Financial Conundrum - What to do
Discussion
Using an alias, given us Brits are reticent about sharing our financial particulars.
Firstly, we know we are in a very fortunate position relative to most (apart from all the powerfully built PH Director types ;-) .
Situation, mid 30's, married, 2yr old + another child due later this year
Working abroad for past 6 years
Salary 170k GBP
Annual Bonus 103k GBP
Shares (vest annually) - 58k GBP
Total: 331k GBP
Bonus can vary plus/minus 40% everything else is fixed
Saving approx 100k GBP a year
Savings/Investments
UK SIPP - 60kGBP (Can't contribute whilst working overseas)
Cash - 330k GBP (reserved for house deposit)
Investments - 445kGBP (mainly Index trackers with 25% in individual stocks)
We are likely to return to the UK in approx 2 years time.
We've been looking for a family home and have narrowed down the area we want to buy in but nothing has come up as yet. Our ideal would be a 5 bed, double garage, decent garden - in the area we are looking 700k to 850k before negotiation would get us this.
Our Conundrum is two-fold;
1) Buy a large family home now and rent it out for next 2 years? (house prices seem to be dropping, interest rates are at all time lows and unlikely to rise much) and if so - how much to spend? Do we buy something at 700k? or stretch further and get something around 1m - we don't need the space but financially thinking 20yrs+ does it make more sense to "stretch"
2) If we don't buy and see how house prices go (unlikely to appreciate hugely)- what to do with the cash? Too short term to put in index trackers but inflation is eating away at it whilst it sits there. If we don't buy, I may opt to put 50% of it in the trackers, worst case my saving rate will top up the house deposit fund in the next two years should we enter a recession and indexes drop 30-40%.
Thanks in advance for your comments/replies
Firstly, we know we are in a very fortunate position relative to most (apart from all the powerfully built PH Director types ;-) .
Situation, mid 30's, married, 2yr old + another child due later this year
Working abroad for past 6 years
Salary 170k GBP
Annual Bonus 103k GBP
Shares (vest annually) - 58k GBP
Total: 331k GBP
Bonus can vary plus/minus 40% everything else is fixed
Saving approx 100k GBP a year
Savings/Investments
UK SIPP - 60kGBP (Can't contribute whilst working overseas)
Cash - 330k GBP (reserved for house deposit)
Investments - 445kGBP (mainly Index trackers with 25% in individual stocks)
We are likely to return to the UK in approx 2 years time.
We've been looking for a family home and have narrowed down the area we want to buy in but nothing has come up as yet. Our ideal would be a 5 bed, double garage, decent garden - in the area we are looking 700k to 850k before negotiation would get us this.
Our Conundrum is two-fold;
1) Buy a large family home now and rent it out for next 2 years? (house prices seem to be dropping, interest rates are at all time lows and unlikely to rise much) and if so - how much to spend? Do we buy something at 700k? or stretch further and get something around 1m - we don't need the space but financially thinking 20yrs+ does it make more sense to "stretch"
2) If we don't buy and see how house prices go (unlikely to appreciate hugely)- what to do with the cash? Too short term to put in index trackers but inflation is eating away at it whilst it sits there. If we don't buy, I may opt to put 50% of it in the trackers, worst case my saving rate will top up the house deposit fund in the next two years should we enter a recession and indexes drop 30-40%.
Thanks in advance for your comments/replies
Edited by CaseStudy1 on Friday 10th August 13:22
I wouldn't worry too much about the inflation risk. It strikes me it is house price inflation that you are really worried about not CPI or RPI. House price inflation is very localised / market specific - London is weak but the midlands are strong for example. As such the risk of a stock market correction costing you 20% of your savings far outweighs some perceived differential between inflation rates (say 3%) and savings rates (say 1.5%), IMHO.
Anything other than short term cash savings and you either take market risk or risk not being liquid when you come to purchase.
Anything other than short term cash savings and you either take market risk or risk not being liquid when you come to purchase.
williaa68 said:
I wouldn't worry too much about the inflation risk. It strikes me it is house price inflation that you are really worried about not CPI or RPI. House price inflation is very localised / market specific - London is weak but the midlands are strong for example. As such the risk of a stock market correction costing you 20% of your savings far outweighs some perceived differential between inflation rates (say 3%) and savings rates (say 1.5%), IMHO.
Anything other than short term cash savings and you either take market risk or risk not being liquid when you come to purchase.
Thank you for the reply, you're right, I also have a natural hedge at the moment given how weak sterling is, 90% of the cash savings are in a foreign currency which has appreciated 21% against the pound. Anything other than short term cash savings and you either take market risk or risk not being liquid when you come to purchase.
Do you live in a high cost of living area?
Your savings rate of 30% seems a bit low for someone with your level of income.
There are quite a few threads like this over on MMM and people pulling 1/4 mil a year + are usually saving well over 50% even in really high COL like San Fran etc.
