£250k First House - Cash Purchase or Mortgage
Discussion
Hello all,
We are in a position where we am looking to buy a property in UK in the next year or so. We have worked overseas for a number of years but will be returning to UK imminently where we will settle for the long term.
We have managed to accrue around £300k in savings. This has been built up from putting a good chunk of my salary away whilst working overseas on well paid projects. Back in UK our earnings should still be OK but will probably be fairly typical of mid-30s professionals.
Our ideal property at this stage in life is selling at around the £250k mark, maybe slightly more. The question is do we buy the house outright and look forward to financial peace of mind and begin financially preparing for retirement or put (say) £125k down and take on a manageable mortgage?
We are risk averse and the idea of being mortgage free is appealing. I am mindful however that this would see us at 90% of our wealth in UK property with no diversification. Apart from paid up national insurance contributions we have nothing meaningful lined up (yet) for our retirement. Putting down half, I'm not sure what else we would do with the remaining savings other than sticking it is an ISA (or similar).
Situation - Mid 30s, married, no kids (but will hopefully happen soon).
Any advice appreciated!
We are in a position where we am looking to buy a property in UK in the next year or so. We have worked overseas for a number of years but will be returning to UK imminently where we will settle for the long term.
We have managed to accrue around £300k in savings. This has been built up from putting a good chunk of my salary away whilst working overseas on well paid projects. Back in UK our earnings should still be OK but will probably be fairly typical of mid-30s professionals.
Our ideal property at this stage in life is selling at around the £250k mark, maybe slightly more. The question is do we buy the house outright and look forward to financial peace of mind and begin financially preparing for retirement or put (say) £125k down and take on a manageable mortgage?
We are risk averse and the idea of being mortgage free is appealing. I am mindful however that this would see us at 90% of our wealth in UK property with no diversification. Apart from paid up national insurance contributions we have nothing meaningful lined up (yet) for our retirement. Putting down half, I'm not sure what else we would do with the remaining savings other than sticking it is an ISA (or similar).
Situation - Mid 30s, married, no kids (but will hopefully happen soon).
Any advice appreciated!
The no kids yet, would tend to colour my advice/thinking. Assuming nippers arrive you’ve got a year at least of reduced income, so why not cut your cloth accordingly to start with and have no mortgage to worry about?
If you’re wanting a bit more flexibility in capital, possibly look at having a very small mortgage and invest the balance? ISAs, £20k each per tax yearbeing an obvious first step if goingdown that route.
If you’re wanting a bit more flexibility in capital, possibly look at having a very small mortgage and invest the balance? ISAs, £20k each per tax yearbeing an obvious first step if goingdown that route.
Good advice (as always) above. I would only reinforce this by stressing that your home is not an asset class, it is your home. Buying mortgage free is something you find appealing and you are risk adverse - so buy mortgage free, you can always take out a mortgage later if required.
Work out what the mortgage repayments and interest would be and add this to any ISA investments. Any earnings in the higher rate tax bracket add to a pension/SIPP first (unless you may need instant access.
A great position to be in at your age.
Work out what the mortgage repayments and interest would be and add this to any ISA investments. Any earnings in the higher rate tax bracket add to a pension/SIPP first (unless you may need instant access.
A great position to be in at your age.
p1stonhead said:
Mortgages are as cheap as theyll ever be. Investing your money in lieu of spending it all on a house is likely to be a better objective choice investment wise. But having no mortgage isnt always an objective desire.
It is also a question of risk. Being mortgage free is an absolute certainty. Paying a guaranteed interest rate that is likely to rise in return for unknown (positive or negative) investment returns whilst placing the principle capital itself at risk is not certainty of any type.If the OP was not risk adverse then this could be an option. It could either work brilliantly or completely backfire. As he is risk adverse then I stand by my original suggestion.
BTW, I personally do what you advocate (use cheap borrowing to keep some funds free for much higher yielding investments). I am happy to take the inherent risks though providing I have a certain degree of control over these investments.
