London property vs investments

steampowered

Don't invest in a property to let out. That would be a really stupid thing to do:
- You'll pay a higher rate on a BTL mortgage than a residential mortgage.
- You'll pay more income tax.
- You'll pay higher rate stamp duty when you buy a property of your own.
- Your financial situation is not sufficiently secure to deal with (for example) bad tenants.

Depending on your personal situation, buying a property to live in could be a good idea. It'll save you the rent and acts as a leveraged investment at incredibly cheap borrowing rates.

If you are not quite sure where you want to live, or can't quite afford the house you want just yet, you'll be better off waiting. There are "sunk costs" each time you move such as stamp duty and conveyancing fees.

The max property you can afford right now is about £450k, it might be worth waiting until you are on a higher salary.

steampowered

MaxiRobriguez wrote: »

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.

While this is true:

- The chance of such a dramatic drop is very low. As this graph shows, the statistical probability of making a loss on an investment held over 5 years is about 8%.
- If such a dramatic drop did happen, the Op could simply wait until prices have recovered to an acceptable level. The Op is young and has time on his side.
- If such a dramatic drop did happen, it is likely that house prices would drop too.
- The "opportunity cost" of being out of the market for 5 years is significant and would be likely to mean losing cash which the Op could be putting towards his deposit.

All in all, I think the "risk/reward" is in favour of remaining invested, at least until the Op decides more firmly when and where he wants to buy a property.

bostonerimus

You should emphasise all the usual reasons to buy a first home ie security, having somewhere to live that you like, maybe start a family etc. Investment should be very low on the list. Also if you have the money earmarked for a property then keep it in the bank, don't risk losing money.

Notepad_Phil

If I was in your position then I'd sell the bonds now and look to buy as soon as possible for somewhere to live in - then put the money that was previously used for rent into long term investments e.g. pension.

Mrs_Z

Hi,
In your situation I would be looking to buy your own home. My reasoning for this would be no other than 'sort yourself a roof over your head before thinking of investments'.
Mortgage rates are low at present, property market is pointing down - this makes it an excellent buyers' market.
It might not be necessary to cash in all your bonds if you go for the highest mortgage they give you (pro's and cons with this approach - you'd need to think through the opportunity vs risk).
If you were able to get into the property ladder with a 2 bed property - you could then take in a lodger - there's tax freebie (rent a room) there, not to mention extra income towards your mortgage. Downside of course would be having to share...

Malthusian

Sashkinson wrote: »

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).

What kind of bonds?

If they're insurance bonds you need to ensure you aren't paying unnecessary tax by cashing them all in at once.

Why the five year timescale for buying a house when you can comfortably afford one now?

- min pension contribution (will increase in line with salary)

Would your employer increase their contributions if you increased your own contribution? If so you should stop working for free and increase your contributions until the employer's are maxed out.

You should look at increasing your contributions again when your salary goes above the higher rate threshold.

Clive_Woody

Personally I would get on the housing ladder ASAP and stop paying rent (i.e. paying someone else's mortgage). With that money you aren't getting a palace in London but should be able to find something nice and then every month your payment goes towards paying for the property you will eventually own.

The other advantage of buying in London is that should you ever choose to move to a different area of the UK you will almost certainly be getting an "upgrade" based on property prices, or releasing some cash.

There's plenty of time to up your pension contributions (highly recommended) and add more into ISAs.

Crashy_Time

Sashkinson wrote: »

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.

Move out of London, get a 44k job somewhere else and concentrate properly on investment, the cost of living in London is horrendous (for property and alcohol anyway) people look hollowed out and more and more robotic each year as the skyline becomes even more stuffed with debt bubble vanity projects and the banks tower over the spectacle like Overlords in some 1950`s dystopian fiction. Free yourself! What would you get for 250k in London just now anyway, an ex crack den?

bowlhead99

Crashy_Time wrote: »

Free yourself! What would you get for 250k in London just now anyway, an ex crack den?

A modest home and easy commuter access to a job that pays £44k with your current skill set and experience with a 5-15k pay rise in the next year and a half.

MaxiRobriguez

bowlhead99 wrote: »

A modest home

Spotted the estate agent!