I would be looking to buy the house cash if at all possible. Rates are (probably) only going up from here and on £1M properties you could easily be paying a few grand a month in interest.
Your savings rate of 30% seems a bit low for someone with your level of income.
There are quite a few threads like this over on MMM and people pulling 1/4 mil a year + are usually saving well over 50% even in really high COL like San Fran etc.
I would be looking to buy the house cash if at all possible. Rates are (probably) only going up from here and on £1M properties you could easily be paying a few grand a month in interest.
red_slr said:
Do you live in a high cost of living area?
Your savings rate of 30% seems a bit low for someone with your level of income.
There are quite a few threads like this over on MMM and people pulling 1/4 mil a year + are usually saving well over 50% even in really high COL like San Fran etc.
I would be looking to buy the house cash if at all possible. Rates are (probably) only going up from here and on £1M properties you could easily be paying a few grand a month in interest.
Your savings rate of 30% seems a bit low for someone with your level of income.
There are quite a few threads like this over on MMM and people pulling 1/4 mil a year + are usually saving well over 50% even in really high COL like San Fran etc.
I would be looking to buy the house cash if at all possible. Rates are (probably) only going up from here and on £1M properties you could easily be paying a few grand a month in interest.
Yes. Our rent is 3k GBP a month as an example. I've just started reading MMM, very interested in the whole FIRE concept (would love to be able to by mid 40's). I'm not sure buying a house cash is the best move for us given how low interest rates are and the potential for higher returns in global index trackers.
We are looking to increase our savings rate up to 50% this year.
98elise said:
Its barely enough to get out of bed for!
Seriously though....with that kind of money you should be getting paid for financial advice...not asking a bunch of strangers on the internet
Yes, we will, however there are hundreds of "sharks" where we live that prey on expats. Some very successful and smart folks on here whom I've seen excellent contributions from in other threads. Seriously though....with that kind of money you should be getting paid for financial advice...not asking a bunch of strangers on the internet
CaseStudy1 said:
98elise said:
Its barely enough to get out of bed for!
Seriously though....with that kind of money you should be getting paid for financial advice...not asking a bunch of strangers on the internet
Yes, we will, however there are hundreds of "sharks" where we live that prey on expats. Some very successful and smart folks on here whom I've seen excellent contributions from in other threads. Seriously though....with that kind of money you should be getting paid for financial advice...not asking a bunch of strangers on the internet
They will charge a transparent fee for a one off consultation and for any ongoing invovklement.
Even if a they do is advise on the strategic options it wi be money well spent.
Insist on them being an IFA.
CaseStudy1 said:
1) Buy a large family home now and rent it out for next 2 years? (house prices seem to be dropping, interest rates are at all time lows and unlikely to rise much) and if so - how much to spend? Do we buy something at 700k? or stretch further and get something around 1m - we don't need the space but financially thinking 20yrs+ does it make more sense to "stretch"
2) If we don't buy and see how house prices go (unlikely to appreciate hugely)- what to do with the cash? Too short term to put in index trackers but inflation is eating away at it whilst it sits there. If we don't buy, I may opt to put 50% of it in the trackers, worst case my saving rate will top up the house deposit fund in the next two years should we enter a recession and indexes drop 30-40%.
Thanks in advance for your comments/replies
1) Sounds an odd choice if you are of the view that house prices are dropping. If you are correct, why buy now? Yields on high value, rural property look poor at the best of times to be honest, particularly when you factor in maintenance on such properties. 2) If we don't buy and see how house prices go (unlikely to appreciate hugely)- what to do with the cash? Too short term to put in index trackers but inflation is eating away at it whilst it sits there. If we don't buy, I may opt to put 50% of it in the trackers, worst case my saving rate will top up the house deposit fund in the next two years should we enter a recession and indexes drop 30-40%.
Thanks in advance for your comments/replies
Edited by CaseStudy1 on Friday 10th August 13:22
2) If indexes do drop by the percentages you allow for, I would expect to see (relatively) proportionate house price falls that would also offset any losses, together with your savings top up to keep a continuous level. I appreciate there is not always a direct link but all things being equal you would expect some relationship.
No real advice here but simply if your own views are correct, it seems odd to contemplate the path you are considering. One thing I would throw into the equation is that Sterling may continue taking a battering and all the while I assume you are being paid in AED or certainly non-Sterling - in which case you are better off avoiding Sterling based asset purchases or investment in Sterling based equities. You may wish to continue to avoid them until things have at least settled with GDP or something on the horizon that offers it some support as a currency.
Kev_Mk3 said:
Zoon said:
Firstly, what do you do for a living?
The pay sounds awful.
And here's me sat at my desk reading this thread earning a mere £19k a year before tax and insurance The pay sounds awful.
romeogolf said:
Kev_Mk3 said:
Zoon said:
Firstly, what do you do for a living?
The pay sounds awful.
And here's me sat at my desk reading this thread earning a mere £19k a year before tax and insurance The pay sounds awful.
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