Property investing vs Lifetime ISA

Jae14

Hi, 

Long query but please stick with it.
The interest paid overtime on mortgages makes me feel sick. I have £10000 already in my LISA but I am planning on going self-employed from Jan so I need to make a decision r.e. housing now (i.e. get a mortgage or move in with the rents for a few years). In the longer term (e.g. around 5 years), am I financially better at continuing with LISA savings (£4000/yr with the £1000 bonus plus interest) or would I be better off investing in property now with inflation and getting my own place? If not investing in property, I would be trying to work up to £20000 savings in the highest available normal savings account over several years so that I could use the £1000 tax free interest to feed back into the LISA so I'd eventually only have to contribute £3000 per year to max the benefits from the LISA - all depending on the interest rate fluctuation ofcourse. I am not sure if this is a good approach, or a stupid approach in the long term? 

Zanderman

That all depends on a huge host of other factors. Can you actually afford anywhere at present? What sort of price range (relative to LISA value)? Where would you be buying and are property prices dropping there at present or not (it might be a great time to buy now, or it might not be)? How many years would it take to build up that 20k savings trying to earn £1k annually to feed a LISA? How many years might you be keeping up the LISA if you don't buy now? What circumstances would prompt you to stop the LISAs and buy? Will LISAs still exist in a few years time (governments, and these concepts, come and go)? Whether LISA bonuses are worth it depends on all that. A few years of LISAs, generating just a few £1k bonuses, might make little difference for properties worth several hundred k. But might make a big difference for cheaper property and, if kept for decades, for bigger property. But it all depends on you and your circumstances. And on LISAs continuing indefinitely.

As for mortgage interest over time making you feel sick, just be glad this isn't the late 1980s/early 1990s when rates rose as high as 16%. That made a lot of people quite ill.

boingy

If you can afford it and you are planning to stay in the same place for a decent amount of time then buying now would probably make most sense. The LISA bonus is nice but not worth delaying your plans for imo.

You say you are going self-employed from Jan (I presume Jan 2025?). Are you sure you'll earn enough to cover a mortgage after you have set aside money for taxes and pension? 

The other thing about self-employment is that it can be trickier to get a mortgage in the first few years. Lenders want to see evidence of reliable earnings and that usually means wanting to see 3 or 4 years of accounts. Something to bear in mind.

And, yes, we had a mortgage in September 1992 when, in a single day, rates went from 10% to 12% and then to 15% because of the UK's ERM commitments. That made a few people feel sick and more than a few grown men cry. Rates were back to 10% the next day but it's a day no mortgage holder will ever forget. 

Middle_of_the_Road

Jae14 said:

Hi, 
The interest paid overtime on mortgages makes me feel sick. 

It can feel like you're payments are just covering interest on the mortgage, but equally money paid for renting a home would be money lost with nothing to show for it.