Should we get a Mortgage or start investing?

bowlhead99

twisterzzz wrote: »

AndyT678 wrote: »

twisterzzz wrote: »

governments are/will do everything to bring the property prices down

Really? I don't think I could name a single policy by any recent government designed to do that.

Well, that so called "help to buy" kind of schemes are designed to do that

The help to buy scheme is specifically NOT trying to bring down prices, say for example from the OP's £350k target to 280k

Instead what it is designed to do is provide FTBs with some alternative methods to still be able to afford to pay the £350k asking price. If the FTB can only really afford to offer £280k on their own, which would require them to offer that smaller amount of money or go for a smaller property or go looking in a cheaper part of the city or the country, the "help" would enable them to still make the £350k offer on the more expensive home.

So, buyers are getting support, but not by bringing down the price. Just by helping people to pay the high price.

Similar "funding for lending". There was concern that the buyers would not be able to get access to enough affordable finance to pay the £350k asking price for a property. So, the government incentivises the banks and building society to lend out the money by providing them with cheap finance if they do so.

None of this is constructed to convince the sellers to reduce the £350k asking price to the level that FTBs could afford. It is simply giving the FTBs access to a method by which they can give the seller the full £350k asked.

Perhaps if they did not support FTBs in doing that, the UK FTBs would still be priced out by buyers from Europe or China or Middle East who don't need a mortgage from a UK bank, and will just pay cash and leave the place empty until they want to be a tourist, or rent it out as expensively as possible, neither of which is helpful. So the government are damned if they do and damned if they don't really. But governments are really not doing "everything they can to bring the price down".

What may bring prices down is the end of those schemes - so this year's FTBs can afford £350k but when they try to exit their starter-home in three or four years, the next generation of FTBs don't have £350k, either because of the schemes ending or just interest rates reverting to long term averages. Or another thing that would help prices in some parts of the country would be the unlikely event of an exit from Europe making it less desirable for countries to be based in UK providing gainful employment, and less freedom of movement of European home-seekers.

I do agree with your comment that now is not exactly an all-time low point at which to put a massive commitment into a leveraged investment. But also that in the long long term, prices generally rise, faster than inflation.

Back to the question from the OP: yes, buying property using borrowed money can be highly lucrative over the long term, even though you have missed the boat where the house prices went from 3x salary to 10x average salary. Even if the multiple comes down, over the long long term it is still probably worthwhile not paying the landlord his profit margin, and using cheap finance to support the acquisition of an appreciating asset. But it makes most sense if you know with certainty where you want to be located and you have a long time horizon until retirement and even longer to death. You will need a roof over your head from somewhere, until you're ready for the care home.

In retirement you need a roof over your head AND money for living costs. It seems risky to not buy the house and be exposed to the next 50 years of market rent, hoping your investment proceeds can cover it. But it also seems risky to have a house and be dependent on selling/downsizing it to get money on which to live.

Therefore you should consider what you can put away and split it between house and pension and shorter term assets.

fairleads

kangoora wrote: »

I wouldn't want to be in my 70's or 80's and be at the mercy of a landlord and, potentially, have to up sticks and move house every couple of years at that age because successive landlords decide they want to sell the properties.

Thats a fallacy. Most landlords are only too happy to have their property inhabited by stable long term tenants.
Further, while it may be true that suburban renting might, for some, be less cost effective than buying, the situation reverses when you cease work and have the choice of moving into the country where tenants generally have the upper hand. Almost 40% of the population have no option but to rent from the cradle to the grave yet they live perfectly normal lives.

Thrugelmir

twisterzzz wrote: »

I think OP is right, especially if you look at the current climate. Property prices are at its peak [if not near peak]. I would usually NOT agree with the statement that buying a house is poor investment but you really don't want to buy when prices are at peak.

Prices are at a peak. Interest rates are at a low.

