First time house purchase and finances. Am I being sensible?

Dimension_

demontfort said:

I was in a similar financial position to you in 2013 when I was 35. I worked and still work in finance, was on £70k base at the time and bought my first place at 65% LTV. However the numbers were very different, I paid £240k for a 2 bed flat in London and put in approx 80k (about half my savings) and borrowed £160k, in hindsight I wished I had been more ambitious and bought somewhere nicer for £300k. However I have been able to pay down my mortgage quickly, have invested the rest of my savings and got a decent return and then bought a house outside London 2 years ago and kept my flat.

The numbers you are quoting send a shiver down my spine. Putting all your savings in the London property market and maxing out on your mortgage just as we're lurching into a recession is too risky. I'd buy something smaller for about £400k  at 70% or 80% LTV to take advantage of the ultra cheap financing then you'll have plenty of savings left to help pay down your mortgage or make a much easier transition to your next property in a few years. I'm sure working in finance you understand the value of liquidity whereas having all you cash tied up in a house and a huge debt will severely limit your options

I know there is an element of risk, but i would think in the long term, say over a 5 year horizon, property prices are more likely to increase. Buying somewhere that i can extend/modernise/fit a new kitchen/bathroom would help create a bit of a buffer to price falls as i can do a lot of the work myself and help of friends in the trade. With this in mind, i feel like it is less of a risk. Also, i am buying to live in, rather than an investment, so whilst timing a purchase perfectly is nigh on impossible, i do think that i shouldn't be put off if i find a house that ticks all my boxes. I do however share the concerns you raise. 

The other issue is, if i keep a significant amount of cash to hand, it would need to be invested somewhere rather than in the bank given the asset price inflation we should be expecting. Investing in the stock market takes time to allocate and actively manage - this comes with some stress and the potential for poor decisions! I'm not sure what else i could do with this cash given returns elsewhere are not great. 

Crashy_Time

Dimension_ said:

demontfort said:

I was in a similar financial position to you in 2013 when I was 35. I worked and still work in finance, was on £70k base at the time and bought my first place at 65% LTV. However the numbers were very different, I paid £240k for a 2 bed flat in London and put in approx 80k (about half my savings) and borrowed £160k, in hindsight I wished I had been more ambitious and bought somewhere nicer for £300k. However I have been able to pay down my mortgage quickly, have invested the rest of my savings and got a decent return and then bought a house outside London 2 years ago and kept my flat.

The numbers you are quoting send a shiver down my spine. Putting all your savings in the London property market and maxing out on your mortgage just as we're lurching into a recession is too risky. I'd buy something smaller for about £400k  at 70% or 80% LTV to take advantage of the ultra cheap financing then you'll have plenty of savings left to help pay down your mortgage or make a much easier transition to your next property in a few years. I'm sure working in finance you understand the value of liquidity whereas having all you cash tied up in a house and a huge debt will severely limit your options

I know there is an element of risk, but i would think in the long term, say over a 5 year horizon, property prices are more likely to increase. Buying somewhere that i can extend/modernise/fit a new kitchen/bathroom would help create a bit of a buffer to price falls as i can do a lot of the work myself and help of friends in the trade. With this in mind, i feel like it is less of a risk. Also, i am buying to live in, rather than an investment, so whilst timing a purchase perfectly is nigh on impossible, i do think that i shouldn't be put off if i find a house that ticks all my boxes. I do however share the concerns you raise. 

The other issue is, if i keep a significant amount of cash to hand, it would need to be invested somewhere rather than in the bank given the asset price inflation we should be expecting. Investing in the stock market takes time to allocate and actively manage - this comes with some stress and the potential for poor decisions! I'm not sure what else i could do with this cash given returns elsewhere are not great. 

What area of finance do you work in? What are you expecting to be the trigger for more asset price inflation (I assume you mean property)?

Salemicus

You could just buy an index fund. Unless you have some special sauce, likely to beat active management anyway. 

