|You are in: Business|
Monday, 20 January, 2003, 08:27 GMT
BBC's house-buyer keeps hunting
Adrian Plant, a 35-year-old Londoner, is looking to buy a house for the first time. As his hunt continues he talks to BBC News Online about his trials and tribulations.
Adrian has been on a house-hunting blitz.
He has viewed seven properties in seven days with mixed fortunes.
Following the advice of BBC News Online readers to "be patient", Adrian still has more properties to see - but he says if things go right he could be a matter of a few short weeks from making his move.
The ideal property at the right price is still paramount, and Adrian is clearer as to what he wants.
"Two bedrooms are still a minimum but I would like a study area a small garden to enjoy summer barbeques and a front door that doesn't open directly onto the street."
In short, Adrian says he is being practical and not allowing himself to fall in love with a property until the right questions have been answered.
In addition, Adrian believes that even in the capital's pricey property market the old saying you get what you pay for rings true.
"Even when looking for a home priced between £400,000 - £450,000 relatively small price differences - say £20,000 - can spell a great deal more work to do on the property. I want to move into a home not a work in progress."
But buying in the capital is not straightforward.
Many houses and flats in the UK are sold on a leasehold basis - which means that the purchaser buying the bricks and mortar, while someone else owns the land the property is built on.
The freeholder can have substantial rights over the building depending on the wording of the lease.
In the rest of the UK, houses usually come with the land - called the freehold.
Adrian recognises that buying a property that has a short lease can damage resale values.
"Friends have told me that I should not consider a house that has a lease shorter than 99 years - otherwise I could lose out when it comes time to sell on."
As his quest for the ideal home hots up, Adrian's mind is turning to securing a mortgage.
With a hefty lump sum - £90,000 - to use as a deposit and a high salary, even for London, borrowing what he wants should be no problem.
But getting the right deal is a key objective. A mix of flexibility - with the potential to overpay - and a low rate is what Adrian is looking for.
"I plan to stay in the house for five years, this will have a bearing on the type of mortgage I go for."
Simon Holdsworth, of Towry Law mortgages, says that Adrian is right to look at the mortgage now.
"All too often house buyers start the search for a mortgage after they have had their offer accepted only to find that either they have been over optimistic as to what they can borrow or even that they can in fact afford more."
Mr Holdsworth recommends taking advice early, and sorting out the finance before staring to make offers.
When is England going to reform its ridiculous house/sale procedure? it provides little if any incentive for anybody to perform their responsibilities in a timely manner. everybody pays for these inefficiencies -- and only the solicitors benefit. when oh when will the government wake up and stop this extortion? how many more nightmare stories do I have to hear?
Myself and my girlfriend have been looking to buy in the midlands but with student debts and an uncertain property market we're choosing to rent for the near future.
Move out of London! Join the many happy commuters that travel every day on the trains from Milton Keynes or Northampton. For £400,000 you could have a mansion up here! Of course, it will mean 6:30am starts every day to get to the station on time for the 7:30am train!
Adrian's about to spend 400k - and is happy to rely on the advice of friends on complex legal matters!
Many - but not all- property owner may extend the term of a lease - but he should get expert guidance on what these are (as it's not an automatic right).
Also, is it not the case that a short lease becomes unattractive at 60-70 years? I had no problem selling a property with an 80 year lease.
I purchased a house in London last year, and Adrian's tale rings true.
Certainly you should get a provisional mortgage offer before making offers on properties. One thing I soon realised is that many lenders will go above the 3 times salary equation, all offered me 4x and my final mortgage lender loaned 4.5x my salary, all you need is a clean credit history and a job not too reliant on commission and bonuses. Go for a discounted variable rate which has no or very low exit charges once the discounted period has expired, then switch to another discounted rate.
Secondly be wary of short leases and high ground rent and maintenance charges. When you come to sell in 5-10 years the only people that will be interested will be buy-to-let buyers, which restricts your options. You can of course look into extending the lease. Oddly many new build flats have very high maintenance charges, as they often have landscaped communal gardens and the like to pay for.
Finally be realistic, you can waste months waiting for that bargain to come on the market in the area you are looking for, and it never materialises. Move a few tube stops further out and you'll soon realise that zone 3 isn't so bad (apologies for the London-centric comment!).
The only type of mortgage you should consider is a repayment. This way you are guaranteed to pay it off - other types tied to an investment policy (Endowment, ISA) are just gambling on the stock market. Also steer clear of financial advisors - you can do your own research, why pay somebody else thousands of pounds for doing nothing! I used to work with somebody who arranged a mortgage through the estate agents financial advisor - the commission payable to the advisor was over £20,000 during the life of the mortgage! Needless to say he didn't take up the option. Consider fixed rates or base rate trackers - be careful of long tie in periods and early redemption fees.
