Borrowing vs Cash Buying? Leasehold vs House

jake_jones99

Hi everyone!

A new cash buyer with a few dilemmas here. 

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals.

2. I was told repeatedly that freehold houses are much better investments. However, my reasoning is the following:
    A. I want to avoid borrowing
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

Thanks everyone!!

dimbo61

So your currently Renting a flat from a Landlord 
You also have Thousands of pounds in the bank which you could use to buy the flat without a mortgage.
Are you working ?
Do you want to continue living in the flat when you might be able to buy a house with a Garden, Garage or parking.
2/3 bedrooms and more space !
Your own front door with No neighbours above or below you 
Only you can decide

canaldumidi

jake_jones99 said:

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals. His motives are irrelevant. Make up your own mind about the pros/cons of cash Vs mortgage!

2. I was told repeatedly that freehold houses are much better investments. By your landlord? Seems strange - surely he wants you to buy his flat!? If not him, who?

However, my reasoning is the following:
    A. I want to avoid borrowing Seems sensible if you can afford it in a time of rising interest rates.
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

Rubbish. What makes you think property prices will decrease?
3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

You need to decide if you want to live in a flat, with all the implications of flat ownership (shared space, ground rent/service charges, lease lengths, relationships with neighbours &  freeholder/management company etc) or house ownership, with all the implications of freehold ownership (personal responsibility, no sharing of costs, no lease etc)

Some of this is a financial decision, some of it is a lifestyle choice.

edit: an alterative way to approach this would be to get a mortgage and put your cash into pension contributions which is very tax efficient.

ikcdab

jake_jones99 said:

Hi everyone!

A new cash buyer with a few dilemmas here. 

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals.

2. I was told repeatedly that freehold houses are much better investments. However, my reasoning is the following:
    A. I want to avoid borrowing
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

Thanks everyone!!

Obviously it's your decision.  But putting all of your spare cash into buying the house ties it up and denies you flexibility.  A mortgage gives you flexibility and you can pay off larger sums as you wish.
If you can get a really cheap mortgage deal and if you are earning a higher percentage on your savings then go for a mortgage. I might be tempted to go 50/50.  Ie a mortgage with a big cash deposit.

Doozergirl

I would not buy a flat, not even outright, if I could have a house with a mortgage.

There isn't enough control over what happens, how much works cost, whether other leaseholders pay up etc even if you take the right to manage or buy a share of freehold.  It's a constant headache. 

That's without the potential issues that come with having more neighbours than you would with a house. 

Have owned flats in London and been a freeholder of a block of flat too, so I speak from experience.  So much easier with a house, even if the house is leasehold - it's all your own business. 


 

jake_jones99

dimbo61 said:

So your currently Renting a flat from a Landlord 
You also have Thousands of pounds in the bank which you could use to buy the flat without a mortgage.
Are you working ?
Do you want to continue living in the flat when you might be able to buy a house with a Garden, Garage or parking.
2/3 bedrooms and more space !
Your own front door with No neighbours above or below you 
Only you can decide

Yes I am working. Honestly I live alone so living in a flat makes it better. When me and my S.O. decide to move together I would probably prefer a house.

jake_jones99

canaldumidi said:

jake_jones99 said:

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals. His motives are irrelevant. Make up your own mind about the pros/cons of cash Vs mortgage!

2. I was told repeatedly that freehold houses are much better investments. By your landlord? Seems strange - surely he wants you to buy his flat!? If not him, who?

However, my reasoning is the following:
    A. I want to avoid borrowing Seems sensible if you can afford it in a time of rising interest rates.
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

Rubbish. What makes you think property prices will decrease?
3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

You need to decide if you want to live in a flat, with all the implications of flat ownership (shared space, ground rent/service charges, lease lengths, relationships with neighbours &  freeholder/management company etc) or house ownership, with all the implications of freehold ownership (personal responsibility, no sharing of costs, no lease etc)

Some of this is a financial decision, some of it is a lifestyle choice.

edit: an alterative way to approach this would be to get a mortgage and put your cash into pension contributions which is very tax efficient.

Currently part of my cash are in a Stocks and Shares ISA. I made some profit during the 2020 upturn of the market, and I am in a limbo now as I would partly want to put my money in a property and stop worrying about it. I guess Stocks and Shares is a bit like the pension fund where you don't pay tax on anything, but it only makes sense if you keep investing.
I agree it's partly lifestyle. I don't want to live forever in a flat, but I currently live by myself so I would probably prefer a flat not to be too isolated from the world. And if I were to live in one, it would only be for a couple of years to save some of the rent money. But then again a drop in capital would be a bigger hit.

jake_jones99

canaldumidi said:

jake_jones99 said:

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals. His motives are irrelevant. Make up your own mind about the pros/cons of cash Vs mortgage!