Firstly you have not lived in the UK for a number of years so you might find it more difficult than you think to get a mortgage. Lenders really don't like people who have not lived in the UK for the last two years and you also won't have an employment history in the UK.
Are you transferring with your company to the UK or are you starting a brand new job? If it's a brand new job and not having lived in the UK for years I would imagine you would find it difficult.
If I had that sort of deposit the most important thing would be to buy a house I could live in forever. There is no point buying a house for now, only to have to pay all the costs involved in moving to move to a bigger house in a few years.
If you can get that house for £250k then I would pay cash and live a relaxed life, safe in the knowledge that no matter what happens your house is paid for. Otherwise I would get a house bigger than I needed and get a mortgage for the difference.
No point sitting on cash that is earning less than the mortgage rate and being eroded due to inflation.
Are you transferring with your company to the UK or are you starting a brand new job? If it's a brand new job and not having lived in the UK for years I would imagine you would find it difficult.
If I had that sort of deposit the most important thing would be to buy a house I could live in forever. There is no point buying a house for now, only to have to pay all the costs involved in moving to move to a bigger house in a few years.
If you can get that house for £250k then I would pay cash and live a relaxed life, safe in the knowledge that no matter what happens your house is paid for. Otherwise I would get a house bigger than I needed and get a mortgage for the difference.
No point sitting on cash that is earning less than the mortgage rate and being eroded due to inflation.
Joey Deacon said:
If I had that sort of deposit the most important thing would be to buy a house I could live in forever. There is no point buying a house for now, only to have to pay all the costs involved in moving to move to a bigger house in a few years.
If you can get that house for £250k then I would pay cash and live a relaxed life, safe in the knowledge that no matter what happens your house is paid for. Otherwise I would get a house bigger than I needed and get a mortgage for the difference.
There is a lot of dead money in buying houses; solicitor fees, survey fees, stamp duty, mortgage costs etcIf you can get that house for £250k then I would pay cash and live a relaxed life, safe in the knowledge that no matter what happens your house is paid for. Otherwise I would get a house bigger than I needed and get a mortgage for the difference.
If it was me moving back to the uk, I’d perhaps rent for a while in an area you are thinking of buying in to check it fulfills what you require. Whilst you might see rent as dead money, it’s a far most cost effective solution than buying the wrong house in the wrong area
Id agree with buying the biggest house you can afford although knowing what the future holds and what you really want can be difficult.
Best of luck
Personally I think if you can buy next year you might get into a very good position.
I think the markets will be performing badly, globally. Your ISA situation is going to be £40k PA (assuming you have not already put it into an ISA over the years) So the majority is going to be taxed.
House prices will be down, mortgages are going to be more difficult to get. (not for you)
Thus cash buyers are likely to be in a good position.
I would buy cash. No front loaded interest on the big balance, able to invest your spare income at a rate that will probably fill your ISA anyway. Win win IMHO.
I think the markets will be performing badly, globally. Your ISA situation is going to be £40k PA (assuming you have not already put it into an ISA over the years) So the majority is going to be taxed.
House prices will be down, mortgages are going to be more difficult to get. (not for you)
Thus cash buyers are likely to be in a good position.
I would buy cash. No front loaded interest on the big balance, able to invest your spare income at a rate that will probably fill your ISA anyway. Win win IMHO.
Gary C said:
Spend it all on the house and get a manageable mortgage.
Get ahead of the curve, you will never regret it.
Edit
Actually, your already ahead, but get even further !
As Gary said above. ^^^Get ahead of the curve, you will never regret it.
Edit
Actually, your already ahead, but get even further !
You can always get a mortgage. You can't always pay off one,
Go mortgage free now and you can always change your mind later.
OP, it sounds from you post that you have no pensions other than a right to claim a State pension?
With a cashbpot of £300k to play with you ought to at least work out the benefit of migrating part of that money into a pension wrapper and clawing your income tax back. It’s likely to be by far the biggest low risk return achievable.
