Advice please for a confused and worried poss FTBuyer!!

Rave

The 'property ladder' is basically a fictional construct to take advantage of people who are frightened of being left behind. You need to do some cold, hard, detached calcultions if you're considering buying a property as an investment (since you don't intend to live in it for the next few years).

If you could rent out the property that you buy at market rates and cover the interest on the mortgage AND get a return of 4.5% or more on the £60k you've invested then it's a reasonable investment ASSUMING that house prices flatline for the next few years*. If you couldn't, then quite simply you will be better off putting it in a high interest savings account, or if you prefer to take a bit more of a gamble, in one of the 'beat the stock market by 25% or get your money back' investment funds.

*this is the bit that nobody can predict. As far as my non-economist brain can tell though, house prices are much more likely to go down than go up, and even if they do go up they're unlikely to go up by more than the rate of inflation for at least the next 2-3 years.

ag359

Rave wrote:

The 'property ladder' is basically a fictional construct to take advantage of people who are frightened of being left behind. You need to do some cold, hard, detached calcultions if you're considering buying a property as an investment (since you don't intend to live in it for the next few years).

If you could rent out the property that you buy at market rates and cover the interest on the mortgage AND get a return of 4.5% or more on the £60k you've invested then it's a reasonable investment ASSUMING that house prices flatline for the next few years*. If you couldn't, then quite simply you will be better off putting it in a high interest savings account, or if you prefer to take a bit more of a gamble, in one of the 'beat the stock market by 25% or get your money back' investment funds.

*this is the bit that nobody can predict. As far as my non-economist brain can tell though, house prices are much more likely to go down than go up, and even if they do go up they're unlikely to go up by more than the rate of inflation for at least the next 2-3 years.

Absolutely. If anything the 4.5% figure should be higher, because the risk involved is far greater than a savings account. I would put it at 6-7% minimum.

Rave

Quite- of course you have to include the costs you may/will incur as a landlord I.E. ground rent, maintenance, insurance etc. in the calculation. It's also a 'geared' investment in that if you own 50% of the property and its value decreases by 5%, your stake will decrease in value by 10%.

Of course the inverse is true if values rise....but how many analysts are saying that the house price boom will continue indefinately? Not many....

So, while the 'jury is out' for residential FTBs (though I know which way I lean;)) in your case Maggie I seriously doubt that property would be a good investment vehicle for your £60k.

IN_LIKE_EVERYONE_ELSE!

Mean machine is right.
Houses are down, shares are down, get it in the bank and buy after the crash.
Airbags set to ready.

Fairdo_2

Nick_C wrote:

I would say now is a decent time to have this opportunity. You can put your cash in the bank to earn some interest while you do some research about buying and renting, in the knowledge that you're not being left behind by rampant house price inflation in the mean time.

Remember that since this will be your only house, even if you buy and then house prices crash, then if you need to sell to buy your own place, the price of the place you'll be buying will be lower too. Yes, if there's a house price crash then you'd be better putting your cash in the bank until it's hit rock bottom, but not everyone thinks there's going to be a crash, and no-one can predict the future. You sound like you wouldn't be over-extending yourself by buying and renting it out, so by buying you're on the ladder whichever way the market goes. I would second the thoughts about interest-only mortgages: BTL landlords take these because they assume that capital growth will pay back the loan with a profit. This is an uncertain proposition at the moment, IMHO.

As for your question re: SIPPs. SIPP = Self-Invested Personal Pension. As of April 6th 2006, you'll be able to hold a residential property inside a SIPP, if you've got enough money in your SIPP to buy one. There are many who think that this will cause a rush of small buy-to-let properties being bought by a SIPP, or being transferred in. Why this should stop prices rising I don't know, if it happened they would be more likely to rise at least briefly. But, again, no-one knows for sure if this will happen - pension providers haven't finalised their offerings yet, so no-one knows fully what the costs will be.

All very good and valid points.

Well said!

Lush Walrus. Normally agree totally with most of your comments.

Only thing I would mention on your post is that, if OP expected to rent property out and not live there, ever, I would have to say that they could only go Buy To Let if they are acting legitimately. I may have mis-construed what you said, but they generally, should not buy on a residential basis if they never intend to live at the property.

Only general clause for standard residential mortgage and not living there immediately is the "for future occupation" clause, which I have done for many a client that is currently in tied accomodation and wanting to get their property earlier.

On some other points mentioned. Interest Only would be a less desired route to go down, as you should go Repayment (Capital & Interest) if you can afford the mortgage repayments. If you can't afford the repayments then I wouldn't buy at all!

I am going against some of the later posts listed on this thread, but that probably reflects my personal attitude to risk. Hopefully this demonstrates how much personal opinion counts in these matters!

I personally, would say that putting this level of savings in itself is a risk of sorts (Contentious I know) but I would consider what effect inflation may have on savings put into a cash ISA or Bank or Building Society Account. However, undisputable is the fact that they would be capital secure.

Depending on how much rental income you could reasonably expect, compared to the mortgage payments you could be making, there should be a certain amount of yield from this. You should also have a good accountant, to bring your business costs up as much as possible (less tax to pay). The more realistic you pitch the rental price you set, the more likely you are to have the property occupied for longer in the year. Also, the longer you intend to keep the property, the lower the risk is on your personal investment. As you will generally make money over the longer term, as historically, property does appreciate over the longer term. (Bear in mind, past performance is not necessarily a guide to future performance!) If it does become a property you eventually live in, then this could negate some of the risk aswell.

On the flip side, you are missing out on interest of this lump sum if you put it into property. You would have costs involved in buying a property that you have to consider when doing your sums to assess your personal risk. (Legal costs, Stamp Duty, Mortgage costs, furnishing, insurances, etc).

Hopefully this is a considered and balanced argument, but I feared I have forgotten half of what I was going to post.