Should we buy in this crazy London property market?

Question

We've just accepted an offer on our 1 bedroom flat for 280K (we bought it for 134K!) So we have a healthy deposit. We're looking to move areas in London and to get a 2 bedroom flat between 330-390K this wouldn't be at the very top of our budget buts it's pretty damn close!
Are we mad to be buying at the moment?
Should we just be selling and the renting to see if the market drops..but this could take a couple of years of it rising and then we can't jump in at the same point.
So many people say the market will increase, but surely this level can't be sustainable?
And will it crash soon or will interest rates take a big leap up to calm the market and to cover for all the people going bankrupt?
It's all so scary! I just wanted to know what other people were thinking. Thank you so much

Answer 1

Prices reflect demand vs. supply and the monthly cost. The UK in general and the SE specifically has been building new housing at a rate slower than the demand had been rising.

Demand is rising because more people have jobs (total UK employment), there are more people living in the UK and the population is living longer. There is also a shift to smaller family units so more need for individual housing units for the same population (smaller families, people living longer, divorce).

Interest rates are not as low as they once were. They are still rather low or reasonable when you look beyond the recent trough.

Until there is a slow down in the economy, a reduction in the housing demand (or a noticeable increase in supply) or a spike in interest rates people will continue to go to work and pay what they need to to buy a home.

When measured on an affordability basis using the monthly mortgage payment vs. monthly income houses are not expensive. They are only expensive when you look at the prices or the income multiples. Income multiples are very blind to the interest rate so you can borrow the same when rates are 1% as you can when they are 15% with an income multiple.

Should YOU buy? That really depends a lot on your circumstances. Even if the market was a buyer's market it might not be right for you to buy. Even during the last crash in the UK people were still buying. A person's circumstances do matter.

The question is debated daily on the UK Motley Fool site. There is a specific forum discussing housing trends. Go to my blog below and you will find the link on the right side for the forum. The prevailing attitude is more bear than bull. The bulls tend to be more balanced in that they look at the fundamentals. The bears tend to be more focused on the emotional aspects of high prices and how prices are at all time highs (while affordability is still good or better than in the past).

Will there be a crash? Certainly. When is the problem. Guaranteed that a crash can happen in the next 100 years. Will we see one or more, one soon, long periods of flat prices, or other things? It is certainly true that inflation and interest rates are less volatile than in the past so the economy is less prone to large swings (triggering unemployment and loan defaults).

One way to avoid a crash is to not sell when prices are down. No one who still owns a property purchased in 1989 is upside down. You only feel the pain from a crash if you need to sell. Organize your finances so you do not need to sell even if you need to move.

Answer 2

I am not sure how old you are but I can remember the proper crash of the 80's that left lots of people with negative equity. To be honest, since the centralisation of interest rates (i.e. out of the government's hands) there is a lot more stability in the housing market and interest rates have stayed stable (in the late 80's as a first time buyer, I saw them go from about 6% to over 15% in a matter or months). Prices fall slightly and go up slightly but if you sit and wait for a crash where thousands and thousands drop off the price of a house, you might be waiting a very long time. In the meantime, you would have paid the same to line someone elses pocket in rent. Get on and buy a place - anyone who lives in a big city in the UK will have to pay a premium rate for a property - that is what it's like.

Answer 3

take a clue from across the pond as they say
her in the US the housing market is on the decline
for the same reason yours is now in the rise
speculators and cheap money
everyone was betting here that the future value of their leveraged home would be their meal ticket when they sold
so they did not care about interest only loans and 100% financing much less the price
everyone went on the assumption that someone was willing to pay for the spiraling house price as bidding wars for common
but sooner or later those interest only adjust to ARM status
and those who got out early last year mande off with all the healty fat profits
now what we have left is millions of homeowner who truly cannot afford the homes they are in as the loans adjust and then the foreclosure rate has jumped every quarter
this in turn will drive the US economy into recession, and the jittery stock market has taken notice of the looming rise in mortage defaults, allready all those sub prime lender most are out of business with others ( like New Century ) soon to be.

my advice
let the fools buy in high, let them crash
then you go in on the cheap

Answer 4

I'd say you were mad to buy a 2 bed £350K flat. Why not consider moving out a bit, getting a house and commuting? Quality of life and all that. Daily Mail rumoured that interest rates may go up to 8% and perhaps 10%.

Answer 5

Hey! London property price was still nothing when compared to 1997 Hong Kong property price, but it fell 60% aterwards.

Answer 6

No.

It's just a matter of time before prices will have to come down or we'll all start emigrating. I'm already looking to retire to that foreign land renown for its simple folk and much cheaper property... It's call "North-of-Watford".