Climbing the Housing Ladder to retirement?

Harry_Powell

I guess the gain is also just not a monetary one (if there is any financial gain at all I hasten to add). The bloke in the pub will also benefit from having a large home for his growing family, living in nice surroundings and I assume a relatively crime free and pieceful location with good schools, etc.

If I did a similar tactic, my benefits would be a much reduced commute to work (I live in Hayes and work in SW3), cooler neighbours and a consierge and gym

p.s. I also don't think it's a bad thing to spend a little. We only have one life and you don't want to spend it scrimping away to pay a mortgage or make investments. A balance needs to be struck.

PasturesNew

It works if you continue to earn the same money, or more, in the same job, in the same area and nothing substantial changes in your life.

For some, they are settled.... but you can never tell what will happen tomorrow. That's where it goes wrong.

House prices have to increase by more than your mortgage rate to stay in the game though, otherwise you're paying out more than the house is worth.

It's a goer for a 15-20-25 year plan, 4-5 is too short-term to rely on it.

silvercar

I'm mid 40s, as are most of my friends, so lets assume (as I think is the case) that we have all reached the highest point on the housing ladder. There are 3 groups:

1. Those who have cleared their mortgages and own outright.

2. Those who have mortgages to pay but will clear them before retirement.

3. Those who know they will never be in a position to clear their mortgages (either because they have lost out in the job market along the way or because they took on mammoth mortgages in order to fund a family home whilst their children were young).

Groups 1 and 2 will either stay in their family homes in retirement when the kids have flown the nest or they will trade down and pocket the profit to fund retirement/ invest.

Group 3 will trade down. Even if house prices fall another 20% they will afford to clear their mortgage and buy outright a decent retirement home.

In some ways group 3 have done the best of all the groups. By buying beyond their reach they have had the benefits of a large home for the decades they needed it and will be able to get a home for retirement without spending money.

Thrugelmir

CLAPTON wrote: »

yes of course you are right but in my example :

your 300k mortgage costs 579k and you have a house that after 30 years can sell at 3,000,000 so gain is about 2,400,000

or you have a mortgage of 180k costing 350,000 but you end up with a house only worth (say) 1,500,000 so gain is only 1,150,000


even adding other costs the higher priced house will historically give a much better gain.

Suggest you try and support your figures. Salary inflation, disposable income and available credit.

There's already a £300 billion prop to UK mortgage lending. Around 25% of outstanding debt. Going to take a few years of adjustment to bring that into line. So house prices to increase ten fold would require massive inflation.

Harry_Powell

silvercar wrote: »

I'm mid 40s, as are most of my friends, so lets assume (as I think is the case) that we have all reached the highest point on the housing ladder. There are 3 groups:

1. Those who have cleared their mortgages and own outright.

2. Those who have mortgages to pay but will clear them before retirement.

3. Those who know they will never be in a position to clear their mortgages (either because they have lost out in the job market along the way or because they took on mammoth mortgages in order to fund a family home whilst their children were young).

Groups 1 and 2 will either stay in their family homes in retirement when the kids have flown the nest or they will trade down and pocket the profit to fund retirement/ invest.

Group 3 will trade down. Even if house prices fall another 20% they will afford to clear their mortgage and buy outright a decent retirement home.

In some ways group 3 have done the best of all the groups. By buying beyond their reach they have had the benefits of a large home for the decades they needed it and will be able to get a home for retirement without spending money.

There is also an option that I read with interest on the Pension board. If you have a decent sized pension fund, you take the 25% tax free lump sum and use it to pay off the mortgage.

This was deemed to be better than taking out the 25% and then drip feeding it into ISAs or other tax free savings vehicle. For example, if you had a £300k pension pot, then £75k could immediately go onto the mortgage, instead of taking 7 years to feed it into an ISA. I thought this was quite a canny way of shielding money from the tax man, provided that the remaining pension was adequate to provide a decent income.

CLAPTON

Thrugelmir wrote: »

Suggest you try and support your figures. Salary inflation, disposable income and available credit.

There's already a £300 billion prop to UK mortgage lending. Around 25% of outstanding debt. Going to take a few years of adjustment to bring that into line. So house prices to increase ten fold would require massive inflation.

My posting was in response to the OPs question and was to explain the very large effect of the gearing on mortgages that is especially absent with ordinary savings or purchases of S&S.

It explains why buying an expensive house 30 years ago will provide both a home for those 30 years and a highly priced asset compared to buying S&S.

