London housing - rent or buy?
Saw another thread on housing goals in London. I'm curious to learn about how much you guys spend on rent and the trajectory of that - so how much more were you spending as your pay started scaling? (Don't expect you to disclose your comp). Also wondering whereabouts you guys are based for the rent you're paying and whether you're renting alone or with flatmates?
Separately- at what point do you start thinking about buying a place? Ideally I would like to rent my own place in zone1/2 but when you start getting to the GBP 2k/month levels- I'm wondering whether I might as well just dump 80-100k into a downpayment and pay mortgage instead. 80k is effectively about 3.5 years of 2k/month rent which obviously has zero equity component. The flipside is I have zero certainty whether I want to stay in London or not in the medium term. And that 100k could be compounding in equities instead of being stuck in some levered illiquid 1 bedroom flat that who knows whether it will even appreciate. (I know I'm assuming stocks going up in the short term - but the difference is that if I'm invested in stocks, I'll never be a forced seller but with a house I might be if I want to get my ass out of this city or worse, if I lose my job.)
Might be obvious from the above that I know nothing about thinking about housing (maybe I'm thinking about something wrongly) so would appreciate any feedback from people who are more experienced. I
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I pay about 1700/mo (flat is 2500 but GF pays 800). Have lived here since my base was 55k gb and now my total comp is about 300 gb and have just stayed here. Although to be fair it was probably a bit too expensive when i first moved in but was close enough to work to walk which made it worth it.
Sorry to pry/derail but you're at 300k TC in S&T with 5YOE? (based on post history). Seems kinda high. Not saying you're lying, just curious.
If you're running your own book/risk and make good money its not that high. I'd argue i was paid too little last year based on my pnl and lack of franchise business (aka mostly prop).
Congrats bro. Are you a vp in trading? If so, would £300k be standard for vps in fx-sales? Currently an analyst.
As someone who has lived in London for 20 years, let me dispel some myths around buying houses vs. renting. Firstly, by the time you finish your Analyst years you will have at most 50K to put down towards a flat (if you've been very frugal). In the best case scenario where you find a bank offering 10% down mortgage payments, you can buy maximum something that is 500K in value. This already has 2 issues. Most people end up paying above asking price because the UK (especially London) property market is so competitive. If you target a 500K flat, plan to spend 510-520K. Secondly, you will struggle significantly to find a buyer willing to accept your offer. 90% debt is a massive risk for buyers and most of they time they won't even speak to you unless the bank has 100% guaranteed the money. On top of that, you're fighting with dozens of cash buyers who will sweep up properties in a matter of days.
You then need to look at the supply side of things. 500K gets you a nice 1 bedroom in Zone 1 or decent 2 bedroom but further out (Zone 2/3). Not an issue if you plan to live there forever, but a relatively poor investment choice. I think some people are stuck in the fantasy of 1990s/early 2000s London where you could buy a flat for 500K and flip it for 1.5M. Realistically, your 500K flat will appreciate to 550K at most in 5 years if you're lucky and you've chosen a decent up-and-coming area to buy in. You then need to subtract whatever maintenance costs you incur over that period as well as other admin costs and you're probably left with 35-40K profit over 5 years. If you plan to buy in order to rent, you'll make your investment back in 15-20 years earliest. Bottom line is, if you have 50K to spend on something that makes you money, throw it into an ISA.
But let's say you don't care about any of that and just want a place to own and live in forever (or at least plan to for now). Buy it and don't look back. Be happy to have sank money into something that may never yield a huge profit and ties up a good amount of money for your. If you plan to live in London for 5+ years, consider buying. Anything less, rent.
50k at most after your analyst years?? I got there after 1 year. With sign on bonus (5-10k) + 50k base + 100% bonus, you get to 105-110k all in, post tax that’s 70k post tax, I spent 10k on rent, 10k on living expenses. Was living a much better lifestyle than I was as a student but not quite yet going for bottle service every weekend. Think I can get to ~100k by the end of my analyst stint especially with the recent increase in comp.
Sure I have most of it in an ISA/invested but if I wanted to buy a house tomorrow I could sell and put that down as a deposit. May not be the best for tax purposes to take some of that ISA money out but I could in theory.
If you did, then congratulations on being financially responsible. But realistically you earn 100K per year which is 65K net in your analyst years at best (usually 90K, then 100K and then 110K). Rent is at the very minimum 1500 per month unless you live like a student with another 3 people, so take 20K off for rent. Living expenses are similar, maybe 1K per month if you're frugal about it so let's call it 15K. That means at the end of a given year you have 30K at the end of each year totaling 90K after your Analyst years. This assumes being financially responsible and I'm willing to bet that most people will typically have maybe 70K at most after those years. That's your down payment so at best you're going for a 700K property. Still not worth it that much.
just bought a three bed and will rent out two rooms. this covers the mortgage and should net a profit of £600 a month. I will live rent free. so, I disagree with your theory.
A three bedroom will likely be in Zone 2/3, more likely 3 unless you bought a shithole. You're also banking on having stable tenants for the other rooms and finding people that want to share everything but their bedrooms with others (for which there are better options such as shared living accommodations). Either you find friends, or you find reliable tenants which is hard enough. Secondly, if your total rent income is say...2K and your mortgage is 1.4K per month, that isn't 600 profit. You have to break down how much your initial down payment is on a monthly basis and then you'll have a true profit figure. I mean, if everything falls into place then good for you. But as with my comments above, a lot more things need to fall into place to make buying a suitable option than the freedom to rent.
This post is right on the money.
Also don't forget about transaction costs. With stamp duty plus various other fees you are easily paying ~15k up front in addition to the equity for your home. If you're buying a 500k property at 90% LTV, that's 30% fees on your 50k downpayment.
