studio flat? would you buy one?

[GrumpyGregry]

My business partner lives there and likes it too. Better than Crawley anyhow!

Tim H will be along in a minute to defend Crawley. As will the lovely Helen, both my kids, oh yeah, and me. The 'sham ain't better than Crawley, per se, just different to it.

 

[BigonaBianchi]

Horshams ok...well the park bit where I ride to where the bandstand is and the pool. Shoreham is a sh*thole mostly...apart from the bit around the church off the coastal road...and southwick green isnt to bad if you like cricket in th esummer.

 

[Arch]

Eh?

You'd only consider buying one place to live if you could afford to buy two, and one of them would be solely for holidays; but you don't approve of that. So, does that mean that once you can afford to buy two places to live that you will buy one? But you won't buy the second one.

No. I'd only consider buying a small flat like mine, if it was secondary to a house, rather than as a first resort. If I could afford to buy a house, I would, and if I could then afford to buy a holiday place, then a small flat would fit the bill. However, I disapprove of people having second homes which sit empty half the time, depriving others of a first home. So I'd stick at the one house I could afford.

I like my little flat very much, but I'm happy renting it, not sure I'd throw all I had into buying it.

 

[dellzeqq]

to backtrack a bit....in the end it's about value. You buy the studio, the flat, the house, whatever, and, then, in twelve months time your circumstances change. You might get a job in another town. The question is - will you get your money back? If you've saved to put down a ten percent deposit, and you take a five percent loss on the dwelling, you're in the doo-dah.

If you really can't stomach the idea of sharing, or, perhaps, you simply don't know anybody you trust and like enough and who is in the same position as you, then Hove might not be the worst place to buy a studio flat. But, and I cannot stress this too highly, most of Hove's studio flats are in houses of a certain age, and most freeholds are in the hands of 'professionals'. You have to be so, so careful about taking on a share of the responsibility for a large building, and you will rely on the good sense and decency of your fellow lessees and the freeholder. My eldest bought a flat in an ageing building (I suggested at the time that she got a small house in a cheaper area) and she's had to hire a forensic accountant to work out where the money's going - and that's despite taking advice from an in-law who is a landlord's agent. Make sure you get the best advice you can, both on the building and the legals - and bear in mind that will cost you. I'd be picking Archie's brains, and also Patrick Stevens brains as much as I could without becoming a pain.....

 

[GrumpyGregry]

or buy somewhere where the freehold is owned by the leaseholders.....

 

[slowmotion]

To save a significant amount of money, could you look into buying a 3 or 4 bedroomed place with friends on a formal basis- the larger the place the cheaper it is relative to the square footage as you only have one kitchen, one boiler, one/two bathrooms whether you have one bedroom/studio area or more bedrooms... especially if you could find one that needs doing up [ie kitchen and bathroom so you can share the work yourselves and the costs + increase the value at the same time.

Good advice, IMVVHO. My first place was a quarter share in a modest house. We had a legally binding agreement about how to sell our individual shares if someone wanted to leave. You absolutely have to have that formality. I left after four years of great fun, and with a modest capital gain.

Good luck.

 

[dellzeqq]

or buy somewhere where the freehold is owned by the leaseholders.....

better, but even that can turn nasty. Sometimes a leaseholder will hold out against repairs even when they're vital, and, at other times a leaseholder will press for repairs that will benefit them rather more than their fellow leaseholders.

One benefit, though, is that the leaseholders will share in any development profit

 

[RecordAceFromNew]

Here's my $0.02

Q: Has the cut back in jobs bottomed? A: No, certainly barely started in the public sector.
Q: Has the belt tightening bottomed nationwide? A: No.
Q: Therefore has property price on the whole bottomed? A: Most probably not.
Q: Has interest rate bottomed? A: Yes, it can hardly go lower.
Q: Should one buy a property before property price bottomed while interest rate has? A: Most probably not.

Fwiw, if my money is tight, I would try not to catch a falling knife and watch my precious equity dwindle. Rent being paid now might seem like a waste to you, but if you deduct the interest you can earn from your savings/equity now which you would not have once you have bought, and the interest you will have to pay on your mortgage if you do, the "net cost" of renting today is likely a bargain compared to what you might lose through falling house price after you have bought.

