Sleepless night

Source: Pixabay

I had moved to London to start my first proper job in my early 20’s. At first, I moved into a hostel and shared a room and ate in a communal dining room and watched TV in a communal lounge. It was a more downmarket version of my student hall of residence from an earlier year.

Nevertheless, I had started a job and was earning money, serious money it seemed, so I could start planning. Even before coming to London to work I had looked at property articles and adverts in the newspaper and was starting to form an idea of what was possible. The estate agent’s windows near my hostel showed properties that were out of reach, but there were magazines that promoted new build flats not too far away that seemed a possibility. A new studio flat could be bought for about 3 ½ times my salary in some areas. I had some savings, no debts, and felt able to ask my parents to help a little in the guise of tax planning. My bank would lend me just under three times my salary and with parental help I had a 20% deposit which meant I didn’t have to pay a fee for having a high level of mortgage debt.

As a first-time homebuyer the idea of a new build with some built in furniture and appliances appealed to me. At that time the cheapest new build flats in the London area were on reclaimed marshland but I found that this was an area of completely new property quite some distance from amenities, shops and the train station. There was one other development elsewhere on a former industrial site in an established area with shops, amenities and a train station within a ten-minute walk. This was the one I chose. I remember my parents being supportive but quite concerned as I put down a stakeholder deposit of £100 to reserve my flat just six weeks after moving to London to start my first proper job. Later on, writing my deposit cheque, the first four figure cheque I had written, I had a rather sleepless night as I considered how much I was spending and committing.

Source: Pixabay

With hindsight, I later realised that this was in some ways a reckless move that could have quickly gone wrong if my first real job had not worked out or if living in the capital had not suited me. On the other hand, it was in some ways a bold move that committed me to my job, my location, and to home ownership. I was on the property ladder. In the next few years it seemed to be a good move as property prices rose rapidly in the mid to late 1980’s. In some years my small flat made more money than I did in my job. As I progressed in my job and my earnings grew, I was able to move up to a bigger two bedroom flat. The capital gains from the first flat meant that I had over 40% equity in the second flat. The mortgage was now for less than 60% of the value of the property and represented three times my salary.

For a time, property prices continued to rise in the late 1980’s and peaked as changes were made to tax relief on mortgage interest. Then as interest rates rose up to 15% property prices fell significantly in the early 1990’s. My second flat developed a building problem that involved protracted monitoring and remedial works that meant we couldn’t move on from it until these were resolved. I remember noticing that ten years after buying my first flat the price for flats in that same development, which had doubled, had now fallen by half, back to the price I paid. Shortly thereafter we were able to move on from the second flat but I had to sell it at a loss. Most of my 40% equity was lost and I had just about broken even on my first decade in property having experienced boom then bust. I could have probably rented for that time and emerged in about the same financial position. Others we knew at the time were less fortunate. They had only experienced the downturn which had given them negative equity where their property was worth less than their mortgage debt. They had to save up to make up the difference if they wanted to move. More than ten years after my sleepless night I had experienced and survived a property market cycle.

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