Should we get a Mortgage or start investing?

masonic

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

Well if the OP took their deposit and invested it into an index tracker, then it is certainly true that over the short term they might experience some period of time during which they were seeing a substantial paper loss, perhaps as much as 80% if they chose unwisely and/or were not sufficiently diversified. Losing their job and having no money to fall back on for rent/living costs would be a disaster in this situation.

Conversely, if they took out a 90% LTV mortgage, they might experience some time where their property value decreased by 10% over the short term wiping out almost all of their stake in the property. Losing their job and having no money to fall back on to meet mortgage payments/living costs in this situation would be every bit as much a disaster.

So I think the same risk management strategies apply to both scenarios. With suitable precautions having been taken, the temporary paper loss could be ridden out with much the same consequences as prices recovered.

In terms of trying to generalise the virtues of buying vs. renting, it's almost impossible to do because they depend on so many factors, the most important of which, perhaps, is the individual's need to remain in the area vs their need for flexibility to relocate to find work (and consequently job security is another factor). House prices and house price inflation are wildly different in different parts of the country. So you have some areas where housing is astronomically priced and rising strongly and other areas where housing is cheap and prices stagnant or slowly declining. You have areas where rents are expensive and competition strong and others where prices have been driven down and stable tenants are highly prized. It is also necessary to factor in costs associated with ownership that do not apply when renting (and these can vary greatly from one property to the next). So I think it is a highly individual decision, which is unfortunate because it seems few people are willing to see renting as an acceptable option, regardless of their circumstances.