My partner and I recently moved from a high cost of living area to a very high cost of living area in relation to house prices. (Yeah, I know, but it was an important career move for him and gets us much closer to friends and relatives.) We are currently renting an expensive 2 bed apartment 15 miles from his work. The rental market here is such a bubble that we couldn't find anything closer: I had to take a week off work to come and find somewhere here, and things would be gone within hours of them being listed.
We've been looking at places to buy, and got massively outbid on a place recently. We're in Scotland and it has an Offers Over system of sealed bid auctions for buying houses. The house we bid on had 7 offers. We offered a five figure sum over the surveyors valuation for the property, but 4 of the other 6 bidders offered more than we did, some offering considerably more. I just got a call from another solicitor about another property we viewed, but it is also going to closing date and will go massively over valuation. It's definitely a buyers market.
In this situation, would you buy a property and swallow the cost of paying over valuation (about 15 - 20% over in most cases)? Or would you keep renting and wait for the crash (which may never come: property prices are local and this is the oil capital of Europe and has barely been touched by the global recession)? The trouble is that rent prices are higher than mortgage payments for equivalent properties so it makes little sense, but neither does spending £250K on a house that is smaller than one I bought in another area for half the cost (currently rented out for a 7% yield). We are likely to be here for at least 5 years, and possibly forever.
The other option we are looking at is buying a lovely cheap (for the area) house that is hard to get a mortgage for as it is next to and above a cafe and several lenders have refused to loan on it for that reason. This is why it is cheap - because even in a boom it is hard to sell as it might have to be a cash purchase or a some other form of loan with higher interest rates. We can't pay cash unless we 'sell all the things' i.e. my rental property and stocks and shares which I don't want to do, particularly for somewhere that will be hard to sell on and may be hard to rent out too.
What would you do in this situation? Please don't suggest we move to a cheaper area because my partner's career is very specialised which very much limits our options (he is committed to his career, not to FI, which is fine by me as long as he lets me handle our investments).