Updating post from Reddit.
Hello, just wanted some advice and thoughts.
I own a 2 bed flat in London and as I am planning on having only one child (expecting and husband is getting a vasectomy imminently), I am happy to stay here and pay down mortgage aggressively (around 40% equity after 6 years of ownership) and ensure long term financial security rather than upsizing for marginal increase in space. We like our area and it works for schools, work and husband doesn't want to leave (we are in zone 3 and he can cycle everywhere).
The only thing that makes me want to move is the fact that my child may potentially be stuck as an adult in the family home. My husband's siblings are in their 20s and 30s and they are all living with their in laws or parents including with a child in tow. But I thought instead of upsizing and taking on more debt paid off solely by our jobs (where i am also more constrained by things like school catchment and liveability of area) , i could buy a second 2 bed flat for around 300k mark in zone 4/5, preferably share of freehold or residents managed block like my flat..tight budget but small flats are likely to continue stagnating and falling and I found stuff like that in 2019 when I was buying, prices haven't changed much in that time and I wasn't even looking at zone 5. The primary purpose of this flat would be for my son to live in as an adult rather than living with me to save but I would rent it out in the mean time.
I could buy under a limited Company to avoid higher rate tax. I am aware of the pitfalls- taxes, management fees, repairs, lowish yields, capital gains tax but my goal isn't to make money, in fact I might not mind losing a few hundred quid per month. I think it's still cheaper than upsizing to a 700k property because at least some of the costs can be met by rent but 100% of the cost for a larger residence would be met by us. My husband is a 4th generation Londoner but in a sense precisely no one in his family have downsized from their family homes which is fine as they bought their homes quite cheaply and don't need to. However this isn't my situation as a 32 year old who bought in 2019 and wouldn't be my situation ever. They are millionaires on paper but their future generations largely can't afford housing or have to wait for a death to do so.
Rental income I think would be around 1700 quid for a flat like that. What do you all think? A potential pitfall I can is traditional buy to let mortgages don't allow family members as renters. Would it be possible to transfer ownership to my son at that point and then have him pay off the mortgage. Or would it be possible at that point ( would be in our 50s) to pay off that mortgage totally or take on small second residential mortgage. I doubt the properties would appreciate much but I am not buying for capital gains, just buying for utility.
Also if it's a ground floor flat it could be a future retirement flat for us and then our son could take over our flat which is on the second floor.
There is no rush to buy as son wouldn't need it for mamy years but I do see a potential buying opportunity as many landlords exit the market and people prefer larger properties over smaller properties due to the high costs of moving, stamp duty and increasing age of first time buyers. However people in London still need places to rent and there is a place for smaller properties in the rental market..
Don't forget you will have 2nd home stamp duty too and if it's going to be in sons name before they buy then they effectively lose FTB benefits.
Yes but it's effectively only 2500 more than if I spent the same amount of money buying a larger home in London or SE
You could do this smart by maxing out the sons help to buy ISA then buy something for the maximum benefit even if it isn't in the area you want as I believe you have to buy within a cap but it's 25% bonus. There is probably caps to how much you can put in etc too. Then the son could sell and buy something in an area they want.
Transacting isn't easy and I would like to be in the London area as it is hardest for kids to be able to live independently here. Also husband and I plan to live in London so even if son doesn't need it, it could function as a retirement flat for us and we can sell our current second floor flat and give him whatever money he needs plus some left over.
I know a lady who does btl in London and so far it has been a money pit with service charges, tenants maintenance issues, tenants trashing, legal liabilities and a host of other reasons.
I own a leasehold flat too (1930s) and I chose a flat which is residents managed, freehold owned by residents. Hubby is on the residents management company. I will choose the same for my next flat. Tenants issues are the same everywhere surely.
Tbh I am prepared to break even or make a small loss. Perhaps it's psychological, knowing my son has a flat he can potentially live in or sell regardless of what happens to affordability. I mean prices of London flats have stagnated since 2016 but it hasn't become easier for most people to buy them.
My mortgage in 2019 was 1k for a 2 bed flat in zone 3! I think our combined nett income then was 4400, really very little but we still managed to live quite well cos of the low mortgage and we also overpaid when our incomes increased hence why we have 40% equity, it's all due to overpayments.
I was 26. Most couples earn more than that now but mortgages would be closer to 2k even if house prices are the same or lower.
Just go careful there is a reason flat prices have stagnated and mostly it's to do with the horrendous service charges.
https://www.bbc.co.uk/news/articles/ckgzp0kvegxo
Obviously find this out on your potential suitable property because it really will be a kicker for your value and future losses. I saw a flat for sale with a £17k service charge per year in London and it was just a small one bed crazy.
Edit: In addition you could also be slapped with huge bills for building work by freeholder just seen this post
I don't go for anything where freehold isn't owned by residents. My service charge has only increased by 16 quid in 5 years. Simply cos the directors of the residents management company (other than my husband) are all landlords!
My downstairs neighbour used to be a director but she quit after she got pregnant and bought a house in Potters bar during the pandemic stamp duty holiday. She kept the flat but told me she would barely break even as she and her husband are on higher rate tax and this is their first flat (under personal names). But there are presumably reasons why she is keeping it, it's been 5 years and flat is still tenanted.. it would affect her capital gains tax too..
I think they have stagnated even for London share of freehold maisonettes with no service charge (majority of the flats in my area as I live in a zone 3 suburb, husband hates period conversions) because of the erosion of the lower middle class in London. My husband's mum bought a 1 bed share of freehold maisonette in the 1980s when she was a 27 year old newly wed secretary. Her husband was a legal executive for a small law firm who had lived at home into his early 30s.
Today the same flat would be in excess of 300k (nearer the 400k mark mostly but that flat was on a cheap road in the area) and the joint income of such a couple would be maybe 60 to 65k with little chance of big increases. I bought a 2 bed flat in a similar area when I was 26 but while our incomes were low we were working in financial services and hopeful of increases.
Getting the snip before the baby has even arrived! Good friend of mine had a full term still birth, it can happen, as can divorce.
Well we have been married 10 years and he doesn't want another child even if we divorced. And if our baby died we definitely wouldn't want to go through the same experience again.
At the end of the day, his body his choice though I do only want to stop at 1. One thing is we never used contraception in all our years of marriage and this is our only pregnancy so I suppose we could continue with that.
This is part of our long long term plan one of the kids could have one of our properties instead of living with us into their 30’s! Yes there will be implications in 15-20 years transferring it to them but it will be a paid off flat so is a no brainer to us.
Do you already max out your ISA / partners ISA / prepared to max kids JISA this year? Pensions too?
Far better to do that and help the kid with cash in 18/19/20/21 years time after compounding for that long.
Don’t do this. Open a Junior ISA and fund it to the max
Set up a company for him, keep the shares for now and then when he's an adult you can get him more involved and slowly give him shares as he takes more responsibility. It will make him appreciate it a lot more than just giving him a property.
Also if he owns a property he will miss out massively from FTB benefits when he wants to buy his own home.