Tell me if this idea is good or bad.

FreeBear

Bigphil1474 said: If you are flexible there are loads of properties at cheap prices. Just did a quick Rightmove search and there are 6,500 properties in Yorkshire alone that are £150k or less, and over 50,000 if you say within 40 miles. Depends what you are looking for of course.

Go a little further north, and you can get a 2 bed terrace for £40K, but not an area I'd willingly spend any time in... In the south, properties do occasionally pop up for under £150K, but are cheap for a reason - Usually requiring substantial renovation and/or have structural issues.

SneakySpectator

FreeBear said:

Bigphil1474 said: If you are flexible there are loads of properties at cheap prices. Just did a quick Rightmove search and there are 6,500 properties in Yorkshire alone that are £150k or less, and over 50,000 if you say within 40 miles. Depends what you are looking for of course.

Go a little further north, and you can get a 2 bed terrace for £40K, but not an area I'd willingly spend any time in... In the south, properties do occasionally pop up for under £150K, but are cheap for a reason - Usually requiring substantial renovation and/or have structural issues.

When I retire I'm happy to live pretty much anywhere, so long as the area is quiet and calm and isn't full of anti social people revving motorbikes and 12 year olds running about getting up to mischief. I'd really love a nice 2 bedroom detached bungalow up north in a small village somewhere. As long as there's a town centre within a 15 minute drive I'd be really happy with that.

I was even thinking Scotland somewhere.

Herzlos

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

On the flip side, if you bought now, it'd be paid off by the time you were 55ish, and you could keep your full pension.

The downside thre is that you'd be on the hook for maintenance, and your housing association flat is going to be below market rate.

How much would an equivalent 1 bed flat cost to buy now?

As others have mentioned, retiring at 55 is pretty early, is there a reason for that target? It's going to require a much bigger pot than retiring at something like 60 or 65, even if you were semi retire and work part time hours after 55.

Tucosalamanca

SneakySpectator said:

FreeBear said:

SneakySpectator said: Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month.

As for what a flat might cost you in 20-25 years time, I have a feeling that £200K wouldn't buy you much. 

All prices are adjusted for inflation. If I don't adjust for inflation my retirement fund at 55 would be £700,000 and the value of a flat I'd likely buy would be about £350,000.

But to keep things simple, I adjusted everything to account for inflation otherwise you have to upscale the cost of food and bills and all that crap. Better to keep it simple.

Where is this money coming from?

Can't buy a house outright, can't get a mortgage, can't upskill to a higher paying job.

 Based on your previous threads, a £700,000 pot at 55 seems fanciful at best.

What's your plan (I suspect many would like to take a similar path)?

SneakySpectator

Tucosalamanca said:

SneakySpectator said:

FreeBear said:

SneakySpectator said: Or at 55 I could spend half my retirement pot and buy a private flat outright without a mortgage for about £200,000 which would obviously cut my retirement fund in half, but it would also eliminate the rent factor so I'll only need money for food and bills each month.

As for what a flat might cost you in 20-25 years time, I have a feeling that £200K wouldn't buy you much. 

All prices are adjusted for inflation. If I don't adjust for inflation my retirement fund at 55 would be £700,000 and the value of a flat I'd likely buy would be about £350,000.

But to keep things simple, I adjusted everything to account for inflation otherwise you have to upscale the cost of food and bills and all that crap. Better to keep it simple.

Where is this money coming from?

Can't buy a house outright, can't get a mortgage, can't upskill to a higher paying job.

 Based on your previous threads, a £700,000 pot at 55 seems fanciful at best.

What's your plan (I suspect many would like to take a similar path)?

This is where it's coming from https://curvo.eu/backtest/en/market-index/ftse-all-world?currency=gbp (not adjusted for inflation)


Adjusted for the average UK inflation rate of 2.82%



I'm not just making numbers up off the top of my head you know. Everything I'm doing is based on historical performance of the FTSE all world index over a long period of time. Yes I know past performance isn't an indication of future performance but it's the best we've got so I'm going with it. 

SneakySpectator

Herzlos said:

SneakySpectator said:

I cannot get a mortgage, filled out 3 decision in principle forms and got denied

I have an idea for the future when I retire but I'm not sure if it's a good idea / waste of money or not.

So when I retire (hopefully no later than 55) I can chose to stay in my housing association 1 bedroom flat and pay the rent. Currently it's £450 per month but obviously will go up quite a lot in 20 years time when I'm 55. But for easy maths let's just say it's £450 per month and I live here until I'm 80. 

