Tony from Acton writes: ‘I’ve been saving hard for years and think I finally have enough for a deposit on a small flat. I was hoping 2014 might be the year I finally manage to get on the property ladder, but lately I’ve heard quite a few stories suggesting that London may be in the midst of a housing bubble.
‘I’m thinking if it bursts then property prices will surely go down so is it best for me to wait and see what happens? I’m worried I might miss the boat if I wait,’ says Tony.
Tony’s is a common dilemma. Should you buy sooner with a smaller deposit and pay more for your property or save for longer and put down a larger deposit?
London has certainly seen big prices rises over the last few years which means many people are finding it a real stretch to get on the housing ladder. Savills are forecasting price rises of 8.5 per cent in London this year, and they expect price rises to slow from 2015 onwards as a result.
Here’s what our experts’ advise for anyone who is concerned about the best time to buy.
Our panel of experts:
Susan Emmett, director, Savills residential research http://www.savills.co.uk/research/uk.aspx,
Lynda Clark, editor of First Time Buyer magazine
Kate Faulkner, MD and property analyst at www.propertychecklists.co.uk
What our experts said:
‘A possible rise in interest rates in 2016 should slow the market further still. However, we still think prices in London are likely to rise by 24 per cent over the next five years,’ says Susan Emmett.
‘In reality people moving from renting to buying their homes are seldom likely to buy homes where they rent and should be ready to compromise, particularly on location and distance from public transport,’ advises Emmett. She says price growth will trickle out from the centre as buyers move further down tube lines in search of better value for money in zones 3 and 4.
‘For those planning ahead, north east London areas including Tottenham Hale and the Lower Lea Valley (earmarked by the Mayor for regeneration) are worth considering, particularly if proposals for Crossrail 2 go ahead.’
Lynda Clark says it’s great news that Tony is in the right position to buy:
Well done for putting in the hard work to save. However, your concern over whether now is the right time to buy is understandable.
Assuming that Tony wants to buy in London, Lynda points out that average prices are now around £514,704 but she adds: ‘It’s worth remembering that prices have risen because buying a home has become more affordable.
‘According to figures from Halifax in December 2013, the proportion of disposable earnings devoted to mortgage payments by a FTB stood at 30 per cent in the last three months of 2013, compared with a peak of 50 per cent in the summer of 2007.’
Looking at what’s happening in your local market is the way forward according to Kate Faulkner: ‘The problem with the stories you read is they aren’t from your local Acton experts and property prices and markets are now individual to postcodes and in some cases even property types and size. The way to think about buying is first to assess what’s happening in your local market.’
Greater London prices are growing at 11 per cent but Faulkner says that of 32 London boroughs only three are overheating but she warns Tony to think about what would happen if he had to sell following a market crash.
‘If this happens but you can still afford the mortgage, you are fine.’ Faulkner advises Tony to look at what happened after the 2008 crash and have a back-up plan.
‘Take the postcode you want to buy in, find out from sold property price information how much prices fell during this time versus what they are now. It might be 10 or 20 per cent and the risk is that might happen again. So what could you rent the property for? Would this cover the mortgage and main costs until prices recovered?’
Ultimately knowing what will happen to the market is impossible but working out a strategy if it did fall can give you confidence, says Faulkner: ‘Forecasts suggest prices will continue to go up for a couple of years and then slowdown, this may or may not happen, so buying with the knowledge the upside is it grows in value but knowing what it might fall to is a great way to relieve stress!’