£200k inheritance, property ladder or not?

BungalowBel

Buy a house.  No question.

ReadySteadyPop

silvercar said:

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

The problem with renting is the need to move. You can fix a mortgage for 20 years, but you also can’t take a tenancy for 20 years. I wouldn’t want the hassle factor of frequently moving at inconvenient times or in old age.

Frequently moving? When was the last time you rented?

ReadySteadyPop

jimbog said:

Worth bearing in mind that even though your mortgage payments will fluctuate if you choose not to fix, rents will only ever go up. You really don't want to be hauling all your belongings between rentals as a pensioner 

 Even if you fixed for ten years over a 30 year mortgage that is three periods where the cost of your debt could fluctuate by a LOT, as people have found out recently when coming off fixes. Best to buy as cheaply as you can to minimise debt and hold onto windfalls like this 200k keeping it well away from the housing market. Rents will crash in a recession, and that would be a great time to have 200k in liquid cash sitting in a high interest bank account or money market fund not tied up in a mortgaged house that is falling in value.

jimbog

ReadySteadyPop said:

jimbog said:

Worth bearing in mind that even though your mortgage payments will fluctuate if you choose not to fix, rents will only ever go up. You really don't want to be hauling all your belongings between rentals as a pensioner 

Best to buy as cheaply as you can to minimise debt

^^ this. 

Buy rather than rent

Herzlos

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

And if your landlords mortgage goes up so does your rent. The difference with a mortgage is that there's 1 less middle man taking money out of it, and that it'll eventually be paid off.

You may lose out in the short term if rates go up drastically, but once it's paid off you're suddenly rent free.

Herzlos

ReadySteadyPop said:

silvercar said:

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

The problem with renting is the need to move. You can fix a mortgage for 20 years, but you also can’t take a tenancy for 20 years. I wouldn’t want the hassle factor of frequently moving at inconvenient times or in old age.

Frequently moving? When was the last time you rented?

How many posts are on here along the lines of "Rented a house for 15 years, landlord is selling, can't afford rent anywhere else, what do I do?"

Herzlos

jem1276 said:

Thanks everyone for your replies! The majority seem to say buy, which is what we expected. It was great to read the reasons too.

We are currently paying £1400 a month to rent in Devon. We've looked at mortgage options with putting down a deposit of £150k, which leaves us with monthly mortgage repayments of between £1,800 and £2,200 a month, depending on the house price. So not cheaper than renting and quite a stretch each month, plus pressure to stay in the job that provides the salary this mortgage would be based on. If I had to take a drop in wages...scary.

So I guess the options are to put in the whole £200k to bring down the mortgage repayments, or compromise on the house and go smaller/less desirable area. At 49, I doubt a mortgage lender would allow the length of the loan to increase to reduce payments that way.  

Are you comparing like-for-like though? Would your £1400/month rent get you the same house you're looking at a £2200/month mortgage on? Because some quick attempts at a loan calculator puts that at a £500k-ish house you'd mentioned earlier. Assuming an 18 year term to be complete by 67.

Adding the other £50k deposit would knock about £300/month off.

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

And if your landlords mortgage goes up so does your rent. The difference with a mortgage is that there's 1 less middle man taking money out of it, and that it'll eventually be paid off.

You may lose out in the short term if rates go up drastically, but once it's paid off you're suddenly rent free.

Many landlords don`t have a mortgage, many landlords with recent mortgages will be in trouble with empty flats, if you have a mortgage and need to move you need to find a buyer, 30 years at the mercy of the bond markets is a long time to wait to be "suddenly rent free", with 200k you could give yourself a lot of options if you had a think about ways to invest, when it goes on a property deposit it is basically gone, you are sitting in a house but you have lost the power of having that access to cash.

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

silvercar said:

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

The problem with renting is the need to move. You can fix a mortgage for 20 years, but you also can’t take a tenancy for 20 years. I wouldn’t want the hassle factor of frequently moving at inconvenient times or in old age.

Frequently moving? When was the last time you rented?

How many posts are on here along the lines of "Rented a house for 15 years, landlord is selling, can't afford rent anywhere else, what do I do?"

Can`t say I have seen many to be honest, but are you saying that moving after 15 years is "moving frequently"?

Herzlos

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

Myci85 said:

We have just bought our first house, and borrowed into retirement age to make the monthly payments more manageable due to also being older and needing a family home with 2 children. I was a bit worried about the longterm implications of doing so, but then figured that over the years that monthly amount will seem less due to inflation and earnings going up so can hopefully start to overpay, and the alternative was to keep renting. If we kept renting, that monthly rent would have increased steadily, we wouldn't have the security of our own home, and we'd be paying rent for life rather than maybe a few years into retirement. 

The monthly amount isn`t fixed for the full term of the debt though, you can`t fix for 20 or 30 years in the UK, if interest rates go up in future your monthly payments will rise, this has happened to a lot of people recently, rents eventually hit the ceiling of wages, if there was a recession for example rents would fall but mortgage debt payments would still be governed by movements in the bond markets.

And if your landlords mortgage goes up so does your rent. The difference with a mortgage is that there's 1 less middle man taking money out of it, and that it'll eventually be paid off.

You may lose out in the short term if rates go up drastically, but once it's paid off you're suddenly rent free.

Many landlords don`t have a mortgage, many landlords with recent mortgages will be in trouble with empty flats, if you have a mortgage and need to move you need to find a buyer, 30 years at the mercy of the bond markets is a long time to wait to be "suddenly rent free", with 200k you could give yourself a lot of options if you had a think about ways to invest, when it goes on a property deposit it is basically gone, you are sitting in a house but you have lost the power of having that access to cash.

Some landlords with low equity will be in trouble with empty flats, if there wasn't a shortage of empty flats. Most are doing fine and there generally seems to be more renters than flats. Have you paid off your landlords flat yet?

I also think you'd struggle to find a better investment for £200k over the long term than a house to live in. Suddenly rent free is a lot of money. Assuming rent free at 67 and living to 87, that's a saving of £336k (not adjusted for inflation) in rent payments alone.

What kind of an investment yield do you reckon they'd need to get where their rent would essentially be perpetually free in 18 years time?

Mortgages are nothing like as risky as you're making out, unless someone is grossly over leveraged. Beyond the occasional blip house prices are always going to go up, and rent is always going to go up.