As others have alluded, the cost of buying a property is huge and given your age it is probably worth questioning whether buying now is the logical move. Arrival of children being the most obvious as you wake up one day in the wrong size house, with the wrong facilities and located in the wrong place. You may also end up with very uncompetitive lending rates due to being an expat until recently. And then there is the fact that property values seem unlikely to run away for the time being.
Much of the situation is very subjective but in your shoes it wouldn’t really be crossing my mind to buy a property at this stage but to lever my advantage of being cash rich through tax planning with an aim to buy property later.
With a cashbpot of £300k to play with you ought to at least work out the benefit of migrating part of that money into a pension wrapper and clawing your income tax back. It’s likely to be by far the biggest low risk return achievable.
As others have alluded, the cost of buying a property is huge and given your age it is probably worth questioning whether buying now is the logical move. Arrival of children being the most obvious as you wake up one day in the wrong size house, with the wrong facilities and located in the wrong place. You may also end up with very uncompetitive lending rates due to being an expat until recently. And then there is the fact that property values seem unlikely to run away for the time being.
Much of the situation is very subjective but in your shoes it wouldn’t really be crossing my mind to buy a property at this stage but to lever my advantage of being cash rich through tax planning with an aim to buy property later.
With the turbulence of Brexit, keep hands in your pocket for the time being. Market has significantly softened over last 2 years plus housing stock available isn't great as people batton down the hatches. I've recently watched a decent 2 bed flat in Norwich soften over 8 months from 150k to trading at 130k. One flat, one example only - I accept that.
Also, £ battering right now is looking messy; trying to pick a bottom is very hard so Id rather buy £ on the confirmed uptick.
Out of interest, do you have to come back or simply wish to?
Also, £ battering right now is looking messy; trying to pick a bottom is very hard so Id rather buy £ on the confirmed uptick.
Out of interest, do you have to come back or simply wish to?
Conggratulations on being in this position I am sure it took a lot of hard work
I see your point about asset diversification but not sure it applies here
Houses historically go up in value and are typically long term investments
If the value drops and you need to move, the value of the one you are buying will likely have dropped too
I don't consider my principle residence as part of an asset portfolio as such unless you're talking equity release in later life
The aim is to always repay the mortgage and the interest payments are substantial
Other investments are probably more risky than a property especially if a) you can live in it and it suits your needs for at least 5-10 years and b) other investment classes at present are either low yielding or higher risk.
If interest rates went up significantly, back to the pre GFC typical rate of say 4.5%, John McDonnell I'm looking at you, and your other investments had dropped or underperformed, you might end up paying a much higher monthly figure / not have as much capital to repay the mortgage as you initially invested.
If you are risk adverse, buy the property outright, avoid the liability of a mortgage where interest rates are volatile, avoid having to make potentially risky investment decisions with a large amount of capital. I would buy the house outright and you can always remortgage later if needs be
I see your point about asset diversification but not sure it applies here
Houses historically go up in value and are typically long term investments
If the value drops and you need to move, the value of the one you are buying will likely have dropped too
I don't consider my principle residence as part of an asset portfolio as such unless you're talking equity release in later life
The aim is to always repay the mortgage and the interest payments are substantial
Other investments are probably more risky than a property especially if a) you can live in it and it suits your needs for at least 5-10 years and b) other investment classes at present are either low yielding or higher risk.
If interest rates went up significantly, back to the pre GFC typical rate of say 4.5%, John McDonnell I'm looking at you, and your other investments had dropped or underperformed, you might end up paying a much higher monthly figure / not have as much capital to repay the mortgage as you initially invested.
If you are risk adverse, buy the property outright, avoid the liability of a mortgage where interest rates are volatile, avoid having to make potentially risky investment decisions with a large amount of capital. I would buy the house outright and you can always remortgage later if needs be
Edited by jakesmith on Sunday 16th December 19:24
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