Adrian should talk to a solicitor for preliminary advise about the differences between freehold and leasehold and also for advice as to leasehold term (conveyancing solicitors should advise on this without charging, in the hope of securing the business later on, however see my last comment) - a 99 year lease is more than adequate, the shortest length of leasehold is determined by what your mortgagee is prepared to lend on, and usually this will not kick in until there is 60 or less years left on the lease. In any event it is usually possible to negotiate a lease variation with the landlord to extend the length of the leasehold (although as Adrian will find - when dealing with a landlord, at a cost). When picking a solicitor, Adrian should remember his own advise - you get what you pay for, leaseholds are fraught with many potential problems, paying 200 pounds more before you complete is worth it in the long run if it saves you thousands sorting out undiscovered problems ! n you come to sell.
Currently awaiting a new flat to complete, with seven others in the chain above me ! Nerves or what !! Anyway, have decided on a repayment mortgage with my bank that I also have a buy to let with, so have got a very good deal out of them. It is a leasehold, but as the owners bought out the old leaseholder years ago, I immediately become one of the directors of the managing company, so have control on ground rent and decorating/upkeep etc. I would not otherwise have chosen a leasehold property.
Good luck to all other housebuyers out there - it is a buyers market !
Buy a "fag end" lease on a nice flat and stay there for five years.
Watch the property market collapse, then buy a decent house for a good price.
If I had that amount of money to spend then I would seriously consider looking outside of central London. You'll get a lot more for your money.
I would split the £90,000 deposit into three and purchase two 2 bedroom apartments, at least 125 yr leasehold, on a buy-to-let basis as you can get some very good fixed rate interest only mortgages. Then look a one detached 3-4 bedroom house, freehold, on a fixed rate repayment mortgage to live in.
If he plans to stay only 5 years in the property then I would certainly recommend a fixed rate 5 year mortgage. Rates are unlikely to fall much further if at all, so take the best deal available now. Just remember to make sure that there are no redemption penalties after the 5 year fixed rate.
Plus if he looks in the right places and the right builders he should get a nice discount or 5% deposit paid on some properties.
I have bought many homes in the last 35 years and in London, elsewhere in England and Scotland. My advice is that a new buyer should identify at least two properties and their market prices and make offers for each in turn: having one option is highly undesirable in negotiations.
It is more of a question than a comment. Is it advisable to buy now? with all the predictions pointing to either minor correction or sharp fall in property prices in the South East it makes sense to wait particularly if you are after a family home ( in the band >500k ). I feel it is no longer justifiable to take the risk, particularly if you need a sizeable mortgage
I've recently moved from a leasehold flat to a freehold house. My advice would to be very wary of leaseholds as so many freeholders are either incompetent or crooks. Buy a property with a share of freehold if possible. If not, ask the vendor lots of questions about any problems with maintenance, service charges and any disputes with the freeholder.
What is this obsession with bedrooms? Why on earth would someone in Adrian's position want a 4 bedroom house out of London? Reading between the lines, he's single, well off and works in London.
4 bedrooms means probably 2 rooms of wasted space. 2 bedrooms is plenty - make sure the second one is a decent size so it can be used as a study come guest room.
Out of London means an awful commute everyday. He should buy somewhere where he can walk to work (and get cheap taxis home in the evening after a night out).
And, what an awful time to go for buy-to-let, just as the market is oversupplied and peaking. This would be like investing in dot com stocks in 1999.
My advice to Adrian is to buy himself a great bachelor flat in the centre of London. And have fun!
Oh, and on the mortgage front, go for flexibility but avoid the offset mortgages unless you need all the facilities as the interest rates are rarely competitive. I went for a interest only discounted rate for 2 years which allows me to overpay when I want with no penalty. I pay the interest every month and when I have some spare cash, pay a chunk off the mortgage. If you're disciplined enough (and with a £90k lump sum chances are) this could work well.
I bought my flat in 2001, when I earned a modest (for London) £22,000p/a and had "only" £5500 for my deposit. I didn't buy the property I "fell in love with", I bought one I could afford and one which most people would normally overlook - a nice, spacious flat in a tower block in inner London. The only problems I encountered had more to do with the fact that I was single woman buying alone (oh how the banks - and society! - dislike women buying alone!) and less about money. Personally, I think most people just have too lofty dreams about their homes. I'm perfectly happy to live in a desirable home in a less-desirable area, and I've made a lot of money in terms of equity. So it's doable, no matter what the press may say!
The mortgage type is a vexed question, however the contributor who recommended a repayment mortgage is sadly mislead. If you are going to be moving in 5 years or so, you will have barely repaid anything of the mortgage, because repayment mortgages are designed to pay mainly interest in the first few years, and mainly repayment in the last few. If he remortgages in 5 years, he will have had the high outgoings of a repayment, with little benefit.