Dimension_

Crashy_Time said:

Dimension_ said:

demontfort said:

I was in a similar financial position to you in 2013 when I was 35. I worked and still work in finance, was on £70k base at the time and bought my first place at 65% LTV. However the numbers were very different, I paid £240k for a 2 bed flat in London and put in approx 80k (about half my savings) and borrowed £160k, in hindsight I wished I had been more ambitious and bought somewhere nicer for £300k. However I have been able to pay down my mortgage quickly, have invested the rest of my savings and got a decent return and then bought a house outside London 2 years ago and kept my flat.

The numbers you are quoting send a shiver down my spine. Putting all your savings in the London property market and maxing out on your mortgage just as we're lurching into a recession is too risky. I'd buy something smaller for about £400k  at 70% or 80% LTV to take advantage of the ultra cheap financing then you'll have plenty of savings left to help pay down your mortgage or make a much easier transition to your next property in a few years. I'm sure working in finance you understand the value of liquidity whereas having all you cash tied up in a house and a huge debt will severely limit your options

I know there is an element of risk, but i would think in the long term, say over a 5 year horizon, property prices are more likely to increase. Buying somewhere that i can extend/modernise/fit a new kitchen/bathroom would help create a bit of a buffer to price falls as i can do a lot of the work myself and help of friends in the trade. With this in mind, i feel like it is less of a risk. Also, i am buying to live in, rather than an investment, so whilst timing a purchase perfectly is nigh on impossible, i do think that i shouldn't be put off if i find a house that ticks all my boxes. I do however share the concerns you raise. 

The other issue is, if i keep a significant amount of cash to hand, it would need to be invested somewhere rather than in the bank given the asset price inflation we should be expecting. Investing in the stock market takes time to allocate and actively manage - this comes with some stress and the potential for poor decisions! I'm not sure what else i could do with this cash given returns elsewhere are not great. 

What area of finance do you work in? What are you expecting to be the trigger for more asset price inflation (I assume you mean property)?

Well, all this money the government are dishing out has to go somewhere and it looks like some of it has gone to real estate and the stock market. The area of finance i work in is not relevant to my personal opinion. 

Even as a first time buyer and despite wishing for there to be a correction in house prices, there is no denying that they have not fallen in the areas i am looking at. Perhaps this year that will change, but it's not looking good. Not yet anyway. 

Dimension_

Salemicus said:

You could just buy an index fund. Unless you have some special sauce, likely to beat active management anyway. 

I will be honest and say i haven't really considered an index fund. I know how ridiculous that sounds. I think this is mostly because my experience in investing has only ever been buying shares myself and i haven't done too badly.  But i have not been able to spend as much time looking at where to invest more recently and before i knew it, a few years had passed by. I do appreciate the obvious suggestion however, its such a no brainer the more i think about it!

Crashy_Time

Dimension_ said:

Crashy_Time said:

Dimension_ said:

demontfort said:

I was in a similar financial position to you in 2013 when I was 35. I worked and still work in finance, was on £70k base at the time and bought my first place at 65% LTV. However the numbers were very different, I paid £240k for a 2 bed flat in London and put in approx 80k (about half my savings) and borrowed £160k, in hindsight I wished I had been more ambitious and bought somewhere nicer for £300k. However I have been able to pay down my mortgage quickly, have invested the rest of my savings and got a decent return and then bought a house outside London 2 years ago and kept my flat.

