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OT: Would you trade up on the London property ladder at present?

OT: Would you trade up on the London property ladder at present?

Old Jan 18, 11, 2:02 pm
  #1  
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OT: Would you trade up on the London property ladder at present?

Mods - please by all means move this thread wherever/whenver appropriate

Any and all opinions are welcome!

We own a terraced house in London. We are rather done with our neighbourhood and would like to upgrade to a larger house a little further out. Interests in purchases in our neighbourhood are strong.

I am employed in a stable, private-sector job and should have no problem getting a good mortgage at a good rate. Would you choose this moment to upgrade?

Here are some pros that I've thought of:

- London house prices always have a lot of support, both from the top (there are plenty of high-net-worth individuals purchasing expensive properties, keeping the supply rather tight and demand high for places on down the ladder) and from the bottom (BTLs have and continue to snatch up cheap places).
- I have found a great rate of 1.79% above tracker for the entire, which is entirely portable and has no early repayment penalty (either the entire balance or incrementally).
- I think the BoE knows exactly what it's doing, keeping interest rates as low as they are. Inflation is a little bit uncomfortable but not damaging. Wages will eventually catch up. Meanwhile, my cash is sitting in the bank losing value at 4% per annum. Might as well put it into an asset right now.

Here are some cons:

- I think the gov't spending cuts are going to cut a little deeper than most people think. This might cut support for London house prices more than I thought.
- There are more calls for a hike in interest rates. That said, I don't think it will happen soon - or if it does, I really don't think we'll be above 1% at the end of the year.
- Prices could fall, as they have done in Japan every one of the past 20 years bar 2004.

What would you do? I do welcome any and all feedback/advice/opinions.

Cheers
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Old Jan 18, 11, 2:06 pm
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I am in 2 minds, on the one hand there is a lot of external support for the London market that doesn't necessarily rely upon the UK economy.

On the other hand interest rates can only move one way (and they are likely to start moving up sooner rather than later). Interest rate rises (also increasing costs for foreign purchasers as exchange rates improve) and a brutal right-sizing of the public sector (if it really happens) can only have a negative effect.

I have been bearish about UK property prices for several years and see no reason to change position, I really don't think we have seen the bottom of the market yet.
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Old Jan 18, 11, 2:13 pm
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As long as you are moving to a good area - even if further out - then yes it sounds a good idea.

The good parts of Central London as you say are shielded to a certain extent from the rest of the housing market - but so are some of the leafy suburbs - eg Richmond or the stockbroker belt in Surrey where there is still plenty of demand from high net worth individuals/overseas buyers.

I would seriously think about a longish fix. I am just in the process of remortgaging to a 3.79% 5 year offset mortgage. I think rates will go up faster than expected - perhaps 2.5% by end of next year. Today's inflation figures were pretty dreadful and rates could no rise as early as this May by .5%.
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Old Jan 18, 11, 2:33 pm
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Just to add to other comments.

The triangle in Surrey is still going to be strong. We all know which area, around Weybridge into Richmond etc. If thats where you are looking at. This has cash buyers from UK as well as overseas. Also my homeland so great!!

Otherwise as long as you are senisble you should be okay in London. The public sector whilst very strong wont get the cuts like some areas. Oxford has the highest public sector workforce in the country.

Prices will fall when interest rate rises. Thats is a fact. Dont let anyone suggest otherwise. Also people will then start to have problems. The over borrowed and the ones who have changes to life.

Do get the mortgage deal, it sounds great.
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Old Jan 18, 11, 2:48 pm
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Why not put it on the market as see what happens.

Down here in Tunbridge Wells prices are firm, but nothing is selling and inventory is tiny, a local high end agent has 12 houses for sale (and a staff of 6-8).
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Old Jan 19, 11, 3:40 am
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First of all, is your house an investment or a home? It shouldn't be both. Those people who regard their house as their pension are fools, pure and simple, and will one day be found with pitchforks and torches outside the (17th) house of Kirsty Allsop.
  • If your house is an investment: Be scared. History suggests that the 'recovery' of 2009 / 10 was nothing more than a blip on a downwards trajectory of house prices adjusted for inflation. Demonstration in a moment.
  • If your house is your home: don't worry about it. Unless you are likely to find yourselves in negative equity and have the guts to sell up and rent (or live in a caravan), it will just make the next house cheaper.

Here is Nationwide's UK House Price Index adjusted for inflation.
Here is one Dr Jean-Paul Rodrigue's chart on Manias and Bubbles (taken from this page):


Similar, aren't they?

Remember that support for any market pricing doesn't come from the top (the Wealthy Foreigner Buying Up London theory) but from the bottom (first-time buyers). And the latter still 'aint buyin', simply because prices are still historically too high.

As Jimbob247 points out, volume of sales is pitifully small. Anyone who knows the stock market knows that big movements happen when volumes are low, as the effect each transaction is magnified.

So: cuts, interest-rate rises and history all demonstrate the coming collapse in house prices. You simply need to decide if it will affect you; as it might be perfectly bearable in your situation.

Of course, the ludicrous thing in this is having such a volatile market. The UK should be looking to emulate Germany in this respect, where both sales and rental prices are historically very stable. The only people who would lose are those poor estate agents who make more money the higher the price goes.

