The Property Market in London - and how to Navigate It

[LondonFinance1]

If you were trying to rent a room or a flat in London recently, you have found yourself in a perfect storm https://www.theguardian.com/money/2...d-unscrupulous-landlords-are-breaking-tenants of lots of pent-up demand (read: people returning to London after Covid), higher mortgage rates for landlords and well-intended legislation https://www.gov.uk/government/news/government-to-deliver-new-deal-for-renters driving the worst bits of property off the market.

So why not buy a property? You might have read the news about a seven square meter flat on the market https://www.theguardian.com/uk-news...est-microflat-sells-for-80-above-asking-price but it might be something slightly bigger than that. Having a place of your own will solve the issues renters are facing for you. There might be a correction in the housing market coming https://www.ft.com/content/be11c70b-cc3d-418f-999f-74ac218051ee, so you could be in for a bargain. There have been long debates if there is a housing bubble in London or not. Although an interesting discussion to be had (and potentially worth another post), the answer does not matter much if you are looking for a place to live.

One of the main reasons for consistent high prices in London is high demand and low supply. The city can't expand much because of regulations protecting the Green Belt https://en.wikipedia.org/wiki/Metropolitan_Green_Belt , lots of historic buildings and landmarks, high-rises being not very popular or simply impossible to build because the soil is quite soft and marshy. Yet, London’s population has grown from 7.5m at the turn of the century to 9m today https://data.london.gov.uk/dataset/londons-population - raising demand meets a housing supply that does not keep up with it. Much of the new homes are also completed in the East of London and outer boroughs which does not necessarily work for everyone https://www.savills.co.uk/research_articles/229130/332950-0

Solving this conundrum will be difficult politically, but is badly needed: a massive reduction in house prices would make them more affordable to a wider audience, but also destroy personal wealth of current homeowners. Keeping prices at current levels excludes a large part of the population - 85-90% of employees can't afford the downpayment for an average London property, unless they get help from their families. This in turn does not bode well for social mobility - you can only buy property if your parents are rich.
You might have seen that mortgage rates have gone up recently in line (or probably even more) with recent rates in interest rates https://www.uswitch.com/mortgages/uk-mortgage-rates-today/ - this dampens price levels as buyers need to pay more for your mortgage and can spend less on property.

So, where to start if you want to buy a property? Browse sites like https://www.zoopla.co.uk/ to get an idea of price levels or what is available in the areas that interest you. Make a list of things that are important to you, both for the location, but also the property itself (access to a garden or green spaces, schools in the surroundings, good transport links, a separate room to work from home etc.) and then prioritise these. Be aware that these might change – if you have kids, you might not look for easy access to clubs anymore.
Then flip the search around and look at what you could afford by using online calculators like https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/ or https://www.which.co.uk/money/mortg...mortgage/how-much-can-you-borrow-aUysL0V7VCXK After that you will encounter the biggest bugbear of all – the downpayment. UK banks will require (at least) 10-20% of the total purchase price as a downpayment. Not that much different to other countries, but London’s property prices mean that the average downpayment in London is now close to £150k https://www.ft.com/content/fd29c715-8d12-459c-980e-11b58a4a374c so you face a decade (or more) of saving a large chunk of your income. Note that UK mortgage lenders will usually not lend more than 4,5 times your income. Part of the solution to that could be to buy a smaller place at the beginning – you might have come across the term “housing ladder” to build up equity, although that concept will not really work if prices raise at the same rate across the market https://www.ft.com/content/5c49931e-9ddd-3db3-8a67-3fc2bc18f0d2

Once you have a rough idea what you want to buy, for how much and where, you can start the process in earnest. First, you need to get your personal finance in order. Budgeting https://www.canarywharfian.co.uk/th...versity-students-and-young-professionals.708/ will probably have helped you to save enough for the deposit, but now you should have a good look at (because your mortgage provider will):

