Buying a new home in London but concerned about Brexit

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BogleInvestorLondon
Posts: 138
Joined: Mon Nov 25, 2013 10:16 am

Buying a new home in London but concerned about Brexit

Post by BogleInvestorLondon » Wed Sep 13, 2017 8:56 pm

Hi

I know this all seems like speculation but I thought I would post since I might get a better idea.

I want to my house to a better area since mine has gone downhill and I have also come into a little bit of money.

I basically think prices could fall in London. Banks need access to the single market and with Brexit, many jobs are moving to places like Frankfurt. Surely this will make the UK less relevant and finance/city of London is basically the UK's whole economy.

There is plenty of uncertainty and I am noticing rents not being so high and prices slightly falling in London.

What would one usually do in this tricky situation? The UK has not left the single market yet but things do not look great. I would be paying something like a million for a new house but a little concerned prices fall a lot. The house is to live in though and fairly long-term. Would one usually just buy and forget about it?

Thanks

Valuethinker
Posts: 32649
Joined: Fri May 11, 2007 11:07 am

Re: Buying a new home in London but concerned about Brexit

Post by Valuethinker » Thu Sep 14, 2017 7:35 am

BogleInvestorLondon wrote:
Wed Sep 13, 2017 8:56 pm
Hi

I know this all seems like speculation but I thought I would post since I might get a better idea.

I want to my house to a better area since mine has gone downhill and I have also come into a little bit of money.

I basically think prices could fall in London. Banks need access to the single market and with Brexit, many jobs are moving to places like Frankfurt. Surely this will make the UK less relevant and finance/city of London is basically the UK's whole economy.

There is plenty of uncertainty and I am noticing rents not being so high and prices slightly falling in London.

What would one usually do in this tricky situation? The UK has not left the single market yet but things do not look great. I would be paying something like a million for a new house but a little concerned prices fall a lot. The house is to live in though and fairly long-term. Would one usually just buy and forget about it?

Thanks
First make sure of your residency status. I am a British citizen and so is my spouse. If you do not have confirmed long term residence status, then buying could be a bad mistake.

Note how much Stamp Duty (SDRT) you will pay. This will be an expensive purchase. However GBP has fallen quite a bit, so in foreign currency terms it is a lot cheaper than it was 12 months ago, say.

As to Brexit. Well, it's certain some banking jobs will move to Frankfurt, Paris, Dublin, Luxembourg. Just how many is not yet clear. But more than zero.

I think restrictions on foreigners entering the UK (for the long term) will be more of an issue, quite frankly. London is this safe haven for foreign money, but if the Prime Minister achieves her goal of getting immigration well below 100,000, then that may change the picture.

If you have confirmed your ability to live here legally for the long term, and that is what you plan to do, then you buy. Maybe prices fall 20% on a hard Brexit, but whereas I am fairly sure a hard Brexit will be bad for a lot of places, London seems to have this ability to adapt and to dodge the bullet. It's still the largest urban area (Greater London, by population) in Europe, with a direct rail link to Paris, world's 3rd busiest airport etc. Lots of tech companies (Facebook etc.) still expanding.

I could see our prices dropping 20-30% (in fact, I have been expected that since before the 2008 Credit Crisis) but I think that long term they will continue to rise by something above inflation. There is just no new supply in Greater London, relative to demand.

To summarize:

- confirm you have the ability to stay in the UK long term, post Brexit

- decide if that is what you want to do (stay here long term)

- be prepared for a price fall at some point - you then have to hang tough and ride it out

- consider carefully the cost of purchasing a property in the UK, including SDRT, and what that impact is on your finances

- find something to buy, agree a price, actually get to Completion - this, in this housing market, and with English property law, is far more complex than you might think (if you've never done it). In fact if you are in a chain (ie selling and buying on the same day) and if you need mortgage finance, then I would guess that less than 50% of transactions successfully complete (from offer accepted to actual Completion). Maybe only around 1/3 offers (even 1/4).

If you haven't been introduced to the joys of Gazumping (someone else outbids you before Exchange), chains breaking (it's quite easy to be link 4 in an 8 long chain, and link 1 or 2 breaks, or link 7 or 8, and you are stuffed), mortgage companies changing their offers at the last minute (and you scramble around for another 30k of finance, or for financial records for your spouse dating back 7 years)--- well, then, you haven't lived in England long enough (Scottish property law is different).

BTW finding a £1m property in London that you actually want to buy, and there are not 20 people, many of them cash buyers, ahead of you trying to buy it, is no mean trick*. And I would never buy newbuild-- it has a 10% price premium that disappears as soon as the first owners move in. Also most of those developments go to landlord investors, and they don't care what kind of tenant they put in (if they even know, I would reckon 25-50% of the rental property out there is not being inhabited by the people who signed the lease). Exception might be luxury houses rather than flats.

Prices do tend to tail off over the summer, as people want to move before the new School Year starts-- that's definitely true in the £1m price bracket. So sometimes you get relative bargains in the autumn (or sort of February time, when the weather is miserable). If what you are selling has outside space, you will get a better sale price in the Spring. If you are selling a house (to families) then they will want to Complete by early September for the new school year.

Couple of other things. Learn to haunt Estate Agents-- if you are confined to Saturdays then be sure and be there *early*, when they open. Because the worst window shopping on property is done after about 11-1130am on Saturday, by couples who are just fishing. Serious buyers will look at 5-6 properties every Saturday. You need the Estate Agents to know that you are serious, what exactly you are looking for. The good ones will then contact you as soon as new properties are posted.

