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Jcuk89

Trying to catch a falling knife? (V2)

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Hopefully this is in the right section, I’m interested to get some opinions on my situation below. Pretty sure the sentiment I’m going to get here..

I’m almost 30, earn above average salary, and live zone 2/3 London. Gf and I have been renting and saving a while, and got to the point where can afford to buy. 

 I’ve always had my eye on the house market anyway and have lived in London pretty much since the last crash. 

Thanks to this place, and my general interest I’ve seen the signs of the market turning since mortgage approvals dropped in 2016 see this link which summed it up for me at the time. 

http://truepublica.org.uk/united-kingdom/britains-house-price-crash-2016-predictions-mount/

Since then we’ve seen the government clamp down on money laundering, Stamp duty changes at the top segment and for BTLers, a ton of new unaffordable/overpriced stock above £500k, and Brexit. Finally there is nowhere for them to turn to increase liquidity once demand has started to fall. 

 

For me, it’s a perfect storm to drive prices down in the next year. But how far will they go?

 

Now back to my situation, I decided to start looking, thinking that there will be desperate sellers (BTL) and probates on the market, so I could have an opportunity to buy under the market, and rent out a few rooms in a 2/3 bed flat. 

We can live with friends, offer them reasonable rent, and be throwing money into an investment instead. The question is, how good an investment would it be?

 

We succeeded in our plan and found a flat, 3 bedrooms, for £435k. 

Flats on the same road (identical build, layout) have gone for over £525k just a few months ago. So we are below the market. This particular seller is desperate to leave and move out of the country. He was a BTL landlord. 

 

So. Armed with knowledge that I have a chance to get a flat around 15% below current values, and on a monthly basis would be better off, what should I do?

 

If we buy and prices stay stable, we will be in a great position.  I worked out we can afford a further 5-10% drop in value based on the rents we would be saving and income receiving, and be better off after 3 years. Any more than this, and we are better off renting.

 

But I can’t help but fear that this time a crash will be different. The government has thrown everything at it, and things seem to be unravelling at the same time. 

How bad do you HPCers think it will be?

 

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I don't think you said what your LTV would be?

Would you be approved for a mortgage with this plan to rent out spare rooms already in your heads?  The bank will be thinking, "What if a little baby came along...?"

I'm interested in any replies you get though, as I'm also looking to buy now.  I'm willing to take a bit of a hit just because of the stability owning gives you - though have had the same home/landlord for 10 years now. Though the stability argument maybe doesn't hold for flats - if a noisy dog or other antisocials move in, for example.

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Very interesting dilemma.  My first reaction would be to say just do it. 

I'm not a huge bear on house prices.

But the problem is that this is apparently the second longest expansion on record - we are long overdue a recession.  And it has been fuelled by easy money.  I am not sure but I cannot imagine there has ever been a cataclysmic financial crash followed by a such a very weak recovery which has been accompanied by a humongous housing bubble. 

Post 2000 was supposedly weak but I don't think it was anywhere near as weak as what we've seen since 2008.

CBs are now mostly in neutral or dialling back the easing. They don't much like having such bloated balance sheets. 

There's very little dry powder left for when the S next HTF.

So potentially the downside could be humungous. 

But, these things take time. 

In five years you'd have paid another ton of rent to some phucker LL. 

So I guess you've just got to hold your nose and buy.

Edited by Fletcher

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Doesn't sound too bad, as long as you're buying it to live in for some time, and plan to rent a room/rooms.

 

Make sure you get a decent mortgage rate for the time you'll be living on it - there's some good rates around at the moment.

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  • 301 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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