• Existing debt – anything that you can pay off before applying?
• Your credit history – if you want to build up a good credit history and have some time, you could use a credit card with a monthly direct debit, so all debt gets paid immediately
• Your current income – is there a chance to increase your income? A salary raise will help you with getting a bigger mortgage as it increases your regular income, a side job will help you with your mortgage payments (or give you a little extra financial breathing space), a one-off gig (or a bonus) will help to cover other costs like solicitor fees, mortgage fees and removals costs.
• Should you have any County Court Judgments (CCJs) against you or have been declared bankrupt in the past, tackle this immediately
• Do you qualify for affordable home ownership schemes like Help to Buy https://www.gov.uk/affordable-home-ownership-schemes

You will then speak to one or several mortgage providers or mortgage brokers who will give you an estimate bout mortgage sums and rates. If you are in a good position to borrow, you could get an agreement in principle (basically saying that you can finance a sum of X, subject to a more detailed assessment). This is a very strong signal towards sellers and estate agents as it means that you have the money required and that you can move quickly if needed.
Look for a solicitor and probably also a surveyor early on as you might need them quickly (and they tend to be busy) and then start searching. Should you have narrowed down your search, be inquisitive:

• How many previous owners did the property have?
• How long has it been on the market? What is the level of interest so far?
• Is it a freehold or a leasehold https://www.moneyhelper.org.uk/en/homes/buying-a-home/leasehold-vs-freehold-whats-the-difference
• When do the current owners want to move out? Have they found something new? Ideally, the property would be chain-free https://en.wikipedia.org/wiki/Chain-free_property i.e. not dependent on others selling their property or moving out
• Has there been any structural damage in the past?
• What were the last repairs needed? How much did they cost?
• What is the energy efficiency class of the property?
• How old are appliances like the boiler, kitchen equipment etc.? It might sound trivial, but this can easily amount to thousands of pounds on top of the purchase price

The asking price mentioned is usually not the final price agreed (unless the property is really popular) - you will probably end up some 10% below it https://www.showhouse.co.uk/news/london-property-sales-see-6-increase-in-asking-price/ You will then need to get your mortgage confirmed. It helps to be quick as it is a bit of Wild West until the point when you exchange contracts https://www.theadvisory.co.uk/conveyancing/exchange-and-completion/ the seller might ask for a higher price or another bidder might muscle in., but after that you are safe and there are only a few formalities to be finished. Congratulation to your new home.

 

[JustAnotherHuman1]

Great piece, insightful and actionable advice.

How do you negotiate like a rockstar? I only know the basics, like: always assume the agent's lying until proven otherwise, which I guess applies to lettings as well. You mention it really comes down to existing demand, and might not be possible to do: but if is, what are some of the rules to follow? I guess it's more art than a science, but some tips and tricks would be appreciated.

Also, can a leasehold always be extended (and what does that even mean) when its getting close to expiration (sorry if an ignorant question, as I really do not know), or what exactly is the point of this if it can always be extended on request? The landlord could just say no, right? Meaning the the ownership would be soon lost, which makes it a lot worse investment overall. I have seen some leaseholds for 999 years, but overwhelming majority is for 100-150.

What the article missed however is the fact that London is the global money-laundering centre, via properties and (I saw one of your comments mention this) how its propagated down to the lower end of the market and does hurt affordability. You didn't address this but I guess was off-topic for this one.

This is a pretty good, recent FT production on the topic:

 

[magellan1]

Very useful advice. I believe that it is not worth it to live in London in the long term and I advise people to leave the city after spending there a few years. Recently, I saw an infographic on home ownership in the UK and it was showing that people in the UK (outside London) predominantly own their homes while most people in London rent homes. London is one of the least affordable cities in the world and has one of the highest property prices to income ratios (like P/E for stocks). Living in London means competing with some of the richest people in the world for real estate. I understand that there are more jobs and entertainment in London but still, I am not convinced that it is worth all the sacrifices (working harder, being more stressed, struggling to purchase a home, etc.). London performs poorly in most rankings for quality of living. There are even some cities in countries like South Africa and Romania that offer a higher quality of living. If you live in London and haven't purchased a property yet, my recommendation is to think carefully about other cities in the UK or elsewhere.