Before putting in an offer on his ideal home, Adrian should decide whether he is happy to see value of it fall by between 25% to 40% over the next 5 years - which are the sorts of price declines I am fully expecting to see on mid- to high-end London flats in decent areas such as those Adrian is considering.
If he is happy with such a drawdown, then fine, go ahead and purchase. If not, wait, and reap the financial rewards from being able to enter the market at the bottom of its cycle, not at the top, as he is about to.
Purchasing now could well be a very expensive mistake.
Summer 2002 will likely be considered the general market peak in London. We may never see such prices again for 5 - 10 years.
I found getting to know the staff at the estate agents helpful as by talking to them everyday you are the first person they think about when a new property comes up! But as soon as they have got you in the process they could not care less !!
Freehold only. buy the best you can afford bearing in mind will it hold its value or be easy to sell later. That way you save for your future without having to gamble on pensions or the stock market at the same time as keeping a roof over your head. You can always sell up & go somewhere cheaper later.
Find a job well away from London that pays less than you currently get, use the £90K to but a 3 bed house outright (Freehold) and have no mortgage.
I echo the point about commission for financial advisors. If you allow one of these people to arrange the mortgage for you, find out exactly what their costs are. These costs can easily add thousands to your mortgage repayments, which you do not appreciate until you examine the small print. Also, I found recently that you have to pay extra solicitors fees when a leasehold is concerned, especially when changing a mortgage provider.
Any first time buyer buying in the capital now is mug. The market is about to collapse and the rental market has already done so. Rent for a couple of years at today's good rates and on a 200k flat you will save at least 50k. To make money (or avoid losing it) you need to buy low, sell high. Is any first-time buyer out there still stupid enough to think now is a 'low'?
Having just moved from a leasehold flat, the length of the lease was never an issue with the buyer. When the property was built 30 years ago the original term of the lease was for 99 years. This had never been extended and had approximately 70 years left. If the lease had only a few years left then it would have been a different matter and probably would have affected the value of the property. Having a freehold is of course better as it means more security, but as long as the owner of the land is not some cowboy, then things are usually ok. The block that I lived in was managed through a respected property agent who ensured that the buildings were maintained and cleaned regularly.
AS for mortgages, get this sorted before making an offer as estate agents and vendors will not take you seriously without one and you could loose out on that dream house.
Do not fear a housing tumble. Should you get nervous about housing price crashes, ask the doom merchants who predict 25%+ drops in value over then next few years exactly where these figures originate from (back page of the Sunday Sport etc. - they are not based on sensible economic advice).
Negative equity is only negative equity if you sell the house. I own Vodafone shares, bought at £2.70, now worth £1.22 - I haven't lost a penny, because I haven't sold them.
The doom merchants should remember that you are buying a family home, that most likely you will be in for a number of years - you will no doubt get a good return on your investment.
I wish you all the best as I am in the same situation right now - just remember, there is more to happiness in the home than purely what it is worth.
Space is the first consideration. I tried to buy my 11th floor ex-council flat for £125K for over 800 sq. ft. a bargain, except couldn't find lender confident in the equity value. Consequently it was bought by a cash buyer. Central London, good views, large space: buy in a tower block!
I have been in a "chain" for almost 6 months, was originally interested in the property as a buy-to-let, but during this time the market has headed downwards. I think the house/sale procedure is ridiculous, no one is tied in until exchange. Now I'll just use it to my advantage and pull out, I do feel sorry for the other people in the chain.
With the £90,000 you could buy a 4 bedroom house in Newcastle. No mortgage needed. House prices are still rising rapidly there while falling in London. After 1 year you will make a profit, and be able to buy a much larger house in London than is possible now.
Interesting views, we will give our 1/2 penny's worth (own a small portfolio of London rental houses for the last 8 years).
Drop in house prices coming - inevitable in London as the number of people with large deposits is reducing. Mid/top end of London market has dropped significantly (av 22% on our stock at £1million plus houses) since the peak last year. mid market not moving, but ripple effect will impact later in 2004. My advice is to rent as my wife and I are about to do. You can rent £600k properties for £1500 month in the right areas (gross return to the property owner 2.7%)
10 Jan 03 | Business
09 Jan 03 | Business
31 Dec 02 | Business
27 Dec 02 | Business
19 Dec 02 | Business
16 Dec 02 | Business
11 Dec 02 | Business
20 Nov 02 | Business
20 Nov 02 | Business
The BBC is not responsible for the content of external internet sites
Top Business stories now:
Links to more Business stories are at the foot of the page.
|E-mail this story to a friend|
Links to more Business stories
To BBC Sport>> | To BBC Weather>> | To BBC World Service>>
© MMIII | News Sources | Privacy