And wouldn't that just be dreadful...?
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Old Jan 19, 11, 4:25 am
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Afordability is the term that the banks now use.

We have been thinking the same as you. We moved just before the crash in mortgage rates but took the extra borrowing on 0.38% above base. So far we are paying off as much as we can each month by adjusting the terms on the pots on a regular basis.

I had a brief chat with a mortgage advisor who confirmed that the days of you telling the bank how much money you want are long gone. It is now the other way. They have a set cost against many things and they deduct this from salary and then work out how much you can have!!
If you do not have kids yet or planning to have more in the near future then I would look to move as you will be able to borrow more money now than then if that makes sense.

Could you sell your place and then move into rental and then place hardball on the place you want to buy and even dropping the price on the day of exchange?
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Old Jan 19, 11, 5:17 am
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Originally Posted by dark_horse View Post
Of course, the ludicrous thing in this is having such a volatile market. The UK should be looking to emulate Germany in this respect, where both sales and rental prices are historically very stable. The only people who would lose are those poor estate agents who make more money the higher the price goes.

And wouldn't that just be dreadful...?
But the UK people still has a strong need to purchase property. Other counties dont have this need. Which is why the UK & US have a volatile market.

Intrest Rates are going to rise this year. This will affect house prices and affordability.

I do think the common one size fits all is wrong for the UK housing market. Places like parts of London, Surrey and some coast areas dont get affected as much as other areas. Yet they are included in the figures. So the recovery was better in general terms than reality in some areas.
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Old Jan 19, 11, 5:28 am
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Interest rates will rise a lot this year. Unless you have a mortgage which is proportionately small for you, and could pay off a big chunk of it if rates accelerate, i'd stick where you are.

However, if it's what you want to do, and you can afford it now, why not. better that than being frustrated with where you are now.
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Old Jan 19, 11, 6:20 am
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Originally Posted by origin View Post
But the UK people still has a strong need to purchase property.
Why?

Specifically, why the need to purchase property? What makes the UK and USA so special? There are plenty of rental options available, and the argument about rent being 'dead money' has been blown clean out of the water (usually when a house is losing large sums of money each month in so-called value).

As the rest of your comments are quite informed I'm also sure you weren't about to trot out the old, failed justification of "high demand," as was repeated ad infinitum during the boom.

Hopefully it should be obvious to all by now (and if not, I offer my pity) that the cause of the UK House Price boom was not demand for property, as was the mantra, but the easy availability of cheap credit finding a home [sic]. That support for house prices is gone, and what is left is a market which will overshoot fair-value on the way down.
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Old Jan 19, 11, 7:03 am
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Good heavens- that's a great rate. I thought the First Direct lifetime tracker of 1.89% above the BOE base rate was a good one, but yours is even better! Could you let me know which bank/mortgage provider is offering this? Sorry, this is even more off-topic.

Originally Posted by ajax View Post
Mods - please by all means move this thread wherever/whenver appropriate

- I have found a great rate of 1.79% above tracker for the entire, which is entirely portable and has no early repayment penalty (either the entire balance or incrementally).
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Old Jan 19, 11, 7:28 am
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Originally Posted by redsox1918 View Post
... and even dropping the price on the day of exchange?
That's not nice. If a buyer did that to me I'd tell them to go forth and multiply.
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Old Jan 19, 11, 7:29 am
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Originally Posted by dark_horse View Post
Why?
I think it is a cultural issue in the UK and US that people still feel they need to purchase a house. Many people are now still living with family in their late twenties. But some still view this as wrong. Yet in Italy it seemed natural to live as a big family unit.

But with the rental idea. People can easily move to find work. Or go where the jobs are. You cant easily do that if you own your house. As you understnad you need to sell first then move. This often in downturns involves loosing money on a property. This damages recovery and is affecting the US at the moment. As many people wont move to get the new they need.

During the boom years one of my companies had the misforunte of having an office in abuilding managed by someone who was obsessed by property. He has a friend who was very angry with a surveyor from his bank who wouldnt increas the price on the property. Swearing his head off. This friend was a market trader selling fruit in the local market. When this happens you know the market is overvalued.

There will still be people who make money from property. Either renting them out or through developing them. But for the average person its going to be 8 years before there will be any hope of prices going up very much.
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Old Jan 19, 11, 7:35 am
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Originally Posted by FenLandK View Post
That's not nice. If a buyer did that to me I'd tell them to go forth and multiply.
Correct may not be nice but it does happen and it can work.
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Old Jan 19, 11, 8:58 am
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I am not so sure interest rates will go up (at least not by a lot) this year or even the next. We are entering a new phase where predictions based on experience might not be so reliable as they once were. I am gambling (although not heavily) on (Dutch) mortgage interest rates remaining in the high 5%, maybe peaking at 6% in 2011/2012.

Yes, I am aware that with the interest on our mortgage being tax deductible we have a completely different system.

I have even contemplated entering the (Greater) London property market. With the decline of the pound and the fall of the real estate prices that is highly interesting. I chickened out though. I don't want to be a landlord.
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