 

[TheCanaryConsultant1]

Thank you, interesting article.
People have been talking about a bubble for so many years now it is hard to know what is right or wrong. There are so many wealthy investors in London, this will probably keep prices up for another while, but hard to say. Also, it seems the UK average house price has gone down, but is still largely above what it was about three years ago?
Given where rates are at the moment, would you say it is better to go for a fixed rate or a variable? variable seems like a good option given rates are "due to" plateau to then decrease in the longer term?

 

[LondonFinance1]

Thank you, interesting article.
People have been talking about a bubble for so many years now it is hard to know what is right or wrong. There are so many wealthy investors in London, this will probably keep prices up for another while, but hard to say. Also, it seems the UK average house price has gone down, but is still largely above what it was about three years ago?
Given where rates are at the moment, would you say it is better to go for a fixed rate or a variable? variable seems like a good option given rates are "due to" plateau to then decrease in the longer term?

Yes and no There several challenges with calculating average house prices. There is a time lag in indices like https://www.nationwide.co.uk/house-price-index/methodology/ or https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/october2022 as a property transaction will take several weeks (usually months) to complete, so these indices mirror prices that have been agreed three or four months ago. Another issue is comparability - properties differ on numerous factoes like size, location, strcuture, maintenance, year, equipment etc. On top of that, they are not traded very often (some stay in the family for generations), so past values are not up to date. Sometimes, these values are not even published, so I would be cautious when looking at average house prices. For general trends they can give some guidance (prices going up/down a lot/a little.

On rates, I might go for short-term fixed rates (let's say for two years) and then variable. Fixed rates can be slightly cheaper and buying a house is stressful enough, so it helps if you have a basis to calculate with for a short term. Interest rates might go up slightly before they plateau. My guess is that we would need to see 3-4% inflation before rates are going down.

 

[LondonFinance1]

Very useful advice. I believe that it is not worth it to live in London in the long term and I advise people to leave the city after spending there a few years. Recently, I saw an infographic on home ownership in the UK and it was showing that people in the UK (outside London) predominantly own their homes while most people in London rent homes. London is one of the least affordable cities in the world and has one of the highest property prices to income ratios (like P/E for stocks). Living in London means competing with some of the richest people in the world for real estate. I understand that there are more jobs and entertainment in London but still, I am not convinced that it is worth all the sacrifices (working harder, being more stressed, struggling to purchase a home, etc.). London performs poorly in most rankings for quality of living. There are even some cities in countries like South Africa and Romania that offer a higher quality of living. If you live in London and haven't purchased a property yet, my recommendation is to think carefully about other cities in the UK or elsewhere.

In the end, it probably comes down to personal preferences (if you like to have a large garden or rather be close to work etc.). There is a lot of talk of potential market corrections https://www.bloomberg.com/news/arti...llapse-of-the-uk-housing-market-may-be-coming - 40% might be quite a negative scenario as the market could simply dry up if prices fall too much (you would only sell if you absolutely have to).

 

[Tyler Durden1]

If you were trying to rent a room or a flat in London recently, you have found yourself in a perfect storm https://www.theguardian.com/money/2...d-unscrupulous-landlords-are-breaking-tenants of lots of pent-up demand (read: people returning to London after Covid), higher mortgage rates for landlords and well-intended legislation https://www.gov.uk/government/news/government-to-deliver-new-deal-for-renters driving the worst bits of property off the market.

So why not buy a property? You might have read the news about a seven square meter flat on the market https://www.theguardian.com/uk-news...est-microflat-sells-for-80-above-asking-price but it might be something slightly bigger than that. Having a place of your own will solve the issues renters are facing for you. There might be a correction in the housing market coming https://www.ft.com/content/be11c70b-cc3d-418f-999f-74ac218051ee, so you could be in for a bargain. There have been long debates if there is a housing bubble in London or not. Although an interesting discussion to be had (and potentially worth another post), the answer does not matter much if you are looking for a place to live.