Let us look at recent history for illustrative purpose. House price dropped over 9% on average since 2008 (say average 2% p.a.). Let us assume cost of money is 3% (for simplicity either net interest you can earn on deposit, or mortgage interest payable). That says anybody who bought a property for £X00,000 in 2008 would have required an annual rent of over 6% of £X00,000 to breakeven (defined as not making a dime more than they would have by keeping their money in the bank, it is not just 2%+3% because income tax has to be paid on rent). The flip side of the coin in this example, is that a tenant who paid less than 6% of that £X00,000 in 2008 on rent annually during the past 4 years had essentially come off better than, and to an extent at the expense of, his/her landlord.

I have ignored stamp duty such a landlord had to pay, and all his other costs incurred in buying, furnishing, maintenance and letting etc.

If you were my daughter, I would advice you to save as much money as you could, and use the time to do as much research on location, property and price as possible, getting yourself ready, so that you can pounce when you feel the time and opportunity is absolutely right.

I think you've got time.

 

[srw]

The best guess is that house prices will be flat in absolute terms over the next few years. Inflation will be positive, perhaps strongly positive. Pay rises will be lower than inflation. Is the increased benefit you'll get from owning your own place over renting really worth the hassle of owning and the erosion of value due to inflation? Especially if the flat is smaller than is ideal.

 

[Archie_tect]

All good points RecordAce but in your analogy, rent = mortgage payments, so proviing you are paying off a repayment mortgage [ie NOT interest only or endowment and providing you stay put at least 5 years] the reduction in the loan is reducing the loan interest so you get a compounding effect as the loan term nears it's end- particularly if you can pay more than the minimum monthly payment, even by £10/20 per month. So you are saving the interest payments on the whole mortgage at lending rates, say 3.8%, meanwhile your share of the equity of the value of the house/flat is increasing.... even if house prices drop. Remembering, mortgage payments=the rent [simplistically] so it's just a long term savings plan that buys you equity.
RecordAce is absolutely right that you have time, don't rush into anything... there's so much choice and prices are not going to drop or increase dramatically for a good while...it'll be slow.

 

[RecordAceFromNew]

All good points RecordAce but in your analogy, rent = mortgage payments, so proviing you are paying off a repayment mortgage [ie NOT interest only or endowment and providing you stay put at least 5 years] the reduction in the loan is reducing the loan interest so you get a compounding effect as the loan term nears it's end- particularly if you can pay more than the minimum monthly payment, even by £10/20 per month. So you are saving the interest payments on the whole mortgage at lending rates, say 3.8%, meanwhile your share of the equity of the value of the house/flat is increasing.... even if house prices drop. Remembering, mortgage payments=the rent [simplistically] so it's just a long term savings plan that buys you equity.

Sorry Archie just to clarify I did not assume rent = repayment mortgage payment or made any assumption about equity level. I was looking at comparative and breakeven costs. Equity investment and principal repayment are not "costs" per se (they are money you shift from your right pocket into your left pocket, even if your left pocket is holey ), but fall in house price (due to the hole) and therefore resulting in reduction in equity, whether one has positive, zero or negative equity, is.

Put it differently a mortgage repayment greater than interest will reduce debt, but the corresponding increase in "equity" you might think the surplus gives you is really an illusion partially if not completely because it would have been decimated by the falling house price currently/recently, such venture is not what I would necessarily call a savings plan.

The biggest assumptions I made in my simplistic illustration earlier were the opportunity cost of money (i.e. what is earn-able from cash vs. interest payable on debt) and taxes.

If indeed mortgage interest rate is 3.8% and house price drop is 2% p.a. then even if one could get a 100% mortgage at the same rate one would be better off paying rent at up to 5.8% of the price of the property, even if costs of purchase or ownership were zero. For completeness I think generally only cash rich tenants who are for whatever reason unable to secure a decent return on their capital otherwise anyway will benefit financially from buying in today's climate. I also think this is the reason why many thinly capitalised buy-to-let investors have been suffering, and will likely continue to suffer.

 

[Archie_tect]

Sounds convincing to me... and must be how the housing market sees things generally, demand certainly hasn't picked up for all the politicians claim there is a severe shortage of new build.

Mind you a 2% or even a 5% further drop in house prices isn't a huge reduction given that over a 25 year term the effective cost of mortgage vs rent paid still provides a lump sum relative to the rental whatever your view on capital/equity [but I admit it should be viewed over the mortgage term- or at least 10-15 years]. there are no short term gains in investments.