London: Any sense renting if you can afford to buy?

[Pentoman]

Nice simple question for anyone with experience and knowledge.

Currently I rent (900/month) but can afford to buy.

I need to move to London and this will mean rent going up to 1200/month.

Is there any financial sense at all in renting? I will never see the 1200/month back (14400/year). I don't really want to buy. I'm not into houses/property. It is hassle, and I've got a lot of much, much more important things going on in my life that I won't go into but you'll have to trust me on that. However in a purely financial sense it does seem like a better thing to do with the money while I'm dealing with everything else in life. Is this as good a reason as any to buy?

And can I take advantage of a first-time buyer deal? Or is this restricted by age/status/deposit/political preference/other?

Appreciate the collective experience.

[mcflurry]

Without a crystal ball on future property prices and maintenance bills, it's pretty hard to tell

[vixen1700]

Can't believe how much average two bedroom terraced houses are fetching where I grew up in Leytonstone/Leyton. Totally insane amounts of money, surely this is massively unsustainable?

[walm]

Pentoman said:

Is there any financial sense at all in renting? I will never see the 1200/month back (14400/year).

You won't see the interest payments on a mortgage back either.
(Note paying back the interest is different from paying back the principal.)

[Hackney]

You don't like renting but don't want to buy.
Have you thought about a commune?

[kiethton]

vixen1700 said:

Can't believe how much average two bedroom terraced houses are fetching where I grew up in Leytonstone/Leyton. Totally insane amounts of money, surely this is massively unsustainable?

Not necessarily, look at net migration to london (national and international) over the past 10 years vs. the supply that has been built over the same period...for as long as this ratio is moving in the current direction and it least one person can afford to buy it prices can only go one way.

Remember that prices are only up 70% at their best in the last 5 years (East End generally), and its the same in the regions (C. B'ham flats, now going for £1,000 psf couldn't be given away at half that 5 years ago).

The problem isn't cost as people (national or foreign) and banks can obviously afford them (well the deposit on them in any case).

Also look at yields, yes the average London yield of 3.5-4.0% is carp but look at the spread to the 10 year sov. Bond, it's rarely been better...

It's all relative and hugely complex but there is only one direction things are moving in...

• all personal opinion

[vixen1700]

kiethton said:

Not necessarily, look at net migration to london (national and international) over the past 10 years vs. the supply that has been built over the same period...for as long as this ratio is moving in the current direction and it least one person can afford to buy it prices can only go one way.

Remember that prices are only up 70% at their best in the last 5 years (East End generally), and its the same in the regions (C. B'ham flats, now going for £1,000 psf couldn't be given away at half that 5 years ago).

The problem isn't cost as people (national or foreign) and banks can obviously afford them (well the deposit on them in any case).

Also look at yields, yes the average London yield of 3.5-4.0% is carp but look at the spread to the 10 year sov. Bond, it's rarely been better...

It's all relative and hugely complex but there is only one direction things are moving in...

• all personal opinion

My wife has said I've become 'provincial' since moving out of London a few years ago , but it still shocks me when I see this:

http://www.rightmove.co.uk/property-for-sale/prope...

This is in the road I used to go to infants school, so know the area well. All the terraced places round there seem North of 375k too.

I still find it baffling.

[User33678888]

It's interesting to look at the rental versus property price. There are some bargains out there, particularly higher up in the market. http://www.rightmove.co.uk/property-to-rent/proper... is £2250 a week for a house worth £4m+. As an investment you're almost better off with magic beans.

[walm]

User33678888 said:

It's interesting to look at the rental versus property price. There are some bargains out there, particularly higher up in the market. http://www.rightmove.co.uk/property-to-rent/proper... is £2250 a week for a house worth £4m+. As an investment you're almost better off with magic beans.

3% gross yield on something appreciating 10%+ per annum.
Sound great to me!!

Right up until it drops 30%.

[Zigster]

Also factor in how long you'll be there - transaction costs (both buying and selling) are prohibitive if you'll only be in the place for a few years.

I have friends (a bit wealthier than I am) who are renting in Hampstead for an obscene amount per month - but they say London property is too high for them at the moment to justify buying (justify not afford) and the stamp duty alone would be about 4 years' rent.

That's at the top end with 12% stamp duty but the same principle applies - you'd be relying on capital growth to make the sums work out and that has to be a fairly racy gamble these days.

[Claudia Skies]

One of the catches with property ownership in London is the huge "cost of change". In other words, the costs of buying and selling a house which simply don't arise when renting.

• Stamp Duty on purchase
• Legal costs on purchase
• Estate agent costs on sale
• Legal costs on sale

These costs will almost certainly amount to at least a year's rent equivalent. But of course the other side of the coin is the hope of capital appreciation.

[DonkeyApple]

The benefit of renting and why it can be a lot cheaper than buying lies in the transaction costs between the two.

London has a huge rental market because being a city there is a very large transient population as well as the population also being hugely upwardly mobile. This means that very many people do not stay put for even medium, let alone long term periods. As such, the costs of buying being front loaded will make it cheaper to rent over a typical London time period.

But it seems to me that very many people in England have forgotten how to really earn money. It's not so much about what you earn but what you spend. Taking a London wage for a period of time is about earning more money in the majority of cases. It isn't about then spending more money.

