Should we get a Mortgage or start investing?

taracauc

I'm looking for some advice on what would be the wisest move for us.

My partner (41) and I (35) are debt free and currently saving to for deposit on a flat. We are looking to buy in London at around 350,000 and have managed to save £10,000 so far with the goal of putting down 10% by next summer.

I've recently been researching about investment and came across a few articles stating that buying a house is the worst investment you can make, and that it would be wiser to rent at 75% of what your mortgage would be and invest the difference plus any savings from lack of maintenance costs, legal fees, taxes etc into something like a index tracker fund. In the long run we would be better off for retirement in 25 years.

I'm thinking about this advice because: while I have had a workplace pension for a while now, my partner who is freelance, has just recently started contributing to his. So there is a lot of catching up to do to ensure a comfortable retirement.

So I guess my question is: Should we try and get on the property ladder or take another path and start investing in a index track right now?

thanks!

AndyT678

Well the first question has to be is it possible?

315k mortgage on a repayment basis over 25 years at 3% interest would have a monthly mortgage payment of £1,500. Can you rent the same flat that you want to buy for 75% of this (£1,125)?

If you can then you need to decide whether you think the flat will be a better investment over 25 years than your tracker. I suspect that if you go through enough data you'll find examples of different approaches winning over different periods.

It also seems to require you to be very disciplined about putting all the extra homeowner costs into your investment. Would you really do that?

Finally in 25 years time would you prefer to have a flat to live in but nothing to live on or a pot of money to live on but nowhere to live? It seems like a not great choice based on you committing all of your income to one path or the other. Is a more blended approach available?

Babbawah

taracauc wrote: »

I've recently been researching about investment and came across a few articles stating that buying a house is the worst investment you can make, and that it would be wiser to rent at 75% of what your mortgage would be and invest the difference plus any savings from lack of maintenance costs, legal fees, taxes etc into something like a index tracker fund. In the long run we would be better off for retirement in 25 years.

Do your math again & try to work out who will be paying your rent when you retire.

fairleads

Babba
The income from your investments.

puk999

Can you link to the articles that claim buying a house is the worst investment you can make? Then we can see if the arguments are sound. You're a fairly new user but can probably write the links in such a way so we can get to the sites.

Rents go up with inflation and at the mercy of landlords. Your mortgage payments don't rise with inflation so get easier to pay as you progress through the term (assuming interest rates remain the same).

With your own house you have more flexibility in changing room layouts and extending so that needs to be factored into the decision too.

atush

fairleads wrote: »

Babba
The income from your investments.

I can't see that happening with rents ever increasing.

The OP needs to save for a house, and invest in a pension.

jimjames

taracauc wrote: »

I've recently been researching about investment and came across a few articles stating that buying a house is the worst investment you can make, and that it would be wiser to rent at 75% of what your mortgage would be and invest the difference plus any savings from lack of maintenance costs, legal fees, taxes etc into something like a index tracker fund. In the long run we would be better off for retirement in 25 years.

That's the first time I've heard that!

Pretty much every other suggestion is that property is the best investment. Whether it is a good idea beyond your own house is another matter but investing rather than owning your own property doesn't sound like great logic to me.

If property is such a bad investment you might want to let the BTL investors know.

Waldorf_Statler

Not being a homeowner in retirement would frightening the life out of me.

Let's put aside the speculation over which investment would perform better as this is covered in other posts.

In this scenario, even if you could rent something comparable for £1,100 per month, and even if it that cost didn't rise in real terms over the next 50 years, then you would need a pension pot approaching £350k (in today's money) just to cover the rental costs for the duration of your retirement at 67. More if you wish to retire early. And this amount would dwindle to next to nothing by the time of your death, whereas home ownership leaves an asset behind.

Also worth noting that as an "investment" (as the articles you read describe it) if a property appreciates in value then you would benefit from the total value of the property, not just the small amount that you own. So a £350k house increases by 10% and you make £35k, whereas a 10% increase in the £35k equity you put into investments rather than property and you make £3.5k. Of course, that "profit" isn't real unless you sold and went back to renting but you get my point.

By the way, I'm not denigrating renting as a choice. In many ways it offers greater choice and flexibility - especially if your jobs are not tied to London. But in my opinion, and to your point about which makes a better investment, I think being a mortgagee of a property is a better investment than having your deposit money invested in a tracker.

fairleads

Quote - I can't see that happening with rents ever increasing

That is just an opinion Atush
And as is so often the case practical experience over many years trumps opinion and "advice"

jimjames

fairleads wrote: »

Quote - I can't see that happening with rents ever increasing

That is just an opinion Atush
And as is so often the case practical experience over many years trumps opinion and "advice"

Or it's based on experience over many years.

How many people use their investments to pay rent in retirement vs how many live in their own property not paying rent.

I'd suggest the vast majority who are paying rent have no investments.

taracauc

Thank you to everyone who has commented. I understand the point about rents going up vs mortgage going down. (I also this BTL is a different strand to this linking as someone else covers the mortgage in a BTL.)

Here are a few articles:

dailyfinance.com/2014/07/19/the-worst-investment-you-can-make-buying-a-home/

jamesaltucher.com/2013/08/five-things-you-need-to-know-before-buying-a-house/

nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0&abt=0002&abg=0/