Given a choice would you borrow £150k at 3% or £130k at 5% over a 25 year term?

twisterzzz

Thrugelmir wrote: »

Prices are at a peak. Interest rates are at a low.

Given a choice would you borrow £150k at 3% or £130k at 5% over a 25 year term?

Interest rates are at a low "ONLY" for a limited time, they're not going to remain unchanged over the next 25 years !!!

We all know there's only ONE way the interest rates can go from where they are at the moment and that's up.

Unless the OP can get themselves in a decent deal and knock the balance quickly that'll be great otherwise it can get pretty ugly if interest rates are higher and you've got negative equity, not something where one would want to be.

Thrugelmir

twisterzzz wrote: »

Interest rates are at a low "ONLY" for a limited time, they're not going to remain unchanged over the next 25 years !!!

You are missing my point. Borrowing more at a lower interest rate is the better option. As there are 2 parts to the equation that need to be considered. Not simply the purchase price alone.

The fact that interest rates aren't going to remain for 25 years is a another matter. Making sacrifices and overpaying while the sun remains shining. Could make serious inroads into the debt. As it's compound interest that determines the final outcome.

twisterzzz

bowlhead99 wrote: »

The help to buy scheme is specifically NOT trying to bring down prices, say for example from the OP's £350k target to 280k

Agree with your explanation about the impact of the "help to buy" scheme.

The point I was trying to make is that house prices are in focus and the efforts will be to normalize the prices as opposed to support the upward trend. If that happens that could push one in negative equity especially if you buy at today's inflated price. Yes I agree over the time that may not be big concern but it can get pretty expensive especially paying interest on that borrowed money, and not to mention that it might take a few years before the prices really reach where they're today allow you just break even so in the end the profits might not be as great.

bowlhead99 wrote: »

Therefore you should consider what you can put away and split it between house and pension and shorter term assets.

@ OP - Useful advise above, whilst you invest elsewhere, perhaps consider renting cheap for a while [perhaps commute for while] to minimize your rental payments. Once the market is cooled down a little you can then buy a house and move your equity there. By that time hopefully you should have a bigger deposit to pay and hopefully better mortgage deals to play with as compared to the ones with smaller deposit.

Pincher

It's so nebulous, isn't it?


Why don't you choose blind faith instead?


I read somewhere years ago that there is a ten year cycle.
If you believe it, property prices tend to bust around years that end in 8, so 1988, 1998, 2008, 2018. The stock market and economy tends to work in the same way. So the idea is to invest your money, follow the market up, and sell everything by early 2018, sit on the cash, then wait for panic selling around 2020.


Saving and getting 1% interest on the money doesn't really work, if property prices are rising by 7% a year. Don't argue about the 7%, even if it was 2%, it's still pulling away from you.

IronWolf

Seeing the prices in London over the last couple of years they have gone from expensive to ridiculous. A 3 bed flat in Elephant and castle was selling for £890k the other day, and I would not want to live in a crime ridden area like E&C for half of that.

If it was anywhere else in the UK except London you'd probably be better off buying, but atm renting is actually quite a bit cheaper than buying in a lot of areas. Rental yields are getting sub 3%.

Mrs_Z

Personally I would always go for the mortgage before investing. My thinking here is even if the value drops but you can meet your mortgage payments you got a roof over your head whereas with shares, if the price drops, all you have to show for your investment is a worthless piece of paper. For me investment (in stock and shares) is something you do with spare money that you can afford to lose in the worse case scenario.

kidmugsy

Mrs_Z wrote: »

Personally I would always go for the mortgage before investing. My thinking here is even if the value drops but you can meet your mortgage payments you got a roof over your head

Unless some event in your life obliges you to sell, in which case all your capital may be lost. That's a cost of geared investment.

Mrs_Z wrote: »

whereas with shares, if the price drops, all you have to show for your investment is a worthless piece of paper.

Not unless you've been so foolish as to fail to diversify, or have chosen to invest with gearing.