The numbers you are quoting send a shiver down my spine. Putting all your savings in the London property market and maxing out on your mortgage just as we're lurching into a recession is too risky. I'd buy something smaller for about £400k  at 70% or 80% LTV to take advantage of the ultra cheap financing then you'll have plenty of savings left to help pay down your mortgage or make a much easier transition to your next property in a few years. I'm sure working in finance you understand the value of liquidity whereas having all you cash tied up in a house and a huge debt will severely limit your options

I know there is an element of risk, but i would think in the long term, say over a 5 year horizon, property prices are more likely to increase. Buying somewhere that i can extend/modernise/fit a new kitchen/bathroom would help create a bit of a buffer to price falls as i can do a lot of the work myself and help of friends in the trade. With this in mind, i feel like it is less of a risk. Also, i am buying to live in, rather than an investment, so whilst timing a purchase perfectly is nigh on impossible, i do think that i shouldn't be put off if i find a house that ticks all my boxes. I do however share the concerns you raise. 

The other issue is, if i keep a significant amount of cash to hand, it would need to be invested somewhere rather than in the bank given the asset price inflation we should be expecting. Investing in the stock market takes time to allocate and actively manage - this comes with some stress and the potential for poor decisions! I'm not sure what else i could do with this cash given returns elsewhere are not great. 

What area of finance do you work in? What are you expecting to be the trigger for more asset price inflation (I assume you mean property)?

Well, all this money the government are dishing out has to go somewhere and it looks like some of it has gone to real estate and the stock market. The area of finance i work in is not relevant to my personal opinion. 

Even as a first time buyer and despite wishing for there to be a correction in house prices, there is no denying that they have not fallen in the areas i am looking at. Perhaps this year that will change, but it's not looking good. Not yet anyway. 

I think PropertyLog is your friend in these situations, it just takes one seller to smell the coffee and a whole area can start to see price reality.

Crashy_Time

Dimension_ said:

Crashy_Time said:

Dimension_ said:

demontfort said:

I was in a similar financial position to you in 2013 when I was 35. I worked and still work in finance, was on £70k base at the time and bought my first place at 65% LTV. However the numbers were very different, I paid £240k for a 2 bed flat in London and put in approx 80k (about half my savings) and borrowed £160k, in hindsight I wished I had been more ambitious and bought somewhere nicer for £300k. However I have been able to pay down my mortgage quickly, have invested the rest of my savings and got a decent return and then bought a house outside London 2 years ago and kept my flat.

The numbers you are quoting send a shiver down my spine. Putting all your savings in the London property market and maxing out on your mortgage just as we're lurching into a recession is too risky. I'd buy something smaller for about £400k  at 70% or 80% LTV to take advantage of the ultra cheap financing then you'll have plenty of savings left to help pay down your mortgage or make a much easier transition to your next property in a few years. I'm sure working in finance you understand the value of liquidity whereas having all you cash tied up in a house and a huge debt will severely limit your options

I know there is an element of risk, but i would think in the long term, say over a 5 year horizon, property prices are more likely to increase. Buying somewhere that i can extend/modernise/fit a new kitchen/bathroom would help create a bit of a buffer to price falls as i can do a lot of the work myself and help of friends in the trade. With this in mind, i feel like it is less of a risk. Also, i am buying to live in, rather than an investment, so whilst timing a purchase perfectly is nigh on impossible, i do think that i shouldn't be put off if i find a house that ticks all my boxes. I do however share the concerns you raise. 

The other issue is, if i keep a significant amount of cash to hand, it would need to be invested somewhere rather than in the bank given the asset price inflation we should be expecting. Investing in the stock market takes time to allocate and actively manage - this comes with some stress and the potential for poor decisions! I'm not sure what else i could do with this cash given returns elsewhere are not great. 

What area of finance do you work in? What are you expecting to be the trigger for more asset price inflation (I assume you mean property)?

Well, all this money the government are dishing out has to go somewhere and it looks like some of it has gone to real estate and the stock market. The area of finance i work in is not relevant to my personal opinion. 

Even as a first time buyer and despite wishing for there to be a correction in house prices, there is no denying that they have not fallen in the areas i am looking at. Perhaps this year that will change, but it's not looking good. Not yet anyway. 

No, but it could be relevant to having basic knowledge of alternatives to a totally illiquid asset priced on the back of the biggest debt bubble in history?
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