£200k inheritance, property ladder or not?

kempiejon

[Deleted User] said:

I think this depends on the area.

In my area a property to rent for 1500 pcm, is about 400k to buy. Mortgage interest would be approaching 1000 per month on a 200k loan.

So as long as you can access a mortgage interest rate of under 4.5%, the buying is probably the best option.

Area? Not in my experience. Can we now get mortgages of under 4.5% I'm not in the market? I can access investments of >5%  I'd be better off sticking the 200k in that. Of course you can't get a mortgage without a deposit. But the balance after deposit? I think it's a fine balance for some. All the posited sum in the OP doesn't need to go to a property. I think it could help with wealth maximisation if it doesn't.

[Deleted User]

kempiejon said:

[Deleted User] said:

I think this depends on the area.

In my area a property to rent for 1500 pcm, is about 400k to buy. Mortgage interest would be approaching 1000 per month on a 200k loan.

So as long as you can access a mortgage interest rate of under 4.5%, the buying is probably the best option.

Area? Not in my experience. Can we now get mortgages of under 4.5% I'm not in the market? I can access investments of >5%  I'd be better off sticking the 200k in that. Of course you can't get a mortgage without a deposit. But the balance after deposit? I think it's a fine balance for some. All the posited sum in the OP doesn't need to go to a property. I think it could help with wealth maximisation if it doesn't.

At 60% LTV the best quotes I can get are 4.1% but I don't know if OP can access such a rate, particularly if they only use a portion of the money for a house deposit.

Herzlos

ReadySteadyPop said:

Herzlos said:

shinytop said:

S&S are liquid but can be very volatile, even 'safe' investments like trackers. And if there is a house price crash, isn't there likely to be a S&S crash too?    

Bingo. It's very unlikely that house prices will crash by enough to matter without hurting other investments.

However, if you own property and aren't planning on moving, you're not going to suffer any actual loss beyond maybe not getting a better mortgage deal with the higher LTV.

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

https://www.bbc.co.uk/news/articles/c78631e4gygo

Keep liquid funds available in case of job loss or other emergency would be my advice.

Why? You keep jumping on anything with a headline that looks bad for the economy as to why having cash and paying rent is better than buying, but you never actually explain anything.

I can get that you want to keep some kind of buffer to handle job loss / emergency, but £200k is excessive. Putting £150k into a house and keeping £50k for emergencies would still leave them better off than most of the country.

 I am talking about building wealth not "emergency money", better to keep the full 200k in a more liquid investment vehicle and have it creating interest/dividends for you while the landlord pays for roof repairs new boilers etc.

What kind of yield do you need where you're making a profit after paying rent? The math just doesn't work.

If it was £2.5m then the interest would allow you to rent anywhere you wanted, but £250k doesn't.

If you invest the 200k into property at the wrong time the maths doesn`t work either though, and we are not talking about immediate profit we are talking about building a sensible savings/investment portfolio, liquid and diversified, that will yield income in the future, you can`t really do that with property unless you sell and downsize, rent out (you have to live somewhere else though) take in lodgers (bad idea in my opinion) or MEW (shockingly bad and expensive option) and it is harder to quantify future property income, it is really a punt on finding a future buyer when you need to unlock some money, stocks, bonds, MMF`s, savings accounts are easier to figure out as far as expected regular income.

Even the experts are telling us to be careful.....

https://propertyindustryeye.com/uk-house-price-currently-out-of-sync-with-economic-reality-as-budget-cracks-start-to-appear/

Can you run through an example of buying at the wrong time and how it doesn't work out?

Because I bought at exactly the wrong time - months before the 2007 crash, I spent £120k on a house valued at £90k months later, and it worked out great for me, because my mortgage was less than the equivalent rent, and when I sold it 10 years later I had a huge chunk of equity to go towards my new house, that I couldn't have afforded otherwise because the deposit was more than my annual salary.

Yes, I was technically under water on the mortgage for a few years, but since I wasn't moving anyway it wasn't a concern.

Would I have saved a fortune if I bought 6 months later? No, because the bank probably wouldn't have approved the mortgage due to the market risks.

You're also going to really struggle to find any kind of investment fund that isn't in some way tied to property prices or be immune to a market crash.

You're also forgetting that you need to live somewhere. If you can find somewhere long term to rent that's cheaper than an equivalent mortgage then that'd make sense, but the landlord is going to be making a profit somewhere and that's money you'll never get back so is virtually impossible.

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

Herzlos said:

shinytop said:

S&S are liquid but can be very volatile, even 'safe' investments like trackers. And if there is a house price crash, isn't there likely to be a S&S crash too?    

Bingo. It's very unlikely that house prices will crash by enough to matter without hurting other investments.

However, if you own property and aren't planning on moving, you're not going to suffer any actual loss beyond maybe not getting a better mortgage deal with the higher LTV.

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

https://www.bbc.co.uk/news/articles/c78631e4gygo

Keep liquid funds available in case of job loss or other emergency would be my advice.

Why? You keep jumping on anything with a headline that looks bad for the economy as to why having cash and paying rent is better than buying, but you never actually explain anything.

I can get that you want to keep some kind of buffer to handle job loss / emergency, but £200k is excessive. Putting £150k into a house and keeping £50k for emergencies would still leave them better off than most of the country.

 I am talking about building wealth not "emergency money", better to keep the full 200k in a more liquid investment vehicle and have it creating interest/dividends for you while the landlord pays for roof repairs new boilers etc.

What kind of yield do you need where you're making a profit after paying rent? The math just doesn't work.

