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bu06nne

I am buying a flat in London am I crazy?

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Hi all

I suspect I already know the answer, but am I crazy to be being a flat in Fulham in the current climate?

Prices in the part of Fulham I am buying in have already dropped 7% YoY - the property is on at £430k for 50sqm - which is a lot lower than the average for the area.

What would you do? I have just sold my other flat, so I have two options: 

1. Rent (c. £1200 month) and pay the early exit fee on my 3 year fixed rate (I have a year to go) of around £3k.

2. Port my fixed rate across and buy a new flat? Total mortgage repayments inc interest c.£1,000 

Welcome feedback. 

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Sounds like you have a lot of equity. It depends on your circumstances. If you are single and kids are a long way off and you can deal with prices falling further then maybe it's an option. The price is still insane though.

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I am single, no kids, no plans on kids. I would be kicking myself though if prices drop 10-20% in the next year.  Now tempted to pull out of the exchange and rent for a bit.. 

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6 hours ago, bu06nne said:

Hi all

I suspect I already know the answer, but am I crazy to be being a flat in Fulham in the current climate?

Prices in the part of Fulham I am buying in have already dropped 7% YoY - the property is on at £430k for 50sqm - which is a lot lower than the average for the area.

What would you do? I have just sold my other flat, so I have two options: 

1. Rent (c. £1200 month) and pay the early exit fee on my 3 year fixed rate (I have a year to go) of around £3k.

2. Port my fixed rate across and buy a new flat? Total mortgage repayments inc interest c.£1,000 

Welcome feedback. 

you've effectively agreed to pay 3k for a product that saves you from any rate rises for the remainder of the 3 years - i'd say use the product on a new flat rather than just give the money away.

Towards the end of the fixed rate agreement you can look at the new figures and do your calculations again.

Try to really save the £200 a month you will be saving rather than spend it. Reduce the debt as much as possible as we all know rates are going up eventually ... 

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Thanks for your feedback. Such a tough decision to make - my deposit is quite high (£c.150k) with £20k reserved for renovation - so if I wasn't to buy, I would have around £170k just sitting in the account.  I would be buying into a drop, but the question is whether Fulham will see an even further decline... 

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I don't think anyone can tell you reliably if or how fast prices will fall in the next few years. 

But, as you are currently close to 65% LTV ratio, if prices continue to fall, at the end of your 3 year deal you may only be able to remortgage for 70, 75% or worse LTV, and end up paying a lot more in the long term. The "paper" loss of the value of the property doesn't matter as much as the real money you will be paying as interest in the long term.

So, IF you decide to buy, I wouldn't spend the 20k on renovations. Use as much of that as you can, as a buffer to keep you in the lowest LTV possible at the end of the fixed rate. If you can afford £1200 a month on rent then overpay the mortgage as well (provided no penalties for doing so - otherwise just put it aside and reduce the loan upon remortgaging).

Even if prices rise, you still pay less total interest when you shorten the mortgage term.

Then you can start saving more for a pension earlier, seeing as the state pension appears to be disappearing fast !!

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What about taking the £4k hit now -  then going onto a five or ten year tracker... I have found one which means I'll be paying £1200 pcm for ten years.

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(disclaimer: i am not qualified to give financial advice)

But why would you do that? Is the current fixed rate so bad that you would save more than £4k in the 2-3 years on a tracker? Don't forget you would also be paying new  fees for the new mortgage.

If its a tracker, and rates stay the same, then the same or similar deal should be available after 3 years. If not, and rates have gone up, then you wouldn't have stayed at £1200 a month anyway. 

If you are saying you can afford rate increases on a tracker, then it might be better to put the extra aside and reduce the loan when its time to remortgage. 

its not "crazy" if you just want to buy a place to live in. Its the price that is the problem.. To put it in perspective,the deposit in your case is roughly equivalent to winning 5 Numbers + Bonus Number on the lottery, three times. If you go over to landlordzone, they might encourage you to take two flats and let one out with a deposit that big (now THAT would be crazy!).

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It depends on the flat as well. In the areas I lived it the 1-bedders took longer to increase in value and were the first to fall in price. I'm guessing that as 50 sqm yours is a 1 bed?

if I was going to buy in London I aim for a 2 bedder (and meaning a real one and not a kitchen out of bedroom 2) even if that meant a smaller deposit. 

Being able to afford something relatively comfortable (by London standards) and not the smallest "worst flat on the worse road" would help make this decision easier for me.

So many other things to consider of course.

 

Edited by Flopsy

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22 hours ago, tm_81 said:

(disclaimer: i am not qualified to give financial advice)

But why would you do that? Is the current fixed rate so bad that you would save more than £4k in the 2-3 years on a tracker? Don't forget you would also be paying new  fees for the new mortgage.

If its a tracker, and rates stay the same, then the same or similar deal should be available after 3 years. If not, and rates have gone up, then you wouldn't have stayed at £1200 a month anyway. 

If you are saying you can afford rate increases on a tracker, then it might be better to put the extra aside and reduce the loan when its time to remortgage. 

its not "crazy" if you just want to buy a place to live in. Its the price that is the problem.. To put it in perspective,the deposit in your case is roughly equivalent to winning 5 Numbers + Bonus Number on the lottery, three times. If you go over to landlordzone, they might encourage you to take two flats and let one out with a deposit that big (now THAT would be crazy!).

I want to get out early on my one and get into a long term (5/10 year fixed rate - not a tracker)  before the interest rates go up...  I haven't done the maths, but I assume over the course of 5 years, I would save over £4k. 

1 hour ago, Flopsy said:

It depends on the flat as well. In the areas I lived it the 1-bedders took longer to increase in value and were the first to fall in price. I'm guessing that as 50 sqm yours is a 1 bed?

if I was going to buy in London I aim for a 2 bedder (and meaning a real one and not a kitchen out of bedroom 2) even if that meant a smaller deposit. 

Being able to afford something relatively comfortable (by London standards) and not the smallest "worst flat on the worse road" would help make this decision easier for me.

So many other things to consider of course.

 

Correct it's a 1 bed, can't afford a 2 bed unfortunately. 

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On 7/23/2017 at 7:14 PM, bu06nne said:

I want to get out early on my one and get into a long term (5/10 year fixed rate - not a tracker)  before the interest rates go up...  I haven't done the maths, but I assume over the course of 5 years, I would save over £4k. 

Correct it's a 1 bed, can't afford a 2 bed unfortunately. 

why don't you try to put stupid prices for flats you interested, e.g. 10% lower than the asking price and see if anyone come back with yes

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On 7/23/2017 at 5:14 PM, bu06nne said:

I want to get out early on my one and get into a long term (5/10 year fixed rate - not a tracker)  

ok that makes more sense, because you did say "tracker" on the earlier post. 

No one can predict interest rates, ECB might continue saying "get ready for a rise" but actually voting to stay at this level ... but at least you will have had peace of mind for 5 / 10 years.

I agree with making low offers in the current climate, if there are lots of options. Try 10%, 8%, 5% and see what happens.  They do, after all, do the same thing when the market is going up with multiple buyers so its only fair...

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15 hours ago, bu06nne said:

The flat was originally on at £540k! So already dropped quite a way but I think this was just a vastly over inflated figure already. 

No matter what they reduced, they always reduce it further like they were pushing it higher in bull market

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