It's worth it to have a spouse or partner who checks the Estate Agents during the week, when they are less busy. Tuesday-Thursday, AM, is usually a good time.


* in say 500 houses in our particular development, I would say less than 50 have been sold in the last 6 years. And the worst ones keep coming back on the market-- the ones where there is something wrong with them (limited/ no back garden, no scope to extend etc.). These days, to avoid Stamp Duty, people extend their homes rather than move, if they can.

*

FailedTheTuringTest
Posts: 5
Joined: Sun Jul 03, 2016 1:03 pm

Re: Buying a new home in London but concerned about Brexit

Post by FailedTheTuringTest » Thu Sep 14, 2017 8:52 am

BogleInvestorLondon wrote:
Wed Sep 13, 2017 8:56 pm
What would one usually do in this tricky situation? The UK has not left the single market yet but things do not look great.
Nobody knows, of course, but I'll tell you what bets I have made (also UK resident but not in London). I'm also in the process of buying a house and have gone for a 5-year fix on my mortgage in the expectation that the value of the pound will drop further, and that inflation and interest rates will both rise. Uncertainty is bad for business and we're facing lots of uncertainty over the next few years (up to Brexit Day but also beyond, as the direction of travel seems to be towards lengthy transitional arrangements which will have more uncertainty associated with them). So I'm not very optimistic for the UK economy, but I had international investments that received a boost in pound terms as the value of the pound dropped, which helped a bit - lesson to all is that diversification can help protect against hazards that you might not have anticipated.

In reference to house-hunting strategy, I don't know the London market but here up north, everyone I know found their houses online (mostly on Rightmove), we don't know anyone who window-shopped estate agents.

Valuethinker
Posts: 32649
Joined: Fri May 11, 2007 11:07 am

Re: Buying a new home in London but concerned about Brexit

Post by Valuethinker » Thu Sep 14, 2017 9:31 am

FailedTheTuringTest wrote:
Thu Sep 14, 2017 8:52 am
BogleInvestorLondon wrote:
Wed Sep 13, 2017 8:56 pm
What would one usually do in this tricky situation? The UK has not left the single market yet but things do not look great.
Nobody knows, of course, but I'll tell you what bets I have made (also UK resident but not in London). I'm also in the process of buying a house and have gone for a 5-year fix on my mortgage in the expectation that the value of the pound will drop further, and that inflation and interest rates will both rise. Uncertainty is bad for business and we're facing lots of uncertainty over the next few years (up to Brexit Day but also beyond, as the direction of travel seems to be towards lengthy transitional arrangements which will have more uncertainty associated with them). So I'm not very optimistic for the UK economy, but I had international investments that received a boost in pound terms as the value of the pound dropped, which helped a bit - lesson to all is that diversification can help protect against hazards that you might not have anticipated.

In reference to house-hunting strategy, I don't know the London market but here up north, everyone I know found their houses online (mostly on Rightmove), we don't know anyone who window-shopped estate agents.
Yes the stock is online BUT it's worth having contact with agents, they will let you know about upcoming houses. Gives you a chance to be one of the early viewers. If the house is at all desirable in London, and it is within 5-10% of the right price, then it tends to shift *fast*. I don't believe the market for desirable £1m homes has really changed that much in the last 10 years.

I think it is sensible to fix mortgage rates-- a good strategy. I can't believe they will go lower from here. And yes, prolonged uncertainty is a good forecast ;-).

UKFred
Posts: 14
Joined: Thu Apr 20, 2017 9:58 am
Location: UK

Re: Buying a new home in London but concerned about Brexit

Post by UKFred » Thu Sep 14, 2017 11:21 am

House price slowdown in London (so far anyway) has been more about stamp duty increases and changes to taxation rules and mortgage availability for buy-to-let landlords. By contrast, Brexit has had a much smaller impact. £1M is NOT a large budget for a house in London, by the way!

Valuethinker
Posts: 32649
Joined: Fri May 11, 2007 11:07 am

Re: Buying a new home in London but concerned about Brexit

Post by Valuethinker » Thu Sep 14, 2017 12:10 pm

UKFred wrote:
Thu Sep 14, 2017 11:21 am
House price slowdown in London (so far anyway) has been more about stamp duty increases and changes to taxation rules and mortgage availability for buy-to-let landlords. By contrast, Brexit has had a much smaller impact. £1M is NOT a large budget for a house in London, by the way!
If that is correct, it means the risk to the OP is significantly greater -- Brexit is *not* in London housing prices. But how would we know? In a foreign exchange sense (price of a London home in another currency) it is, at least to the extent the c. 15% fall in sterling is a reflection of Brexit.

My own sense is that people who might be in the "moved somewhere else" bracket, either their own choice (say Europeans deciding to relocate back to Europe) or because their bank is moving activities, have held off buying more expensive properties. So it has had some effect.

I agree re £1m btw ;-). Unless you are in East London, that's pretty much a zone 4 house (or zone 5). Depends absolutely where of course-- south East London is probably pretty good value (except that means Southern Rail :annoyed ) but it's not cheap any more.

BogleInvestorLondon
Posts: 138
Joined: Mon Nov 25, 2013 10:16 am

Re: Buying a new home in London but concerned about Brexit

Post by BogleInvestorLondon » Thu Sep 14, 2017 7:05 pm

Thanks a lot for all the replies.

I was born in London, would sell my house in order to move but not need a mortgage on the new one.

Agree about stamp duty, that slowed the market down here.

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