Here’s my two cent as someone who lives in London & has come close to buying a couple of times but decided renting is a smarter decision (both financially and otherwise), here is my two cents.
From a financial perspective. I currently pay 1400pcm for rent and bills, I live in a decent flat walking distance to my work in the city so no transport cost. I have a good deal since I signed the lease during covid, but you can probs get something in a similar if you try. If I was to buy, with a budget of 450k, 80% LTV mortgage, the monthly costs are as followed: mortgage interest: c£450 + Utility Bills & broadband: c£200 + council tax: c£120 + Service charge / Ground Rent / insurance: £200 + budget for maintenance / furniture etc: £100. This all sums to £1070. However, since 450k budget prices me out of zone 1, I will need to add an extra £200 for transport. Which brings me to about £1270. And finally, the excess costs, Stamp Duty is £10k + 4k for mortgage fees, solicitors & other transaction costs, if I assume I will live in the property for five years and spread this cost evenly, it amounts to c230 per month, bringing my total monthly cost to c£1500, i.e., more than I pay for rent. This is just my personal situation, but you can do your own maths and see how it checks out for you. It probs looks a lot better if you can afford a freehold house.
Addressing the elephant in the room, what about capital growth? Personally, I highly doubt any property in London is going to perform better than a portfolio of equities / crypto, so I think you can pretty much disregard this. If anything, the opportunity cost of not being about to invest elsewhere is an additional cost of buying over renting. Therefore, in my opinion the only real financial plus of buying over renting is the access to a large amount of relatively cheap leverage.
From a non-financial perspective, I personally prefer renting due to the added flexibility to move when needed, the reduced stress (not needing to worry about replacing a boiler or getting it with a major works service charge bill for example). Or the felling that if you burn out at want to spend a year working in a sea-front bar, you can without worrying about keeping up with the mortgage repayment.
Thank you for your feedback. I'm not sure I understand why 40k over 5 years is a poor investment result though. Sure on absolute returns that sucks but that shouldn't be the benchmark? The comparison should be versus renting where you're effectively making no profit because every % you make in your ISA is getting eroded by the rent outflow. My guess is that you only breakeven around y3-4 when the compounding effect kicks in a bit more. So in theory isn't there an argument where over a 5 year period, you could be financially better off flipping the house at 30-40k profit instead of dead money post rent payments? I haven't done the math so I don't know yet. I'm just thinking out loud.
Not that it makes much of a difference but guess my thought process was to just give up the gbp100k bonus this year to throw at a 20% down payment but yes, perhaps any economic benefit is so small that it's just not worth the mental and liquidity risk which is totally real.
40K over 5 years isn't inherently poor, but we've baked in the assumption that the property will grow in value. There is always a good chance it won't grow as much as you think and may yield 10-20K. On top of that, if may lead to a loss and you don't have the ability to diversify. If you invest 50K in an index fund or ISA which returns 10% minimum, you have 25K pretty much guaranteed profit at the end of the 5 years but you can very very easily make that money liquid again. You can't with a property.
Bought a place in London last year (as a VP), after renting for 5 years. Pros of buying are access to leverage, ability to modify/personalize, and sense of community. Downsides are mobility, friction costs, generally in a less desirable area than where you could rent, and opp cost.
You buy if you know you want to be in a location for 4-5+ yrs or you can afford not to sell while moving up the “housing ladder” on the backend because what you optimize for in your 20s is different from your 30s. If your a 2nd/3rd yr analyst that knows they want to stay in London, buying a 2bdr in Zone 1/2 and renting a room out to a friend slightly below market is probably a decent move financially.
someone tell me im wrong here -
I bought a three bed
will rent out 2 rooms, which pays the mortgage and nets a ~£600 profit
I will live and earn in London for the next 5 years, rent free
the goal is housing arbitrage, not capital appreciation. my FCF will be added to my crypto portfolio and side business(es).
I guess for some people, living with flatmates in late 20s is a deal breaker.
im renting to friends, not randoms. a few years of discipline and I will buy another house and continue to rent this.
What side businesses do you run? AM related or completely different?
need some more cash to make it work atm but im going to franchise a gym/fast food place
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Where exactly are 35 year olds with a wife and kids buying a house in London? I'm in that demographic (tho not British) and I struggle to see how most people get there.
In every neighborhood in Zones 2-3 with good schools (e.g. Clapham, Fulham, Chiswick), £1.25m buys you a total shitbox. £1.5m buys you something almost decent but really not that amazing. With 20% down, stamp duty and fees, that's £400k in cash that you need just to buy the place. Someone who's been in IB for 10+ years can maybe swing that but don't think it's the norm anymore. Maybe it was 10 years ago.
£1.3 mm will get you a serviceable 3/4 bed of around 1,500 sqft in the less fashionable ends of the places you describe. £400k cash and £1 mm mortgage is not far off although you could get the cash down to £300k by pushing the LTV. £1 mm borrowing only requires £200k HH income (including some credit for bonuses); most will buy before having kids so that you have two incomes for mortgage purposes. The deposit can be covered by stashing a few years of bonuses and many will be carrying over appreciation on a flat (say £400k became £600k).
There is a huge swathe of professionals in banking, consulting, insurance broking, investment management and whatever else that can get to those numbers pretty comfortably. That's why almost any comparable house has appreciated to the £1.3 mm mark.
London or surrounding areas I should clarify.
£1m can get you something nice that is commutable to London.
£400k cash isn't that much if you worked for 10+ years and assuming your spouse contributes some/ half too. Many professionals will likely also get help from their parents for the deposit if needed (is extremely common for young british people to get a gift for the deposit from their parents) although they won't shout about this...
I would not underestimate the huge cultural obsession with buying a house
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