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30y with only cash

edited 30 November -1 at 1:00AM in Savings & Investments
10 replies 1.6K views
the_learnerthe_learner Forumite
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edited 30 November -1 at 1:00AM in Savings & Investments
Hello everyone, I am 31 and all I have is £170,000 in very liquid assets.
I live and work in London and pay a rent of £900/month.
Assume I can save a total of £3,000/month.
What investment would you suggest to me?
Buying a flat would save me the rent but I would need to repay the mortgage.

I was thinking about a 2 bed flat in London:
- use £170,000 for the deposit
- get 40% equity loan from Government
- get the remaining part as mortgage

The spare room could be rented out to someone to get a monthly inflow that would at least offset the interests I have to pay on the mortgage. I will save the rent so I should have £900/month free to use for the repayment.

What do you guys think? I am very inexperienced so I really welcome any suggestion you might have for me. Especially in terms of alternatives. Thank you.

Replies

  • economiceconomic
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    saving £170k at your age is very good. i would personally look to buy a 2 bed house/flat, only if you can afford it in an area you like. do not buy in a dodgy area you cant see yourself living in long term. property is a great to buy specially now as it seems like a buyers market in london. you save on rent and the rent from spare room is tax free. very tax efficient way of investing in the property.

    what to do with the rest of the money depends on whats left over after you bought a property. but i would put money in this order:

    - have a safety cash reserve of 6 months expenses
    - pay off any loans with high interest
    - put into a S&S ISA and invest
    - start puttin gmoney into pension if you are not already from your wages
    any other savings open up a normal S&S account and invest
  • El_TorroEl_Torro Forumite
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    Buying a property brings more benefits than just being an investment, especially if you know you are going to be living there for some years. So a deposit is a good use of your money.

    What I will say though is don't ignore your pension. Assuming you have an employer, you should pay into their pension scheme, at least enough to get the maximum employer contribution.
  • jimjamesjimjames Forumite
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    2 thoughts

    1) If all you have is £170k then spending it all on a property might not be the best move. You'll need money for purchase costs as well as emergency funds in case things need fixing or your car breaks.

    2) Do the government offer 40% equity loans? I thought the max was 20% on a new build? This still needs to be paid back.
    Remember the saying: if it looks too good to be true it almost certainly is.
  • the_learnerthe_learner Forumite
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    Thanks guys for your opinions. I already make contribution to my pension plan so that I get the maximum contribution from my employer.
    The current scheme that the Government runs is the equity loan and the 40% is on new builds in London.
    If buying a old flat I am not sure there is anything similar.

    Btw, I also saw that a new scheme is being introduced. With "starter homes" we should be able to get a new build at 20% discount which seems even better than the current equity loan scheme.

    Should I wait for thatand maybe save something more for the deposit while waiting?
  • bowlhead99bowlhead99 Forumite
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    Btw, I also saw that a new scheme is being introduced. With "starter homes" we should be able to get a new build at 20% discount which seems even better than the current equity loan scheme.

    Should I wait for thatand maybe save something more for the deposit while waiting?
    You won't get a 20% discount if you want to stay in London and keep earning your relatively high salary that allows you to save the £3k/m.

    Perhaps in Stockport or the Isle of Wight. It's reserved for brownfield sites.

    Which potentially means that as it's somewhere that wasn't residential previously, a local price for the new estate is not well established, so the developer can say his brand new development in the area will change everything up and create a new awesome community of luxury living so the full retail price is really high, and all the first time buyers will be desperate to grab it for the 'discount', so they'll all compete for it and pay absolutely every last penny they can raise, which means that it is almost as expensive as it should have genuinely been without the smoke and mirrors discount.

    And of course you won't be able to have the same options as you'd get with a 'normal' property, like you won't be allowed to let it out for example. And as you're buying new, you would inherently be paying over the odds for the square footage compared to buying a pre-owned home, as it's a bit like buying a car, first owner takes a few grand of depreciation.

    If London is the right place for you long term (and you are sure about it) I would think about spending £100-150 at the most (not the whole £170k of 'life savings') on a first-to-second time buyer's place with a couple of bedrooms that you would actually want to live in (not purely with an eye on it as an 'investment'). Letting out the second room is a wise move (don't forget you will need to pay tax on that income with typical London rent being higher than rent-a-room relief threshold).
  • the_learnerthe_learner Forumite
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    bowlhead99 wrote: »
    You won't get a 20% discount if you want to stay in London and keep earning your relatively high salary that allows you to save the £3k/m.

    ...