One of the main reasons for consistent high prices in London is high demand and low supply. The city can't expand much because of regulations protecting the Green Belt https://en.wikipedia.org/wiki/Metropolitan_Green_Belt , lots of historic buildings and landmarks, high-rises being not very popular or simply impossible to build because the soil is quite soft and marshy. Yet, London’s population has grown from 7.5m at the turn of the century to 9m today https://data.london.gov.uk/dataset/londons-population - raising demand meets a housing supply that does not keep up with it. Much of the new homes are also completed in the East of London and outer boroughs which does not necessarily work for everyone https://www.savills.co.uk/research_articles/229130/332950-0

Solving this conundrum will be difficult politically, but is badly needed: a massive reduction in house prices would make them more affordable to a wider audience, but also destroy personal wealth of current homeowners. Keeping prices at current levels excludes a large part of the population - 85-90% of employees can't afford the downpayment for an average London property, unless they get help from their families. This in turn does not bode well for social mobility - you can only buy property if your parents are rich.
You might have seen that mortgage rates have gone up recently in line (or probably even more) with recent rates in interest rates https://www.uswitch.com/mortgages/uk-mortgage-rates-today/ - this dampens price levels as buyers need to pay more for your mortgage and can spend less on property.

So, where to start if you want to buy a property? Browse sites like https://www.zoopla.co.uk/ to get an idea of price levels or what is available in the areas that interest you. Make a list of things that are important to you, both for the location, but also the property itself (access to a garden or green spaces, schools in the surroundings, good transport links, a separate room to work from home etc.) and then prioritise these. Be aware that these might change – if you have kids, you might not look for easy access to clubs anymore.
Then flip the search around and look at what you could afford by using online calculators like https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/ or https://www.which.co.uk/money/mortg...mortgage/how-much-can-you-borrow-aUysL0V7VCXK After that you will encounter the biggest bugbear of all – the downpayment. UK banks will require (at least) 10-20% of the total purchase price as a downpayment. Not that much different to other countries, but London’s property prices mean that the average downpayment in London is now close to £150k https://www.ft.com/content/fd29c715-8d12-459c-980e-11b58a4a374c so you face a decade (or more) of saving a large chunk of your income. Note that UK mortgage lenders will usually not lend more than 4,5 times your income. Part of the solution to that could be to buy a smaller place at the beginning – you might have come across the term “housing ladder” to build up equity, although that concept will not really work if prices raise at the same rate across the market https://www.ft.com/content/5c49931e-9ddd-3db3-8a67-3fc2bc18f0d2

Once you have a rough idea what you want to buy, for how much and where, you can start the process in earnest. First, you need to get your personal finance in order. Budgeting https://www.canarywharfian.co.uk/th...versity-students-and-young-professionals.708/ will probably have helped you to save enough for the deposit, but now you should have a good look at (because your mortgage provider will):

• Existing debt – anything that you can pay off before applying?
• Your credit history – if you want to build up a good credit history and have some time, you could use a credit card with a monthly direct debit, so all debt gets paid immediately
• Your current income – is there a chance to increase your income? A salary raise will help you with getting a bigger mortgage as it increases your regular income, a side job will help you with your mortgage payments (or give you a little extra financial breathing space), a one-off gig (or a bonus) will help to cover other costs like solicitor fees, mortgage fees and removals costs.
• Should you have any County Court Judgments (CCJs) against you or have been declared bankrupt in the past, tackle this immediately
• Do you qualify for affordable home ownership schemes like Help to Buy https://www.gov.uk/affordable-home-ownership-schemes

You will then speak to one or several mortgage providers or mortgage brokers who will give you an estimate bout mortgage sums and rates. If you are in a good position to borrow, you could get an agreement in principle (basically saying that you can finance a sum of X, subject to a more detailed assessment). This is a very strong signal towards sellers and estate agents as it means that you have the money required and that you can move quickly if needed.
Look for a solicitor and probably also a surveyor early on as you might need them quickly (and they tend to be busy) and then start searching. Should you have narrowed down your search, be inquisitive:

• How many previous owners did the property have?
• How long has it been on the market? What is the level of interest so far?
• Is it a freehold or a leasehold https://www.moneyhelper.org.uk/en/homes/buying-a-home/leasehold-vs-freehold-whats-the-difference
• When do the current owners want to move out? Have they found something new? Ideally, the property would be chain-free https://en.wikipedia.org/wiki/Chain-free_property i.e. not dependent on others selling their property or moving out
• Has there been any structural damage in the past?
• What were the last repairs needed? How much did they cost?
• What is the energy efficiency class of the property?
• How old are appliances like the boiler, kitchen equipment etc.? It might sound trivial, but this can easily amount to thousands of pounds on top of the purchase price

The asking price mentioned is usually not the final price agreed (unless the property is really popular) - you will probably end up some 10% below it https://www.showhouse.co.uk/news/london-property-sales-see-6-increase-in-asking-price/ You will then need to get your mortgage confirmed. It helps to be quick as it is a bit of Wild West until the point when you exchange contracts https://www.theadvisory.co.uk/conveyancing/exchange-and-completion/ the seller might ask for a higher price or another bidder might muscle in., but after that you are safe and there are only a few formalities to be finished. Congratulation to your new home.

Interesting article. London certainly is expensive. Property is more expensive on an income to price basis as you say. It generally requires 2 people to come together to buy a place as first time buyers typically in a relationship. Its a big commitment to buy a place together.

1. There is a UK scheme out already many years which alows you to buy a share of property as opposed to owning the property outright. That is not to say you live with other people. It is relating to you owning and equity share in the property along with others who are investors

https://www.gov.uk/shared-ownership-scheme

2. There is another scheme called help to buy. Effectively (and i am paraphrasing) the UK government give you an interest free loan for say 40% of tha value of the property which you can pay off at any time in the first 5 years free of any costs. You get a mortgage for say 50% off a typical high street lender and the residual 10% balance is a deposit funded buy the buyer / borrower. If the property is sold and the price of the property decreases, the equity help to buy piece (40%) from the government flexes like equity and decreases at the same proportionate rate. If it goes up and it has been more than 5 years, the government take their share of the upside. Its designed to help first time buyers who do not quite have the earnings or deposit to be able to buy without such support

https://www.gov.uk/help-to-buy-equity-loan

3. Another option is ot apply for council housing and then after time seek to acquire it off the coucil. This scheme has been around many years. More is explained in the link as it is straightforward

https://www.gov.uk/right-to-buy-buying-your-council-home

These schemes are helpful. They suport citizens in their pursuit of buying property. However, they could also be seen as a subsidy to prop up parts of the houing market which inturn prop up other parts thus keeping prices elevated. A lot of countries have these schemes

Although London housing is expensive, i see it as one of the worlds capital cities of which there are only a few of its stature. Many people come form all over to live in it. It is likely that although property prices will decrease in the short / medium term they will continue to increase in the long term but at more modest levels

 

[JustAnotherHuman1]

Interesting article. London certainly is expensive. Property is more expensive on an income to price basis as you say. It generally requires 2 people to come together to buy a place as first time buyers typically in a relationship. Its a big commitment to buy a place together.

1. There is a UK scheme out already many years which alows you to buy a share of property as opposed to owning the property outright. That is not to say you live with other people. It is relating to you owning and equity share in the property along with others who are investors

https://www.gov.uk/shared-ownership-scheme

2. There is another scheme called help to buy. Effectively (and i am paraphrasing) the UK government give you an interest free loan for say 40% of tha value of the property which you can pay off at any time in the first 5 years free of any costs. You get a mortgage for say 50% off a typical high street lender and the residual 10% balance is a deposit funded buy the buyer / borrower. If the property is sold and the price of the property decreases, the equity help to buy piece (40%) from the government flexes like equity and decreases at the same proportionate rate. If it goes up and it has been more than 5 years, the government take their share of the upside. Its designed to help first time buyers who do not quite have the earnings or deposit to be able to buy without such support

https://www.gov.uk/help-to-buy-equity-loan

3. Another option is ot apply for council housing and then after time seek to acquire it off the coucil. This scheme has been around many years. More is explained in the link as it is straightforward

https://www.gov.uk/right-to-buy-buying-your-council-home

These schemes are helpful. They suport citizens in their pursuit of buying property. However, they could also be seen as a subsidy to prop up parts of the houing market which inturn prop up other parts thus keeping prices elevated. A lot of countries have these schemes

