London - Buying a House 101

Would suggest reading this regarding buying flats in London.

https://archive.is/20250608073412/https://www.telegraph.co.uk/money/property/buying-selling/why-you-shouldnt-buy-a-flat-in-london/

London residential real estate is the dumbest investment you can make right now. Foreigners offloading en masse.

Hi OP - as someone who owns a flat in London zone 2, here's my two cents:

Firstly, don't do this purely as an investment for your parents. You've said you & your partner want to live there which makes sense, but if you're looking at it from an investment returns perspective - the answer is the returns will likely be poor. See my post here (www.wallstreetoasis.com/forum/investment-banking/how-to-be-rich-as-a-ba…) but in summary - as you said you pay 45% tax on the full rental amount not profit i.e. basically paying 45% tax on your revenue rather than profit. Crazy I know. As another poster said you can get a 20% rebate but that's still painful. Secondly, stamp duty costs are really high upfront and also as you mentioned service charges (more on that below). So from an investment standpoint they would make a lot more just chucking their £300k into an S&P 500 tracker.

Now onto your specific questions:

1. Long-term fixes - the answer is the market simply isn't set up that way, it's not like the US where you have Fannie and Freddie to buy all the 30yr fixes. But it is worth pointing out that the 30yr fixes in the US are higher now than what you get in the UK, e.g. a US 30yr fix is maybe 6% vs a 5yr fix in the UK you can get for below 4% in many cases. I'm not quite sure what you mean on your point about the interest being all paid upfront - yes you do pay more interest at the start of the term due to the amortisation curve of the loan, but that's the same whether it is a 5yr or 30yr fix. In any case you just remortgage/refi every 2/5yrs or so. I appreciate you're worried about interest rates going up but the opposite is more likely - it's the people who got fix rates at sub-2% in 2021 who are now screwed. So in summary this isn't really a big issue, especially in the current macro environment i.e. declining rates.

2. Service charges - lol this could be an essay. But in summary you have a mixture of things - some flats have serious cladding issues that haven't yet been resolved (avoid), but for the most part it's unfortunately just inflation. Minimum wage in the UK has more than doubled in the past decade, which impacts even basic things like cleaning costs for the building. And the cost of tradesmen/plumbers etc has gone up massively since Brexit and Covid, so any stuff that needs fixing costs a fortune now. Also energy costs since the Ukraine war - this are even more onerous than you'd think, due to the fact that whilst as a flat owner you're protected by the energy price cap for your home, the communal areas of the building aren't limited by the price cap (as the building is not considered a retail consumer). So that gets reflected in your service charge. So yeah basically inflation since Brexit/Covid is the culprit, along with fixing cladding.

   Technically a lot of the above factors will impact freehold homes e.g. houses too. The difference though is that a house owner can stagger their maintenance over years or even decades. Not that it's a good idea necessarily (hence why you see some houses on the market that are extremely dated/complete wrecks). Whereas a management company is legally obligated to keep the building in good condition to maintain market value etc.

   3. Renting out the property and taxes - see my above comments, and also my post linked above. My advice is honestly don't rent it out to anyone else. We also have a Labour government who are increasingly pro-tenant and hostile to landlords (planning to ban no-fault eviction etc). And it's already near impossible to evict a tenant who isn't paying. Good luck if you rent to someone else, but my advice is don't do it.