2. I was told repeatedly that freehold houses are much better investments. By your landlord? Seems strange - surely he wants you to buy his flat!? If not him, who?

However, my reasoning is the following:
    A. I want to avoid borrowing Seems sensible if you can afford it in a time of rising interest rates.
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

Rubbish. What makes you think property prices will decrease?
3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

You need to decide if you want to live in a flat, with all the implications of flat ownership (shared space, ground rent/service charges, lease lengths, relationships with neighbours &  freeholder/management company etc) or house ownership, with all the implications of freehold ownership (personal responsibility, no sharing of costs, no lease etc)

Some of this is a financial decision, some of it is a lifestyle choice.

edit: an alterative way to approach this would be to get a mortgage and put your cash into pension contributions which is very tax efficient.

Property prices do decrease from time to time for a good couple of years. E.g., in the graph below, if you bought in Sept 2007, it took 7 years to get your money back, not accounting inflation. I don't want to sound off-putting, but this is a potential scenario one should be braced for. If you want to live for the rest of your life there probably it won't matter. 

london21

jake_jones99 said:

Hi everyone!

A new cash buyer with a few dilemmas here. 

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals.

2. I was told repeatedly that freehold houses are much better investments. However, my reasoning is the following:
    A. I want to avoid borrowing
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

Thanks everyone!!

Personally prefer a house freehold to flat leasehold.

Majority of people opt for flats due to affordability but the service charge and other fees can be off putting.

Also will prefer a mortgage with a large deposit compared to 100% cash purchase due to leverage. So for example 60% mortgage and 40% cash, will get a decent interest rate with LTV and in the future can overpay by 10% for example.

House could give the option of garden outside space and parking.

jake_jones99

london21 said:

jake_jones99 said:

Hi everyone!

A new cash buyer with a few dilemmas here. 

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals.

2. I was told repeatedly that freehold houses are much better investments. However, my reasoning is the following:
    A. I want to avoid borrowing
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

Thanks everyone!!

Personally prefer a house freehold to flat leasehold.

Majority of people opt for flats due to affordability but the service charge and other fees can be off putting.

Also will prefer a mortgage with a large deposit compared to 100% cash purchase due to leverage. So for example 60% mortgage and 40% cash, will get a decent interest rate with LTV and in the future can overpay by 10% for example.

House could give the option of garden outside space and parking.

Hi! Thanks for the reply. Can you please give more details on "will get a decent interest rate with LTV". Are you implying you would invest the 60% and get a better return than the bank interest rate? What would be your first choices that would "beat" putting the 60% in the property?

london21

jake_jones99 said:

london21 said:

jake_jones99 said:

Hi everyone!

A new cash buyer with a few dilemmas here. 

1. I live in a flat. I met my landlord to discuss buying the apartment. It put me off that he suggested I shouldn't buy cash, but get a mortgage and invest my money. Do you think he suggested this in good faith? As it would be his interest to just get the cash and not wait for mortgage approvals.

2. I was told repeatedly that freehold houses are much better investments. However, my reasoning is the following:
    A. I want to avoid borrowing
    B. House prices went up very fast recently, with a chance of going down due to income squeeze. Apartments increased much less. Then if the property decreases, you lose        less with an apartment.

3. I am confused by the house trends on Rightmove. If I go on Rightmove to House Prices -> Market trends, it shows that the average apartment in my area is about the same now as in 2005. However if you look at individual ones they went up by a lot. Does that make any sense? Do you know if they correct the price with inflation?

Thanks everyone!!

Personally prefer a house freehold to flat leasehold.

Majority of people opt for flats due to affordability but the service charge and other fees can be off putting.

Also will prefer a mortgage with a large deposit compared to 100% cash purchase due to leverage. So for example 60% mortgage and 40% cash, will get a decent interest rate with LTV and in the future can overpay by 10% for example.

House could give the option of garden outside space and parking.

Hi! Thanks for the reply. Can you please give more details on "will get a decent interest rate with LTV". Are you implying you would invest the 60% and get a better return than the bank interest rate? What would be your first choices that would "beat" putting the 60% in the property?

What i mean is that the interest rate on a 90% LTV compared to a 60%  LTV mortgage.

The rates are usually better the higher the deposit.

Interest rates were previously really cheap, now slowly going up so for me personally would be looking at 5 years considering not looking to move in the short term.

Will depend on the cost of the loan, but generally i like to diversify than put all money in 1 property because property is not very liquid in the short term.

I will invest cautiously , lower cost index funds long term due to short term fluctuations.