If you think house prices in 30 years time will be similar to those of today then so beit.
I have no crystal ball to offer.

But houses price have increased about 20 times since 1980
and 10 times inflation is about 8% per annum ..high but not massive


In any event it was an example and the principle holds.

HammersFan

Really2 wrote: »

How do you incur them if you have already purchased it?

those are one off fees not every 4-5 years.

Yep there are costs, of course, but these can be blunted a bit by getting a good deal on the property being purchased (i.e. a squeezing a few thousand on the asking price, and then being patient when it comes to selling).

As I said - working out the figures is a big ask, but look around at people who moved up the property ladder lots and you'll most likely see decent outcomes. Whether these people would be better off than those taking other routes to financial security, I dunno.

[Deleted User]

Harry_Powell wrote: »

I was having an interesting discussion down the pub tonight with a friend of a friend who has just taken a huge leap up the housing ladder. I was stating how worried I would personally be taking on all that debt (we're talking £300k of mortgage debt). His retort was that it's one fo the few ways an ordinary bloke could make enough money to retire on.

His thinking was that most other 'investments' were taxed or had management costs, or both:

BTL: Management fees, void periods, income tax, maintenance costs, capital gains tax on any profits on sales.
Shares/Funds outside ISA/Pension: Stamp duty & broker fees on purchase of shares, annual management charge on funds, capital gains on profits.
Shares inside ISA/Pension: Stamp duty & broker fees on purchase of shares, Annual Management charges on funds & some S&S ISA accounts, restricted access to funds in Pension, restricted investment amount in ISA.
Own Home: Legal costs on purchase, interest on mortgage loan, tax free gains when downsizing.

I'm still unconvinced about the relative merits of Ladder Climbing against other investment opportunities, but his statement that a home was "an investment that you can enjoy every single day" sounded nice. How much I'd enjoy having that much debt around my neck is dubious though.

My aquaintance has two young children and was planning for a third. He's therefore looking to buy large family homes with a decent amount of land. Once the kids leave, he'll be looking to downsize to a place adequate for him and his wife.

I guess the equivalent of this for myself (we don't want kids) would be to move closer and closer to Zone 1, with increasingly luxurious property. Then to sell up and move to the 'burbs when we retire.

I can see it's appeal within the framework of existing ISA/Pension investments but I wouldn't like to put all my eggs into one basket the way he seems to have done.

Have any of our older members done this? Did it work out well? Are any of the younger posters working towards this? How's it going?

We're in our mid 40's with 2 dogs and no kids. We have a large 4 bedroomed house with a huge garden. At some point in the future it will be too big for us and it will make sense to move into somewhere smaller - which will of course be cheaper.

We have quite substantial savings but we plan to spend a big chunk of that rather than keep it all for retirement. We will however transfer our full ISA allowance each year. This money *might* be used for retirement or we might blow it on something else - it gives us flexibility.

Our pensions only give us £6k a year each - so £12k per year in total (and a modest lump sum). We deliberately stopped paying in as we want more flexibility and someone (on these boards) did tell us that the money the government contributes gets clawed back as the pension is taxable. No idea whether that's true but I didn't like locking too much away.

So yes, it's part of our plan for retirement. But like you I wouldn't like to rely on it completely just in case it does go pear shaped.

Bonia77

HammersFan wrote: »

As I said - working out the figures is a big ask, but look around at people who moved up the property ladder lots and you'll most likely see decent outcomes. Whether these people would be better off than those taking other routes to financial security, I dunno.

I think it's more preception that anything else. If you live in a big and expensive house, it's easy to spot, but whether you have decent savings/pension pot, it's quite hard to say.

So, the people in big houses not always have more money.

The other issue is liquidity of your assets. Let's say that you need to access your money quickly due to some unforeseen circumstances.
It may take over a year to sell the house in a difficult market, if you don't want to sell it with discount

ninky_2

this is based on an assumption that bigger houses increase in value at the same pro rata rate as smaller houses. i don't know if this is the case.

it is possible that as prices become more unaffordable it is the entry level properties that will increase the most in value (percentage wise).

if a 200k property goes up 10 percent in value you make 20k. you make the same on a 100k property that goes up 20 percent in value. the other issue with more expensive property is it costs more in stamp duty - often considerably more.

i'm sure people in big houses do well in retirement. but if they'd stayed in a smaller property and invested the difference wisely they could have done better.