond of course! :P

London house price madness can make you a bit stupid sometimes...

Oh yeah, and psychologically how much do you value overpaying your mortgage vs no longer being able to overpay your mortgage?

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Looks like you've been making the right calls so far, so well done!

How overstretched would you be if you bought the house and then the children got more expensive (they tend to do that as they get older :) ) or a third one popped up or one of you lost your jobs? Not end-of-the-world scenarios but just things going slightly less well than it sounds as if they've done so far.

Thanks for the reply.

No chance of a third one. We'd manage on one salary, just about, as we'd save £15k on childcare p.a. if one of us stayed at home.

The big consideration, I suppose, is the utility of having more space now, against the utility and flexibility of being mortgage free. In my mind, if we stuck it out where we are (turn living room to 3rd bed, turn kitchen diner into kitchen living space when the kids need a room each) we could save for higher education costs, retirement etc. Also the flexibility of making a major life change if one or both of us lost our jobs to move somewhere more pleasant with a few grand in our pockets and no mortgage. But as the kids get older that becomes more tricky.

My wife is pretty saintly about all this, but it's not easy when others have clearly stretched themselves to a ridiculous degree to get an average house.

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This is a situation that must be repeating itself all over the country and especially in London. I live in a different part of London, but prices seem similar.

My main problem is how much prices have gone up for houses compared to flats since 2007. Here are three examples I have looked at locally:

1 bed conversion flat - £240k in 2007, £230k now, so about 4% down

2 bed maisonette with garden - £300k in 2007, £375k now, so 25% up

3 bed semi - £600k in 2007, £900k now, so 50% up

As you say, if the crash finally comes you will lose on whatever property you are in. Feasibly the houses should lose more in my area because they are the ones that have bubbled up uncontrollably in the past 6 years, but it is all about supply and demand so I actually think that the flats will lose more even though the smaller ones are already lower than 2007 'peak'. Is that the same in your area?

Clearly, the houses are the most over-valued, because if you could track down two of the £375k maisonettes you could convert them into a much bigger house than the 3 bed semi and still have plenty of change. That should not really happen!

The jump from a flat to a house seems a severe one financially, especially for someone in your position who would go from having almost paid off your mortgage to having a massive one again. I guess as long as you have the money to pay off the mortgage and you don't see a large crash as a certainty, the extra space you would gain would outweigh the financial side.

Personally, in your position, I'd make the move. You would get a lot of benefit from the extra space and I am beginning to lose faith in a London crash now because the government seem so hell bent on supporting house prices at all costs. When the financial crisis hit, I don't think anyone would have expected prices to be higher 5 years later, but here we are in 2013 and a lot of places are 50% up during that time! There is no sign of IRs increasing and Help To Buy and god knows what other ridiculous schemes are pushing confidence out of control.

The traditional move for someone in your position would be further out of London, but I agree that this is not attractive apart from financially. You could swap your £400k flat for a large detached house in outer-Surrey or Hampshire and you'd have no need to ever move again and still not have a mortgage. The problem is with this government and it's hairbrained schemes it might be better to have as much money as possible invested in residential property.

It has to go pop at some point, but it could be years off yet...

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  • 245 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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