Although London housing is expensive, i see it as one of the worlds capital cities of which there are only a few of its stature. Many people come form all over to live in it. It is likely that although property prices will decrease in the short / medium term they will continue to increase in the long term but at more modest levels

Actually, help to buy is not available anymore as of end of next month. There are no plans currently to extend or replace it either. It was good while it lasted, I guess (a good 10 years)..

How much do you think house prices will fall by? They are already down 3% from the peak last August, and some banks like Nomura are forecasting a fall as much as 15% until mid '24.

 

[Tyler Durden1]

Actually, help to buy is not available anymore as of end of next month. There are no plans currently to extend or replace it either. It was good while it lasted, I guess (a good 10 years)..

How much do you think house prices will fall by? They are already down 3% from the peak last August, and some banks like Nomura are forecasting a fall as much as 15% until mid '24.

Hey, didn't realise they were phasing out help to buy. Yes good while it lasted but it does create its own problems. Would be interesting to see what the market behaviour is like without it. Guess it will eaither result in more demand for renters or else people will leave the city altogether

I think mortgage costs are a huge driver of prices at the moment. Far from stating the obvious! I do see property market segmenting a little. There will be micro markets that will hold up or not decrease so much whilst others will fall far more. I see buyers outside of London being far more price sensitive and what i really mean by that is mortgage affordability will be a bigger issue for those who do not have very affluent incomes. Thus we might see a greater drop off in prices outside of London. Rents have become increasingly expensive in peripheral parts of the UK from avid reading of news - i havent done any deep dive on this so hands up if not the case!

Its a good question tho. Lets give Nomura a break and say it is around that area. I wonder what proportion of the regular transaction market will be transacting at these new reduced prices into 2024 to drive this on the back of the recent surge in home purchases in the COVID years. Also, what will be the knock on effect on the new homes coming to market. If they are not achieving their desired pre sales number targets that would lead to an indication of where the demand and price elasticity is residing at

 

[LondonFinance1]

Hey, didn't realise they were phasing out help to buy. Yes good while it lasted but it does create its own problems. Would be interesting to see what the market behaviour is like without it. Guess it will eaither result in more demand for renters or else people will leave the city altogether

I think mortgage costs are a huge driver of prices at the moment. Far from stating the obvious! I do see property market segmenting a little. There will be micro markets that will hold up or not decrease so much whilst others will fall far more. I see buyers outside of London being far more price sensitive and what i really mean by that is mortgage affordability will be a bigger issue for those who do not have very affluent incomes. Thus we might see a greater drop off in prices outside of London. Rents have become increasingly expensive in peripheral parts of the UK from avid reading of news - i havent done any deep dive on this so hands up if not the case!

Its a good question tho. Lets give Nomura a break and say it is around that area. I wonder what proportion of the regular transaction market will be transacting at these new reduced prices into 2024 to drive this on the back of the recent surge in home purchases in the COVID years. Also, what will be the knock on effect on the new homes coming to market. If they are not achieving their desired pre sales number targets that would lead to an indication of where the demand and price elasticity is residing at

Well, prices might not fall that much, but the market will dry up - you will only sell if you are forced to (for whatever reason), everyone else will try and sit the market out.

Help ot buy was not too much use in London anyhow - the challenge with programs like that is that they would require massive subsidies of probably 50-100k per transaction that it will not be justifiable politically, especially in times of foodbanks etc.

