Never buying a home

Nottoobadyet

Hi all,

This may be better placed on the mortgages board, but I suspect that I know the answer that crowd would give me!

I'm wondering what people here think about never including a property in your life financial plan. Like many working /lower middle class people, I was raised to believe that home ownership was an essential part of adulthood. I've been looking at various ways of buying and taking out a mortgage, but when I take off the rose coloured glasses its obviously not worth it financially or logistically.

I have an internationally mobile career, mostly in the developing world, and in the foreseeable future would only be able to buy in a stable market as an investment to let, which means the extra costs of having it managed, and though it's seductive to think of someone else paying off my mortgage most of it is going on interest to the bank, not to my equity. Rental costs on assignment in my sector are almost always covered by employers, so owning wouldnt effect my outgoings except to leave me vulnerable to shortfalls.

What do others think about reaching retirement with all cash / investment assets rather than a paid off house? Obviously there would be nothing stopping me from buying a house in cash at that point if it made sense, and I suspect that if I look at it rationally any gains I would have made in the house value would have been drowned out in what I'd have paid in interest.

I am in my mid 20s, currently all my savings are in cash (GBP) or pensions but I will be looking into diversification very soon. I have no consumer or student debt.

NTBY

jimjames

I guess the main advantage in buying a property during your working life is that you then have an asset to live in during retirement that has zero rental cost per month. If you rent then your pension has to cover that as well.

If someone else has paid that mortgage for you (as BTL) then you have built up an asset at little cost to yourself which wouldnt have happened if you just bought it from pension money at retirement.

Reaper

There is no problem with your idea. Other countries are not as fixated on home ownership as the UK is.

In the end a house is an investment, nothing more. There is an odd, persistent view that they are a risk free one. I've often seen threads here were somebody says "I have a lump sum, I don't want any risk so I was thinking of getting a 'Buy to Let'". Another odd view is "rent is wasted money", but nobody seems to think "mortgage interest is wasted money".

In reality there is no guarantee it will be worth more than you paid for it when you come to sell it, not to mention the interest you fork out on it in the meantime.

By all means consider alternative long term investments such as ISAs and pensions.

coastline

Keeping it simple...no expert mind...lets say you buy at £100,000 and it costs £500 a month over 20 years..

12 x £500= £6,000 x 20 years = £120,000....thats without bills and upkeep..
If the house doubled in value...and more than a fair chance it will..then you will need £200,000 to buy a similar property..and thats just 20 years..
Best bets probably to buy somewhere in a decent location and rent it out for many years if you can..at least you are on the ladder..
If you think you can invest and achieve growth rates well above 10% PA..then you'll have a nice lump sum regardless..

Reaper

coastline wrote: »

Keeping it simple...no expert mind...lets say you buy at £100,000 and it costs £500 a month over 20 years..

12 x £500= £6,000 x 20 years = £120,000....thats without bills and upkeep..
If the house doubled in value...and more than a fair chance it will..then you will need £200,000 to buy a similar property..and thats just 20 years..
Best bets probably to buy somewhere in a decent location and rent it out for many years if you can..at least you are on the ladder..
If you think you can invest and achieve growth rates well above 10% PA..then you'll have a nice lump sum regardless..

Let's look at it another way. Not sure what assumptions you are making in the above so I will pick some:
£100,000 with 100% mortgage (for simplicity) at 5% average interest rate over the term on a repayment basis.
That comes to £660pm or £158,400 over the term and you end up with a house worth £200,000.

Now consider an alternative. Put that same money monthly into a S&S ISA. At the end of the term you will have put in £158,400. Hopefully it too will have doubled in value too and instead of having £200,000 you will now have over £300,000.
Even if you used a boring old savings account paying 3% it would still match the house value, and without the risk of house price drops.

Of course the figures change drastically depending on your assumptions on interest rates, house prices, whether you use an ISA or a pension etc. So the decision will depend on what your outlook is.

atush

Except you can't put that money in an ISA if you are offshore/out of the UK?

I would say that if you feel you will return to the UK to live and work when you are older (we were expats and you do quite often want to return at least when the kids are plus 11 for education etc) then buy a property to let- not an expensive one, in a good main town with a university/major hosiptal etc where renting is a good prospect.

If you do decide to go thru life w/o owning, that is fine too as it makes you more 'flexible' but do remember you will have to save into investments and pensions that much more as you will have to either buy in 40 years (at 40 years of inflation prices) or rent for the rest of your life when you are no longer working. So your pension pot will have to much larger (even double) what you might have originally been thinking of.

CLAPTON

most people buy a house as a home and not an investment

however in your case it will be an investment until you return to the UK

to my mind it's all about risk

if you buy a house now that establishes yourself in the UK property market that you can be sure when you return you can find somewhere suitable to live;
it may turn out that you would have been better off with stock market investments but you still can afford a good place to live

on the other hand if you invest rather than buy then when you come back you may find you can't get a house you want or of course you may find you can afford a better property

personally being reasonable cautious I would like the certainty.

is seems to me a bit like people that took out mortgages in euros because the interest rates were lower than the UK; initially they make pretty good gains but the exchange rate movements have made it a pretty bad decision.

one's a gamble and one isn't.

SliAbhaile

I think it is simple. Your current location is Kampala, not London. If you have an internationally portable career, and you are likely to move all over the world, you would be mad to buy in a country you don't live in.

Any rise in property value will be negated by the hefty chunk the estate agents levy for managing it - and unless you can persuade your brother/friend to manage it you will end up paying agents.

Don't forget the UK, Ireland and the USA are alone in the world with this obsession over house ownership. The rest of the world seems to get along fairly well with renting.

CLAPTON

SliAbhaile wrote: »

Don't forget the UK, Ireland and the USA are alone in the world with this obsession over house ownership. The rest of the world seems to get along fairly well with renting.

you have forgotten, Spain, Italy, Australia, Japan, NewZealand, half of Germany, Holland, Denmark, Belgium and I'm sure many others. In fact most of the developed world.

zzzLazyDaisy

Home ownership has worked well for me over the years.... but that is not what you are talking about. As an absent landlord a property is likely to be an expensive millstone round your neck, with no guarantee of property values rising any time soon... and indeed a risk of them falling still further.

In your shoes I would continue to save, with a view to having a good deposit - or even buying a house for cash - when/if you return to UK and decide to settle in one place.

Nottoobadyet

Thanks guys. For a long time I have been thinking of the BTL option, but some of the things that have dissuaded me are:

- how difficult it will be for me to get a decent mortgage. I should have mentioned in the previous post that while I have spent most of my adult life in the UK I am not a citizen so it will be neigh impossible to get a normal mortgage, and while I am a US citizen I have no credit history there having not been in the country since my teens. This doesnt make getting a mortgage impossible, but would require me to use a broker and probably end up with a more expensive deal.

- the costs of a management agent when I go years at a time without visiting a country that I'd want to buy in. As people on this board say, being a landlord is more than just being on the leases and letting someone else pay the mortgage.

- as Reaper says, property isn't risk free, though I recognize that its a solid asset class. My few friends who do BTL have encountered massive expenses along the way. Damage by tenants, poor upkeep leading to water damage, etc etc.

I really appreciate the different opinions though, keep them coming!

EDIT - LazyDaisy and SliAbhaile - you took the words right out of my mouth!