We can afford to buy a flat in London - but should we?

http://www.theguardian.com/money/2015/apr/09/we-can-afford-buy-flat-london-but-should-we

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Q My question is simple: should I buy a flat in London now?

My boyfriend and I are in a lucky situation as we can afford to buy a small flat in London. We have a decent deposit and a household income of more than £100,000. However, house prices are eye-watering and I’m finding it hard to justify the price. I know I will be buying a property that simply isn’t worth the money.

We are looking at two-bedroom flats between £400,000 and £450,000. House prices have been coming down slightly in the capital for the past six months, but will this continue?

If I felt confident that prices would stay the same (I don’t care if they don’t rise) I would bite the bullet and do it. I am terrified, however, to put everything we have into a property that may become a millstone around our necks if the market crashes. What do you think - will it all end in tears? SJ

A Having looked at various house price surveys, the general view is that, rather than falling, house prices in London will carry on rising albeit more slowly than in recent years.

According to the Royal Institution of Chartered Surveyors (Rics) - whose recent survey reported a sixth consecutive price fall in London – “there is a strong view in the survey that property [in London] will become even more unaffordable over the medium term” with the suggestion that “on average, house prices will rise by a further 30% in the capital over the next five years”. But that’s what Rics’ members expect to happen based on how they think the property market is behaving in their area.

Recently published figures from the Land Registry show a monthly increase of 0.6% in London with an increase of 13.1% over the year. An annual increase of 13% was also found by the Office for National Statistics (ONS) which also noted that “house price growth is beginning to show signs of slowing”.

It all depends on where in London you are thinking of buying, according to the Land Registry. In the borough of Brent, for example, there was a monthly increase of 1.9%, while Hackney saw a monthly fall in prices of 1.5%.

None of that makes the price you have to pay for a property in London any more palatable, but it does suggest that buying somewhere now is not going to end in tears.

It’s also worth bearing in mind that if you did buy a flat that you would call home, you would only be affected by a crash in property prices if, when you wanted to sell it, the flat was worth less than your mortgage.

While you are living somewhere, what it is worth doesn’t really matter. You also don’t have to offer the full asking price of a property or, indeed, put everything you have into buying property as it makes sense to keep some cash savings back for emergencies.