 

[magellan1]

I see that the property market is a very hot topic. Recently, I came across academic research showing that the "Help to buy" program has very little positive impact if any because house prices in areas where it is available tend to increase in line with the subsidy. @Tyler Durden mentioned Council housing and I recommend this option. I lived in a such property for a few months and it was great (central location, spacious, high-quality construction, etc.). Finally, I advise everyone to evaluate carefully whether purchasing a property is better than just renting. In many cases, purchasing a home is not a better financial decision given that property ownership comes with many expenses like interest, taxes and renovation. Owning a property also reduces your mobility and can have a negative impact on your career as it becomes more difficult to change your location for a better role.

 

[JustAnotherHuman1]

I see that the property market is a very hot topic. Recently, I came across academic research showing that the "Help to buy" program has very little positive impact if any because house prices in areas where it is available tend to increase in line with the subsidy. @Tyler Durden mentioned Council housing and I recommend this option. I lived in a such property for a few months and it was great (central location, spacious, high-quality construction, etc.). Finally, I advise everyone to evaluate carefully whether purchasing a property is better than just renting. In many cases, purchasing a home is not a better financial decision given that property ownership comes with many expenses like interest, taxes and renovation. Owning a property also reduces your mobility and can have a negative impact on your career as it becomes more difficult to change your location for a better role.

Council housing is mostly for low income people, isn’t it though? And aren’t they quite limited in number too? So not really sure how realistic or moral would such an option be for someone earning twice the average salary (first year analyst comp packages)

No wonder it is such a hot topic, most people on global cities spend like half of their income on rent. And the thing with renting is, that you are paying someone else’s mortgage rather than your own (effectively money down the toilet). Do the math. Would you rather pay someone else’s mortgage for years, than build up equity in something that you OWN and can later sell, even at a premium?

“Locking” yourself down with a mortgage early on in a career is probably not a wise idea, as it does take away a good chunk of your flexibility. But a lot of people tend to forget or mention, that really, again, renting means paying someone else’s mortgage, and one will never get that back money. It’s good for the landlord, and bad for you. Yes, you get flexibility in return, but there comes a point when the benefit of saving money will actually outweigh the costs of being “locked down”, and going with a mortgage is actually the most sensible thing to do. There are also options for some mortgages to actually rent it out temporarily (job overseas etc), so overall a mortgage can be a very smart thing to do.

 

[magellan1]

Council housing is mostly for low income people, isn’t it though? And aren’t they quite limited in number too? So not really sure how realistic or moral would such an option be for someone earning twice the average salary (first year analyst comp packages)

No wonder it is such a hot topic, most people on global cities spend like half of their income on rent. And the thing with renting is, that you are paying someone else’s mortgage rather than your own (effectively money down the toilet). Do the math. Would you rather pay someone else’s mortgage for years, than build up equity in something that you OWN and can later sell, even at a premium?

“Locking” yourself down with a mortgage early on in a career is probably not a wise idea, as it does take away a good chunk of your flexibility. But a lot of people tend to forget or mention, that really, again, renting means paying someone else’s mortgage, and one will never get that back money. It’s good for the landlord, and bad for you. Yes, you get flexibility in return, but there comes a point when the benefit of saving money will actually outweigh the costs of being “locked down”, and going with a mortgage is actually the most sensible thing to do. There are also options for some mortgages to actually rent it out temporarily (job overseas etc), so overall a mortgage can be a very smart thing to do.

I was just renting a room in this property and I am not sure what are the exact rules for getting council housing, it is possible that the "landlord" abused the system in some way. In my view, whether to buy or rent is a relatively simple math question. If the rental yield (rent that you have to pay divided by the property value) is not much higher than the interest expenses + taxes + maintenance and other costs, then it makes more sense to rent.

 

[JustAnotherHuman1]

I was just renting a room in this property and I am not sure what are the exact rules for getting council housing, it is possible that the "landlord" abused the system in some way. In my view, whether to buy or rent is a relatively simple math question. If the rental yield (rent that you have to pay divided by the property value) is not much higher than the interest expenses + taxes + maintenance and other costs, then it makes more sense to rent.

Yeah I have no idea about your landlord, I was just making a point in regards @Tyler Durden's suggestion of going the council property route.