It makes sense to rent a whole property in the provinces as the flat share structure is loaded with losers. But in a city it is different, the flat share structure is loaded with the upwardly mobile.

I'm making an assumption that you are single, and might be completely wrong but if you are then working in Lindon is about putting as much in your pocket to take home. You will be an immigrant so think like one. Cost of living in London can even be cheaper than outside while you can earn more. It is after all why there are millions of immigrants here from England and overseas. Earn, save, leg it.

If I were moving to London I certainly wouldn't buy as I wouldn't know for a few years whether I would be staying. And if I was staying then how upwardly mobile would I be? In 5 years would I be buying a family house in London or moving back out? Do I see myself staying in this property for a decade or more etc?

What I would consider is buying the type of property that is small enough that I wouldn't need to sell it to raise capital for the next purchase and that way I would be buying an investment property where I am trading the yield as an opportunity cost while I live there.

The other upside of flat sharing in a suitable area is that you get a drinking buddy.

Of course if you are married with kids it is all different but then I'd be leaving them during the week and just dossing for cheap in London. Again as appropriate for an economic migrant.

[princeperch]

vixen1700 said:

Can't believe how much average two bedroom terraced houses are fetching where I grew up in Leytonstone/Leyton. Totally insane amounts of money, surely this is massively unsustainable?

I've just purchased one of those average 2 bedroom terraced houses in Leytonstone. I quite like it there. Nice and quiet where I am. Nice neighbours. 32 minute bike commute into town.

[gvij]

princeperch said:

I've just purchased one of those average 2 bedroom terraced houses in Leytonstone. I quite like it there. Nice and quiet where I am. Nice neighbours. 32 minute bike commute into town.

At 400k and a 3.5 times conservative mortgage and 50k down +stamp+legals it doesn't look like a house someone successful on 100k a year should be living in. More like an ex council house in hull I used to live in which back in 2001 were selling at 25k max.
Obviously location location but the upside has to be nill (could these hit 500k??) while to me even accounting for location 250 could be a floor.
Of course it only takes one person with the money to set the floor and with house price inflation future vendors will want more but this is surely a bubble if Ive seen one .

[Wacky Racer]

London prices are just barmy.

For the price of a two bedroomed London terrace, you could get a very nice six bedroomed stone detached, with two garages, large conservatory, nice gardens front and rear, and stunning Pennine views, within 20 miles of Manchester.

One of my sons is renting at £1400 pm in Archway, London.....Crazy.

[princeperch]

gvij said:

princeperch said:

I've just purchased one of those average 2 bedroom terraced houses in Leytonstone. I quite like it there. Nice and quiet where I am. Nice neighbours. 32 minute bike commute into town.

At 400k and a 3.5 times conservative mortgage and 50k down +stamp+legals it doesn't look like a house someone successful on 100k a year should be living in. More like an ex council house in hull I used to live in which back in 2001 were selling at 25k max.
Obviously location location but the upside has to be nill (could these hit 500k??) while to me even accounting for location 250 could be a floor.
Of course it only takes one person with the money to set the floor and with house price inflation future vendors will want more but this is surely a bubble if Ive seen one .

my neighbours paid 475 for theirs. I paid less than 400 after having sold my 1 bed flat down the road for 435, so its all relative and I've only got a 125k mortgage on it.

(I wish I was on 100k!)

[DonkeyApple]

Now that Germany has started its programme to give free Euros to a select group who already have enough then it is probably fair to assume the madness and commoditisation of the London resi market will continue. Likewise the cut to pensions is going to push the excess capital of the Boomers further into the resi market.

There is no denying that when you have to have the income of a junior partner in law or accounting in order to buy a house built originally for a factory worker then there is something out of whack.

But so long as resi housing continues to be commoditised then the madness will continue and the cost of living for normal people will continue to rise.

[walm]

DonkeyApple said:

There is no denying that when you have to have the income of a junior partner in law or accounting in order to buy a house built originally for a factory worker then there is something out of whack.

I agree 100% with your post and particularly this bit.

I cannot fathom how this is sustainable. Affordability of housing HAS TO IMPACT THE PRICE AT SOME POINT!

The problem is, like with my short bets, the market can stay irrational longer than I can stay solvent.

Plus I sometimes feel like Chuck Prince - as long as the music is playing, you've got to get up and dance.

So should I invest in BTL in London?? Short term - YES. Mid term - NO FRIGGING WAY.

Sometimes the easier option (certainly for my blood pressure) is to leave that dance card empty.
Sure I am going to leave some money on the table but sometimes it just isn't worth the effort.

[Claudia Skies]

DonkeyApple said:

There is no denying that when you have to have the income of a junior partner in law or accounting in order to buy a house built originally for a factory worker then there is something out of whack.

Equally I cannot fathom why people with no job, or a very low paid job, are able to live in parts of London which are completely out of reach of many people WITH jobs.

[jdw1234]

Claudia Skies said:

DonkeyApple said:

There is no denying that when you have to have the income of a junior partner in law or accounting in order to buy a house built originally for a factory worker then there is something out of whack.

Equally I cannot fathom why people with no job, or a very low paid job, are able to live in parts of London which are completely out of reach of many people WITH jobs.

My office 100 metres of Covent Garden piazza and I have a lovely view of a block of council houses.