London property vs investments

Sashkinson

Hi all,

I am a new investor in my late 20s.

Key facts:
- 44k salary, forecast to increase to 49-60k in the next 18 months
- 20k invested in S&S ISA (all in Fundsmith), CY ISA allowance used up; plan to invest a further 20k next year
- min pension contribution (will increase in line with salary)
- not a property owner (planning to buy in the SE in next 5 years)
- no debt other than Plan 1 student debt

I have c.250k which is currently in a selection of bonds in my name (recently gifted to me, have been in same bonds for c.20 years). This is earmarked for a property purchase - key question is, is it better to invest in London property now or to invest this money first and buy property at a later date? I live and work in London and pay just under 1k in rent monthly.

Sashkinson

I should add: my key priority (like everyone's I'm sure ) is to grow this deposit as much as I can over the next 5 years to maximise the amount available for a property purchase. But is this sensible in today's climate? Appreciate that no one can forecast the future - and property/stock market both have had similar returns historically - but would be keen to harness the hive mind here for some knowledgeable advice!

fun4everyone

Global stocks have beaten property (even London) soundly over any reasonable timeframe. You cannot wrap property in an ISA. You cannot sell property easily or quickly. There are tons of fees associated with property.

There are more ups and downs with stocks, that is the downside. You have to give it a longer timeframe. I wouldn't invest for < 5 years and preferably 10+. Good luck.

Sashkinson

Thank you - very helpful!

It's more because I am not a home-owner at all. Appreciate the downsides of being a BTL landlord/owning a second home (and indeed a first: illiquid, lots of fees as you mention). But offset against the cost of rent, will I kick myself for not using this cash to enable get me on the ladder?

Sashkinson

Also my additional questions :
- what would you do in this situation?
- any preferred stocks/funds of choice? Have heard good things about VLS80 for example. Also considering a FTSE tracker.
- shall I invest a sum in property (perhaps not in London/rent out), with the remainder in stocks?

Linton

Buying property for a home is not the same as buying property as an investment. It sounds like you really want the former. If your home happens to increase in value that is good, but it is a secondary concern. It would seem the £250K is the means by which you finance buying a home.


The question is then whether you can increase the £250K over a period of 5 years by investing. The answer is that you can but there is a non-negligible possibility that during the next 5 years there will be a serious crash in share prices that will result in the value of your investments falling in that time period. 5 years is too short a time to safely invest. You should be thinking more like 10+ years for investment to provide a game-changing benefit.



Can you now afford the home you want? If so buy it. If not you have the choice of either reducing yourt ambitions or saving more money.

fun4everyone

Sashkinson wrote: »

Thank you - very helpful!

It's more because I am not a home-owner at all. Appreciate the downsides of being a BTL landlord/owning a second home (and indeed a first: illiquid, lots of fees as you mention). But offset against the cost of rent, will I kick myself for not using this cash to enable get me on the ladder?

You might do, I don't have a crystal ball. Personal circumstance is key to the appropriate financial decision in all situations. I have already given you the facts, only you can decide what will suit you the best going forward. Owning a central london property in your late 20s/early 30s is bound to be tons of fun. The stocks will likely grow your money the most above inflation, but they might not.

Sashkinson wrote: »

Also my additional questions :
- what would you do in this situation?
- any preferred stocks/funds of choice? Have heard good things about VLS80 for example. Also considering a FTSE tracker.
- shall I invest a sum in property (perhaps not in London/rent out), with the remainder in stocks?

It is not good to get fund tips from investment boards. Personally if you have a long time frame in your 20s I would have a global world tracker core and then overweight small companies/emerging markets with some active funds on the side. That is risky and just me though. VLS80 is a perfectly legitimate choice but why do you want 20% bonds? Not saying it's a bad thing and not appropriate but please have a reason why before you buy something.

Also lol @ ftse tracker don't bother with the 100 get 250 if you must.

MaxiRobriguez

I wouldn't invest any of your £250k.

You want a home, if an event makes global markets tank by 50%, which isn't unheard of when ratios get stretched to the levels they are, then your deposit becomes £125k.

You're then looking at a house worth £300k (deposit + 4x salary), which in London doesn't give you much currently, and if house prices drop because of said 50% correction in wider markets then you'd likely find lending harder to come by and a dearth of decent homes you'd want to buy anyway.

If you're buying within five years, that money needs to not be subject to capital risk.

Thrugelmir

What return are the bonds providing?

How long do the bonds have until maturity?

You could invest the income generated into a LISA. Topping up your pension fund with the remainder.

kangoora

Say mortgage of £200k (4 x 50k) + £250k = £450k. Will that buy you what you want at this time?

Also bear in mind over 5 years you will be sinking £60k into someone elses property purchase/income, as opposed to £60k into your own property/mortgage.

£200k 25 year mortgage at 2.5% roughly £900/month

I think I'd be buying as opposed to carrying on renting. Once you have your own accomodation then see what can be done on the investing front. Potentially, if your wage ends up at the £60k mark you will have surplus income to invest anyway, pension would be good to avoid HRT.

Most people will move 2-3 times during their life, very, very few buy their 'forever' home as their first purchase so assuming £450k will find you something you are 'happy with now' IMO no real reason not to buy now.

Thrugelmir

fun4everyone wrote: »

Global stocks have beaten property (even London) soundly over any reasonable timeframe.

Not strictly true. Nikkei still languishes.