You are leaving property appreciation out of your equation on the plus side (rather than a cost), as well as the fact that once a mortgage is fully paid for, then it can be rented out which generates income for a long time for the owner (you). It's not as a simple calculation as you make it out to be as there are too many unknown variables with unknown variance. Almost always, buying is more preferable than renting over the long run (renting = throwing money out of the window).

 

[TheWharfConsultant1]

And also do not forget that it could be a personal preference to have a home of one's own, so paying slightly more for housing adds to personal wellbeing and they are willing to cut corners elsewhere, e.g. for cars.

 

[AugustusSeptimius1]

Interesting discussion. I imagine the likely upcoming vagaries of the housing market will make mortgage decisions that bit more arduous. It's worth saying that I've found some calculators that I plan to use when I start the process of deciding between renting and buying, like https://www.calculator.net/rent-vs-buy-calculator.html, pretty helpful. They allow you to input all the financial data you have regarding the prospective property to buy and property to rent and then calculate which is cheaper over a certain amount of time.

 

[JustAnotherHuman1]

Interesting discussion. I imagine the likely upcoming vagaries of the housing market will make mortgage decisions that bit more arduous. It's worth saying that I've found some calculators that I plan to use when I start the process of deciding between renting and buying, like https://www.calculator.net/rent-vs-buy-calculator.html, pretty helpful. They allow you to input all the financial data you have regarding the prospective property to buy and property to rent and then calculate which is cheaper over a certain amount of time.

House prices are inversely correlated with interest rates. The higher base rate, the higher monthly mortgage repayments become (the less affordable it is) as banks calculate the variable interest rate charge based on that, which in turn reduces total demand. This is one of the reasons why we see house prices falling.

The problem with renting, as I mentioned above, is that you effectively pay for someone else’s mortgage, and not yours. What does this mean?

Let’s say you rent for 10 years. What do you have at the end of that? You own nothing. You paid someone else’s mortgage for 10 years.

Compare that with paying your own mortgage instead: you then built up equity in the property and potentially own 100% of it. Not only that, but it it’s a “forced saving”, and is not affected by inflation. So overall a solid investment.

 

[AugustusSeptimius1]

House prices are inversely correlated with interest rates. The higher base rate, the higher monthly mortgage repayments become (the less affordable it is) as banks calculate the variable interest rate charge based on that, which in turn reduces total demand. This is one of the reasons why we see house prices falling.

The problem with renting, as I mentioned above, is that you effectively pay for someone else’s mortgage, and not yours. What does this mean?

Let’s say you rent for 10 years. What do you have at the end of that? You own nothing. You paid someone else’s mortgage for 10 years.

Compare that with paying your own mortgage instead: you then built up equity in the property and potentially own 100% of it. Not only that, but it it’s a “forced saving”, and is not affected by inflation. So overall a solid investment.

Agreed. I think there is profitability to be had for individual house buyers and companies making use of housing financialization

 

[AugustusSeptimius1]

Great piece, insightful and actionable advice.

How do you negotiate like a rockstar? I only know the basics, like: always assume the agent's lying until proven otherwise, which I guess applies to lettings as well. You mention it really comes down to existing demand, and might not be possible to do: but if is, what are some of the rules to follow? I guess it's more art than a science, but some tips and tricks would be appreciated.

Also, can a leasehold always be extended (and what does that even mean) when its getting close to expiration (sorry if an ignorant question, as I really do not know), or what exactly is the point of this if it can always be extended on request? The landlord could just say no, right? Meaning the the ownership would be soon lost, which makes it a lot worse investment overall. I have seen some leaseholds for 999 years, but overwhelming majority is for 100-150.

What the article missed however is the fact that London is the global money-laundering centre, via properties and (I saw one of your comments mention this) how its propagated down to the lower end of the market and does hurt affordability. You didn't address this but I guess was off-topic for this one.

This is a pretty good, recent FT production on the topic:

I've watched this FT piece, really informative: pretty interesting transition from Global Empire to Laundering Empire!