If it was £2.5m then the interest would allow you to rent anywhere you wanted, but £250k doesn't.

If you invest the 200k into property at the wrong time the maths doesn`t work either though, and we are not talking about immediate profit we are talking about building a sensible savings/investment portfolio, liquid and diversified, that will yield income in the future, you can`t really do that with property unless you sell and downsize, rent out (you have to live somewhere else though) take in lodgers (bad idea in my opinion) or MEW (shockingly bad and expensive option) and it is harder to quantify future property income, it is really a punt on finding a future buyer when you need to unlock some money, stocks, bonds, MMF`s, savings accounts are easier to figure out as far as expected regular income.

Even the experts are telling us to be careful.....

https://propertyindustryeye.com/uk-house-price-currently-out-of-sync-with-economic-reality-as-budget-cracks-start-to-appear/

Can you run through an example of buying at the wrong time and how it doesn't work out?

Because I bought at exactly the wrong time - months before the 2007 crash, I spent £120k on a house valued at £90k months later, and it worked out great for me, because my mortgage was less than the equivalent rent, and when I sold it 10 years later I had a huge chunk of equity to go towards my new house, that I couldn't have afforded otherwise because the deposit was more than my annual salary.

Yes, I was technically under water on the mortgage for a few years, but since I wasn't moving anyway it wasn't a concern.

Would I have saved a fortune if I bought 6 months later? No, because the bank probably wouldn't have approved the mortgage due to the market risks.

You're also going to really struggle to find any kind of investment fund that isn't in some way tied to property prices or be immune to a market crash.

You're also forgetting that you need to live somewhere. If you can find somewhere long term to rent that's cheaper than an equivalent mortgage then that'd make sense, but the landlord is going to be making a profit somewhere and that's money you'll never get back so is virtually impossible.

Different market, if you have been following the moves in UK/Japan/US gilt yields overnight you should be able to see why diving into the housing market at this point is a gamble, you were buying much more cheaply when rates were about to be cut to historic lows, someone now is facing much higher asking prices with mortgage costs heading up.

Hopefully the OP has already started getting the 200k into money market funds and savings accounts.

Herzlos

Using a different market doesn't necessarily help. If the UK economy tanks, then the exchange rate will suffer. If there's another global crash, having money in US stock isn't going to help.  If you are investing surplus cash then you want to diversify though, so that part at least is valid.

By surplus cash I mean there's no point in earning £x in interest whilst paying £>x in debt or rent.


There's nowt as safe as houses. It's the least risky gamble available and the OP would be an idiot not to put most of the money towards a house.

ReadySteadyPop

Herzlos said:

Using a different market doesn't necessarily help. If the UK economy tanks, then the exchange rate will suffer. If there's another global crash, having money in US stock isn't going to help.  If you are investing surplus cash then you want to diversify though, so that part at least is valid.

By surplus cash I mean there's no point in earning £x in interest whilst paying £>x in debt or rent.


There's nowt as safe as houses. It's the least risky gamble available and the OP would be an idiot not to put most of the money towards a house.

Very risky advice as people who have been caught in negative equity or startling jumps in their mortgage debt payments will tell you. Are you saying that risking your money in property is safer than a money market fund or savings account/tax free ISA? The costs involved in viewing/offering on/trading property alone are a reason to just sit on the 200k, let alone the economic volatility we are now seeing (which will very likely have a direct negative effect on the property market)

SadieO

This is ridiculously simplistic but if I put all my money into buying a house and its value tanks to zero, I've still got a house to live in. If all my money is in stocks and shares and they tank to zero then I've got nothing. Right?? 

ReadySteadyPop

SadieO said:

This is ridiculously simplistic but if I put all my money into buying a house and its value tanks to zero, I've still got a house to live in. If all my money is in stocks and shares and they tank to zero then I've got nothing. Right?? 

The likelihood of either scenario is what you need to look at in my opinion, and I think barring a nuclear exchange or massive global climate catastrophe (when stocks/price of houses will not be on your critical needs list) both are unlikely for property or stocks across the board (of course a property in an area that goes "bad" could sink to near worthless and this has happened many times in the past) We have to remember that the OP already has a place to live, they rent a house, so the 200k isn`t needed for shelter and if stock markets start to tank you can get the money out if there is liquidity in your chosen market (widely held, widely traded shares and index trackers for the biggest economic zones on the globe hopefully) of course you can`t do this with property as it is the most illiquid of investment classes, so you may have to just sit there and watch the value fall without being able to do anything about it.

Herzlos

ReadySteadyPop said:

We have to remember that the OP already has a place to live, they rent a house, so the 200k isn`t needed for shelter

We also have to remember that the OP wants a bigger place to live because of kids, and the return on that 200k won't pay the rent.

SadieO said:

This is ridiculously simplistic but if I put all my money into buying a house and its value tanks to zero, I've still got a house to live in. If all my money is in stocks and shares and they tank to zero then I've got nothing. Right?? 

Bingo. I reckon that even if my house value drops to zero, it's still going to be cheaper than renting once you factor in the decades of living rent free. It's such a stupid thing to be arguing against.

confusedfreelancer

SadieO said:

This is ridiculously simplistic but if I put all my money into buying a house and its value tanks to zero, I've still got a house to live in. If all my money is in stocks and shares and they tank to zero then I've got nothing. Right?? 

Bingo. I reckon that even if my house value drops to zero, it's still going to be cheaper than renting once you factor in the decades of living rent free. It's such a stupid thing to be arguing against.

This is how I feel too. I feel a bit sick when I think of everything I've spent on rent.