saving to buy a house outright vs getting a mortgage

perth_worker

Hello,

I am currently working in Australia in the mining industry and have started saving a considerable amount of cash and was wondering if it would be better for me to continue saving so that I can buy a house outright or to try take out a mortgage an use my current savings as a down payment.

I should state, I have no desire to own my dream house - I just want it as an investment property (so I have more disposable income and can go travelling/work part time/ not work), and I am more than happy renting....I am 25 years old, an perhaps my priorities may change in the future as I get older and wiser.

I currently have £45,000 saved ( £18,000 in a nationwide isa account paying 3.1% interest, and £27,000 in an Australian saving accounts which pays 5.5% interest minus tax). I think the interest I earn from both accounts works out roughly the same when you take account of tax and currency conversion.

I save roughly £3000 a month without too much struggle (I still play quite hard, go out a bit...etc) which I put into my Australian bank account. I could probably save a bit more if I needed to.

Should I continue saving- so that I can but a house outright and just continue to deposit money into my savings account/isa or should I put my savings into a deposit for a house and get a mortgage?

As I would just like to buy an investment property, I though a small townhouse/apartment/flat in the city centre would be a good idea as it rent demand would be quite high. I think such properties go for around £200,000 in most cities. So in theory it would take me 4/5 years more of saving to save that amount (assuming house prices and inflation does not increase dramatically), which seems very reachable. I have a very good job, an a skill which is in great shortage in Australia, so would anticipate me having the same job with a similar salary for the next few years. I am on 4 year visa and am planning to try get permanent residency next year.



Any advise would be greatly appreciated!

Yorkie1

I am not a financial expert, but your plan concerns me slightly in that you would be putting all your eggs in one basket.

You appear from your post to have no alternative savings or pension arrangements; the sooner you start these off, the more they will have the opportunity to grow over time so you benefit from compounding the interest etc.

Is it worth you looking to split your focus so that it either takes slightly longer to save for the house, or to get that mortgage and pay it off as soon as possible?

You don't say where the prospective investment / rental property would be, but have you done a business plan for it - are you sure that you will make sufficient profit / income on it to allow you to live as you wish if you have a mortgage? Have you researched what being a LL involves? See this thread for info on England / Wales.

IronWolf

Firstly I'd like to know what job you have to save £3k a month at 25

If you are determined on getting an investment property I would say at least a part mortgage is desirable, as it leverages the returns in your favour. I cant see interest rates going sky high in only 5 years time so you will be able to save alongside to pay off the mortgage if need be.

But I would look instead to a pension if you dont have one already, and invest it in "riskier" assets than cash.

maypole

[QUOTE=IronWolf;52388419]Firstly I'd like to know what job you have to save £3k a month at 25

If you are determined on getting an investment property I would say at least a part mortgage is desirable, as it leverages the returns in your favour. I cant see interest rates going sky high in only 5 years time so you will be able to save alongside to pay off the mortgage if need be.

But I would look instead to a pension if you dont have one already, and invest it in "riskier" assets than cash.[/QUOTE]

He works in the mines in Western Australia, a booming industry. He will be working hard for his money.

If he is planning to buy in Perth, the properties are getting quite expensive due to the boom I believe.

perth_worker

Hi,

Thanks for the replies!

Yes that is correct - I have no other no alternative savings or pension arrangements. To be honest I haven't really thought about pensions yet. Doesn't the state government pay a pension or something? In Australia, the employer has to pay 9% of your salary towards your pension (its called super superannuation which you can access when your 65 or if I leave oz permanently). So I was kind of relying on that. I haven't really given my pension much though as it seems very far away.

No I don't really no what being a LL involves nor do I have a business plan. It seems everyone is obsessed with buying a house so I thought I should maybe jump in jump on the bandwagon. I figured as rental market seems quite stable and house prices tend to go up it would be a good investment without much work.

What do you mean invest it in "riskier" assets than cash? Should I really start thinking about private pension now as I am only 25?

Yorkie1

Jumping on the bandwagon isn't the best reason for deciding how to invest!

As a general rule, the earlier you start a pension, the better because your contributions have a long time to build up; in order to get the same level of pension income in retirement, the contributions needed go up exponentially as you get older.

One thing which, it appears to me, slightly complicates matters is that you don't appear to be sure where you will be living in 5 - 10 - 20 - 40 years' time (I mean which country).

People on here can make suggestions based on the property market & pension provisions here, but Oz is likely to be out of most peoples' knowledge. State pensions in the UK will be subsistence level rather than comfort level - are you happy to live in retirement on (say) £9K per year (I'm not too sure of the actual figures). Oz may or may not be different.

CLAPTON

pretty pointless asking UK people about investing in australian property
and equally considering UK views about australian pension provision

but do bear in mind; when everyone is doing it you know it's a bubble and don't invest in property in a mining boom town as prices will collapse just as you lose you job.

darkpool

property is a good investment. but why residential property? it generally has short term leases and low yields. you can buy commercial property in the UK with a 20 year lease and 6% return.....

don't take this the wrong way, but the fact that a 25 year old can save 3k a month indicates to me that the mining industry is in too much of a boom. i wouldn't be in too much of a rush to buy in Perth.

I remember 10 years ago in Ireland the economy was doing very well and no one thought the good times would end...