London’s Insane Housing Market

I think I’ve been here long enough now to comment on the housing market here. I think I can sum it up with: it’s bloody crackers. (british speak for absolutely insane).
Looking at prices you have to ask, how on earth do people afford to own in this city? Take this nice modern 2 bedroom flat similar to a modern condo in Toronto. It’s listed at £545,000 in my Kings Cross area! Ok, that was a super high end looking property, I’ll give you that, but even something more modest like this one bedroom is listed at £338,000! £338,000! At today’s exchange rates that’s $754,182.19 Canadian! And it’s not like I’m shopping around Notting Hill, or South Kensington (though you know I wish we were). No,this is King’s Cross, London’s version of Toronto’s Parkdale – if Parkdale was once known as Toronto’s red light district / drug capital, and was now undergoing a massive gentrification that included a Eurostar link to Paris (details, details).
But the key phrase there was ‘red light district’. I admit, this area is actually getting pretty cool and I see more drunk people at the park near my work at lunch time than at Kings Cross… but come on! THREE quarters of a million Canadian dollars to own a lonely little one bedroom flat in a mediocre area?! A flat that’s posted as less than 500 square feet I might add!!

So I decided to infiltrate the madness by posing as a potential buyer, and met with a mortgage broker yesterday. Well, it seems buying is a lot easier than in Canada. Down payment requirements are MUCH lower, in that there really aren’t any, it just impacts the interest rate you’ll get. But not even by that much. You put down 15% you’ll pay a rate of about 5.2%. Put down 10%, you’ll pay a rate of about 5%. Interesting. So apparently you don’t need much money to put as a down payment. Good to know, since stamp duty (land transfer tax in Canadian speak) is 3%!! (4% if your property is more than 500K!). So that gem of a flat we just saw would require the purchaser to pony up £10,140 on tax alone! Ouch. I also learned that most people in London have interest only mortgages, and choose to make principal payments intermittently through out the year; like say when their banker bonus comes in.

I left my meeting with the mortgage broker with such mixed feelings. At first I was thrilled to find out that immigrants like us with pretty much no credit history and only a week old credit card can get pre-approved for a mortgage pretty much on the spot. But then the rationale kicks in. How hot, and insane is the market?!. And I’m still absolutely gobsmacked to know that when I shop at Tescos for my groceries I’m shopping amongst people who mostly all live in million (Canadian) dollar homes. But I think you just a hit a point when you get used to the prices and these things seem normal.

And no, moving out to Slough is not the answer. There’s a reason I didn’t live in the ‘shwa in Canada, and that reason applies for England too.