It's a pretty tough market for some areas in London. Stories are rife of agents not bothering to produce details of properties, but posting on social networks, emailing and calling potential buyers that a new property is for sale, then selling it within a matter of hours as 20 or more buyers view the property.
Dangers of buying in a busy market
The main thing to remember when buying, is don't get caught up in the hype. If you do, you run the risk of over stretching yourself.
In my view, it's much better to move to a cheaper, less popular area, than risk losing your property, because interest rates end up doubling your mortgage payments, so you can't afford to go out or even keep the property.
The second danger, is prices tend to rise when lots of buyers are chasing too few properties for sale. This means the choice of property you have to buy, is likely to be diminished, so you end up buying a property you regret owning later on.
Next, in our efforts to 'buy quickly' and avoid being gazumped, some people may end up cutting corners and not taking care to read the paperwork, especially if buying a flat. This can lead to all sorts of problems, such as not realising that after a few years living in the property, the lease is too short for new buyers to secure a mortgage, severely restricting what your property may be worth.
Please note, your lease needs to be 80 years or more for a lender to typically back buying with a mortgage.
Finally, we might get so carried away we don't check out the journey to work, nor do we make sure the neighbours aren't up all night playing loud music, or make sure a surveyor checks for the £6k of problems most buyers incur who don't engage their services and end up paying post the move (RICS survey).
This means you could end up buying something which you are desperate to move away from, and if prices don't continue to increase as you'd hoped, you don't have the extra equity needed to move and you could find you are trapped in a home you just don't want to come back to.
What's the alternative?
As a buyer, if the annual rent you pay is less than 5% of the value of your property, then buying and paying mortgage interest is no more 'dead money' than your rent is likely to be. If prices are rising rapidly, then you can benefit from securing more equity, but bear in mind the next property you buy, is also likely to increase in value, so you may end up no better off.
So, rather than overstretching yourself, it may be worth considering where you would like to live in the future. Perhaps as a Londoner, you dream of moving out to the seaside or the South West. Well why not consider buying something there now and renting it out until you are ready to move?
Consider buying with friends to help get a better property than you could on your own, or if you can, buy a property which allows you to rent out a room to subsidise your mortgage payments. You can rent a room for £4,250 per year without paying any further tax.
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Should sellers continue to sell in a competitive market?
Mostly, selling in a busy market is a good idea as the more buyers competiting for your property, the higher the price you are likely to receive for your property, hopefully giving you more money to spend when you buy your next one.
However, putting your property on the market, having 20 or more people walking through the door that weekend and recieving offers, can cause a problem if you hadn't planned to move that quickly!
So in a busy market, it may be better to sell up, rent, and then become a cash buyer to put yourself in a better position to make offers on properties you want, rather than feeling under pressure to purchase so your buyer can move in.
For more help selling a property, take a look at some of our free selling checklists:-
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