Cash Investing or Buying Property to live in in London.

Cloiner

Hi Team, I need help with this or at least your opinion:

Facts:

My Partner and me: Age 41. 2 Children 6 and 10. Perm employed. State schools. I am planning to reduce me hours. We bought a 2 Bedroom Flat in Zone 2 London 5 years ago for 470k. Current Value 520k+ maybe 540k. Mortgage left 280k in 9months time with ca 5% deal. We have me120k and her70k in ISAs (in Cash). Additionally, we have ca 80k me and 30k her in Savings (Cash). Pensions we have ca 30k each (100% shares.)

In Total: 190k ISA / 110k Bank / 260k Property

Problem:

We need to upsize. We would have to pay at least 800k plus Tax should we buy. 850k? I am Planning to reduce me hours aiming for 40k/year. She is on 55k/year. To rent would be 2500 to 3000. We need that for at least 12 years. Then we would downsize when kids out, so the plan.

I am thinking that putting all into a flat would-be high risk. What is the cleverest thing to do please? Please don’t hesitate to provide details of investments if you have. This will be a tremendous help!

EssexHebridean

Allowing you  have two children, why are you considering a flat to purchase now? Don't you & they want/need a garden? Is it worth looking at slightly different areas where your potential budget would stretch to a house instead of a flat, as that could equal better quality of life for you all? 

Looking at RM, there are plenty of options in a budget of up to £650k well into the greater London area - Stratford, Neasden. Roehampton as examples. 

Albermarle

 Pensions we have ca 30k each (100% shares.)

It does not really help your dilemma, but probably worth noting that at your ages these pension pots are rather small.
If you are going to buy somewhere bigger in the short term, then holding £300K in cash could make sense.
Otherwise your financial portfolio is unbalanced. Too much cash and not enough invested/in pension.

  I am Planning to reduce me hours aiming for 40k/year.

Seems a bit odd to be reducing hours/income, when contemplating buying a more expensive house ?

GDB2222

I agree with EH. There are loads of 3 bed houses in London suburbs for £600k, say.

The problem is presumably that you don't want to commute, and you don't want to change jobs? That may be preferable to taking on an extra £250k mortgage.

Also, I'm not sure I'd live in central London, even if you paid me. It's far from ideal for bringing kids up there. 

 

dont_use_vistaprint

I don’t know what type of jobs you do, but I always worked for companies in either London, Cambridge or globally, but based home and my family in the Midlands.

We had a beautiful four bedroom detached double garage enormous south facing garden, 10 minutes walk from Ofsted grade one school when they were teens , in a really nice area, I think I paid 220K and even now they go for around 370. Similar area two years ago I bought a smaller detached also  huge south facing garden, minutes walk from green belt and 20mins into the city  I paid 230K

for me it’s a no brainer put your family in a nice area outside London, with good links to commute occasionally if you need to.

Herzlos

Cloiner said:

I am thinking that putting all into a flat would-be high risk. What is the cleverest thing to do please?

Putting it into the property you're living in is the lowest risk thing you could do.

Unless it's for a really short term (i.e. you're about to move again imminently) then selling a property to rent is a terrible idea. You'll pay more in rent, have less security, no equity gains and your savings rates will never compensate for the difference. If your savings are in stocks, they are at a higher risk that property.


I'd echo what others have mentioned though; you'll get a lot more property for your money by going a bit further afield. Though with 2 primary aged children you maybe want to try and stay in the same catchment so that they'll go to high school with their friends?

A small distance trade off may get you a much nicer/cheaper place for the same money but mean a bit more of a commute.

Ideally you want to have more in your pensions, a 30k pension isn't going to get you much at retirement. BUT in your position I'd probably focus on getting a bigger flat/house first and then figuring the pension out later. You'll need a lot less money in retirement if you've got a 3 bed house paid off than if you're still renting.