Investing instead of buying a flat or house

tiger135

If you are single, can afford to live on your wages (renting/lodging) but have a lump sum in the
bank... is there an argument to be had to stay put, keep growing the lump sum and not rush into buying a property?
Especially with mortgage rates high and savings rates good?
When anyone heard of my situation they automatically advise I should be buying a property for myself, using up most of my lump sum. 
I just wonder if theres some sense in holding out of the property commitment, and letting the money grow in index funds.
As I said, I can manage my living costs via my wages so I dont have to dip into my lump sum.
The lump sum is close to 200 k currently so interest is growing nicely at over 500 per month.
I have no commitments, no kids no partner.
Any advice welcome.

masonic

I thought this was going to be a question about investing the lump sum rather than continuing to save it. I find the following calculator to be quite useful in comparing the two scenarios: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
It is US-focused, so contains some things we don't need to worry about over this side of the pond, but you can ignore the currency symbol and complete everything in £, and it gives you a fair guide based on your estimates of rates, inflation, house price growth etc.

Linton

Owning you own home should not primarily be seen as an investment but rather as a means of providing you with long term security and stability.  If that is what you want in your life buy a home, if not don't.

If you are asking whether if you invest your money for some period you will be in a better position to buy the home you want, who knows?  It is a risk. Best I believe is that you spend some time finding the type of home you want in the location where you wuld like to live at a price you can afford and having found the right one act quickly to make sure you get it.

Albermarle

tiger135 said:

If you are single, can afford to live on your wages (renting/lodging) but have a lump sum in the
bank... is there an argument to be had to stay put, keep growing the lump sum and not rush into buying a property?
Especially with mortgage rates high and savings rates good?
When anyone heard of my situation they automatically advise I should be buying a property for myself, using up most of my lump sum. 
I just wonder if theres some sense in holding out of the property commitment, and letting the money grow in index funds.
As I said, I can manage my living costs via my wages so I dont have to dip into my lump sum.
The lump sum is close to 200 k currently so interest is growing nicely at over 500 per month.
I have no commitments, no kids no partner.
Any advice welcome.

In the title you mention investing, which is usually seen as meaning putting you money in risk based funds, such as those linked to the stock market.
Then you mention that savings rates are good.
Then you mention 'letting the money grow in index funds'
Then you say you are earning £500 in interest per month.
So are you looking at saving or investing ?

In reality if you go down this path but think you might want to buy a property in the next few years, investing is not a good idea as in the relatively short term as the value may go down.

I agree with @Linton that a home should not be seen primarily as an investment.
However in your position, with reasonable savings rates and house prices predicted to keep weakening for another 12 months ?, I would not be rushing in at this moment.
Although the property buying process can be quite fraught and long winded, even for a cash buyer, so timing is a bit tricky.
Looking at this forum could be useful
House buying, renting & selling — MoneySavingExpert Forum

Kaizen917

You are probably in a strange spot where you are technically able to afford a very decent deposit but would still cost a fortune to pay a mortgage of the sizes we get to see today. This would literally put you in a situation from potentially getting quite decent compounding gains on your money to having a large debt doing the compounding against you.

I would say there is some sense to wait a bit as I just cant imagine the current property market doesnt readjust (if current rates are here to stay, these prices will be pressured to go down a bit). But still, if I were in your place, I wouldnt put this off forever given that it would get you rent free as well.

boingy

No-one can say how house prices and mortgage rates will perform compared with stock markets.

For a younger version of me it would come down to my future plans. If I think I will move jobs/location in the next few years I'd stay renting, otherwise I'd be looking to buy. Ask yourself whether you want to be renting in 5, 10, 20 years from now. 

p00hsticks

tiger135 said:

The lump sum is close to 200 k currently so interest is growing nicely at over 500 per month.

How does that figure compare with what you are currently paying in rent ?

Altior

The obvious problem is timing. Property prices are generally inverse to borrowing rates. Ergo, they've boomed since the GFC due to effective zero borrowing costs. We are now just entering a period where borrowing has a tangible cost again, so we can expect to see property depressed for a while. If we hit a period of low/zero effective borrowing rates, the cost of property will rise again. 

It's obvious, but perhaps worthwhile pointing out that the general buying power of your lump sum is diminishing over time, even though the total is growing with the receipt of interest, it is being outpaced by inflation. That may flip in the near future, but one senses the direction of travel is to squeeze the option of generating unearned income, unabated. 

Brie

I've known a couple for a very long time who said they would never buy a place as it was better to rent and have their money stashed away collecting interest.  Then their landlady told them to move as she was selling and after a long spell finally found a place to move to that they liked and was convenient for their lives.  15 months later the new landlady decided to sell so they had to look at moving again.  So now they have finally bought a place as they don't want to keep having to move.  

Kaizen917

Brie said:

I've known a couple for a very long time who said they would never buy a place as it was better to rent and have their money stashed away collecting interest.  Then their landlady told them to move as she was selling and after a long spell finally found a place to move to that they liked and was convenient for their lives.  15 months later the new landlady decided to sell so they had to look at moving again.  So now they have finally bought a place as they don't want to keep having to move.  

Its a shame that this whole mess with the property market is pushing people into having to buy.One think I came to regret when I got my house was that I no longer had the flexibility to look up a place closer to work and just move there.It wasnt long ago when this used to be a pretty valid perk of renting.

friolento

p00hsticks said:

tiger135 said:

The lump sum is close to 200 k currently so interest is growing nicely at over 500 per month.

How does that figure compare with what you are currently paying in rent ?

Is it before or after tax on the interest?