So over the 25 years (55 - 80) I'd pay £450 * 12 * 25 = £135,000 in rent that I'll never get back. Not only that but the amount of money I'll need to withdraw from my retirement fund each month to survive will have to include that £450 rent.

On the flip side, if you bought now, it'd be paid off by the time you were 55ish, and you could keep your full pension.

The downside thre is that you'd be on the hook for maintenance, and your housing association flat is going to be below market rate.

How much would an equivalent 1 bed flat cost to buy now?

As others have mentioned, retiring at 55 is pretty early, is there a reason for that target? It's going to require a much bigger pot than retiring at something like 60 or 65, even if you were semi retire and work part time hours after 55.

I've been working since 20 and I just feel like 35 years of work is enough. 

Tabieth

I think your plan is highly risky and based on a lot of assumptions that may or may not work out for you. You may be happy with that level of risk but it would worry me.  I’d recommend a safer, more conventional route. Sort out whatever financial issues are stopping you from getting a mortgage now. Buy somewhere you are happy living in today (and that will probably meet your needs in the future) with an aim to be mortgage fee when you retire. At that point you’ll have somewhere to live that you can afford as well as a home and an asset. 

SneakySpectator

Tabieth said:

I think your plan is highly risky and based on a lot of assumptions that may or may not work out for you. You may be happy with that level of risk but it would worry me.  I’d recommend a safer, more conventional route. Sort out whatever financial issues are stopping you from getting a mortgage now. Buy somewhere you are happy living in today (and that will probably meet your needs in the future) with an aim to be mortgage fee when you retire. At that point you’ll have somewhere to live that you can afford as well as a home and an asset. 

There are 2 problems with this. 

1. I am a single pringle on an income just shy of £30k so the amount of money a bank will lend me is ~£130k. Combine that with a £45k deposit that I can stump up and that allows me to buy a property for £175k, which will get me a very basic 1 bedroom flat if I'm lucky. I've browsed around and most flats in my area are in the region of £190k - £220k.

2. The mortgage calculator shows the interest rate after 2 years will be 6.9% or somewhere in that region. So after a 20 year period I'm going to end up paying back an tens of thousands of pounds in interest.

That sounds the complete opposite to me goal of maximising my savings.

Surely the better option would be to invest the money I'd be paying into the mortgage into the stock market instead  and gain interest over a 20 year period and then buy outright?

If I could get a 20 year 3% fixed mortgage like they do in America then I'd do it in a heartbeat.

Tabieth

SneakySpectator said:

Surely the better option would be to invest the money I'd be paying into the mortgage into the stock market instead  and gain interest over a 20 year period and then buy outright?

You’re assuming that you’ll make enough from stock market investments to make this plan work. That’s a very big assumption to make. Your plan might work, it might not. And you won’t know until it’s far too late to revert to a plan B. If you’re happy with that level of risk then go for it. It could work out beautifully. But, more likely, you end up at retirement age in a rental property that you can’t afford to buy and no assets. That’s a vulnerable position to be in and it’s not a risk that I’d take. 

SneakySpectator

Tabieth said:

SneakySpectator said:

Surely the better option would be to invest the money I'd be paying into the mortgage into the stock market instead  and gain interest over a 20 year period and then buy outright?

You’re assuming that you’ll make enough from stock market investments to make this plan work. That’s a very big assumption to make. Your plan might work, it might not. And you won’t know until it’s far too late to revert to a plan B. If you’re happy with that level of risk then go for it. It could work out beautifully. But, more likely, you end up at retirement age in a rental property that you can’t afford to buy and no assets. That’s a vulnerable position to be in and it’s not a risk that I’d take. 

That scenario seems incredibly unlikely to me though and here's why I think so. 

I'm pound cost averaging and not just buying once. Sure if I dumped £200k in the stock market and then it tanked like it did in 2000 - 2009 then of course I'd be utterly screwed because the market took 13 years to recover.

But since I'm pound cost averaging every month, approximately half of those buys would come into profit in half the time 6.5 years. So I'd break even after just 6.5 years instead of 13. 

Of course I could be extremely unlucky and for my entire 20 year investment period the market remains flat, or worse, loses value. But that has never happened in the history of the stock market so... I think it's actually more irrational to think it will happen rather than it won't happen.

Essentially any period of negative returns in the stock market becomes halved for those who're cost averaging into it. A 20 year bear market becomes 10, a 10 becomes 5 etc.