    And of course you won't be able to have the same options as you'd get with a 'normal' property, like you won't be allowed to let it out for example. And as you're buying new, you would inherently be paying over the odds for the square footage compared to buying a pre-owned home, as it's a bit like buying a car, first owner takes a few grand of depreciation.

    If London is the right place for you long term (and you are sure about it) I would think about spending £100-150 at the most (not the whole £170k of 'life savings') on a first-to-second time buyer's place with a couple of bedrooms that you would actually want to live in (not purely with an eye on it as an 'investment'). Letting out the second room is a wise move (don't forget you will need to pay tax on that income with typical London rent being higher than rent-a-room relief threshold).

    Thanks a lot for your message. So you think it is not worth to wait for this scheme?
    I agree with you on the risk of depreciation associated with a new build. But I see the equity loan as a good way to limit my exposure to house prices in this particular moment.
    I mean, if price fall, my loss would be only on the 60% of the original value that I funded with my deposit and the mortgage.
    The remaining 40% would reduce my outstanding debt towards the government.
    I see a situation of rising prices as positive overall since it would appreciate my 60% quote even if my equity loan to repay will increase the same way.

    To summarize, the new build is my choice only because the help to buy scheme apllies only on these properties.
    Nkt sure if this is a good argument? What is your opinion?
  • bowlhead99bowlhead99 Forumite
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    Thanks a lot for your message. So you think it is not worth to wait for this scheme?
    No London boroughs have been announced as participating. So it London is what you want, don't wait for the scheme for a supposed discount in a part of the country where you don't want to live and won't be allowed to rent out what you bought.
    I mean, if price fall, my loss would be only on the 60% of the original value that I funded with my deposit and the mortgage.
    The remaining 40% would reduce my outstanding debt towards the government.
    I see a situation of rising prices as positive overall since it would appreciate my 60% quote even if my equity loan to repay will increase the same way.
    Getting a five year interest-free equity loan is decent if it allows you to live in a larger property than you would otherwise be able to afford and you have a plan in place to buy out the remaining piece.

    Going for the full 40% as a loan means that needs to be a pretty ambitious plan, but if you have a large deposit on the 60% piece then you're probably not going to be faced in five years with the stark choice of being homeless or facing spiralling debt on the govt piece. If you can get a lodger/ tenant to pay you a full market rate on your spare room (or spare two rooms for those rare large 3-bed properties priced at under 600k) then you are on a good path to have that person help you settle the free borrowing.

    Getting a free loan from the government paid off by a tenant is a distortion of the already-overpriced market in your favour, so I'm sure there will be plenty of people jealous or even angry that you can afford to do that. But that doesn't mean you should or shouldn't do it. If you buy a house in London and then your career develops in a year or two so you have an opportunity to work internationally, but you don't want to because you just bought a house in London, that could be worse for your long term wealth.

    If you're only paying £900 a month rent at the moment, that's a pretty cheap and flexible arrangement (in terms of not tying you down) and allowing you to save / invest over £30k a year. No need to rush into buying a house if other investment options are more tempting (pension being a good one with 40% relief available at your salary level).
  • the_learnerthe_learner Forumite
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    Thank you again. I think that for now my pension fund contribution is already enough since, including my employer's contribution, I have monthly inflow into the plan of £1,300. I did some projections with the tools that the pension provider offer and this amount seems to be enough for my goal. I probably just need to focus on investimg that money since for now is parked in cash funds.

    Btw, where did you see that London is not going to be included im the Starter Homes program?
  • steampoweredsteampowered Forumite
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    I personally would look to buy a flat. You will find that mortgage payments are a bit cheaper than rent on similar properties.

    £170,000 is a very substantial deposit. You should not automatically assume that using a government scheme is a good idea. Those schemes are aimed at people with much smaller deposits.

    Government schemes are helpful for people who could not otherwise afford to buy, but they do have disadvantages. For example under the "Help to Buy" scheme you would be restricted to buying new properties, which means paying a premium. You might also have to pay a higher interest rate on your mortgage.

    It might be better for you to buy a flat with a standard mortgage. You should use one of the mortgage calculators to work out how much you can afford, and then have a look on zoopla to see what is available in your price range.
  • steampoweredsteampowered Forumite
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    To summarize, the new build is my choice only because the help to buy scheme apllies only on these properties.
    Nkt sure if this is a good argument? What is your opinion?
    New builds tend to be a bit more expensive than similar properties, even if those properties are only a couple years old.

    For me personally the price premium isn't worth it. For others it might be.

    The only thing you can really do is spend a few hours looking through properties on a website like zoopla, both new build and older properties, to see options you have available to you.
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