Buying a house: collective wisdom required

allen

BluesLover said:

My house is now paid for, so in my retirement I've got somewhere to live that's mine. I'd rather be in this situation than continuing to pay rent indefinitely.
I wouldn't want to buy leasehold.

rlw said:

If you buy wisely, you will have a home and a worthwhile asset.  No-one can just chuck you out so you have security, and you can paint it any colour you like.

As Blueslover has said, above, you will pay rent indefintely and you will need a pension + benefits to carry on with that when you retire.

And who knows, you might even make some money on it in the future.

I do accept that these views are very widely and very strongly held, but they are not necessarily the right way for everybody.

There is a massive amount of money (capital) tied up in property that cannot be accessed (and enjoyed) for living a life that you want to live.

1. The idea that nobody can chuck you out - well apart from the pedantic point that a railway line could go through your house and the government put a compulsory purchase order on it there are plenty of reasons you would actually WANT to move. Friends, family in different places etc. You could also be forced to move by no end of things like nasty neighbours, high crime rates, new businesses moving in or out of the area, etc. The idea that 'nobody can chuck you out' is just not true - unless you are going to cut your nose off to spite your face and stay somewhere that you hate living.

2. The house is now paid for and I'm secure. This is also often said by people on this topic, and although it is true, there are plenty of other assets that could make you secure. If your house is worth £500k then a pension pot of £500k would also make you secure - in theory you could pay rent til the day you die and never be homeless - guaranteed. To make a slightly more graphic example, if I owned a house (asset) and rented it out to someone else I could use that money to pay rent and live wherever I wanted. In fact, this is what a lot of people do - rent out their houses and then go and live somewhere sunny, or even spend their lives going round the world on a luxury cruise. I'm not saying that you want to do that, it's just that a house is just an asset and there are different types of assets that can be used in different ways in order to achieve 'security'.

My main point is that 'buying a house' should not be an end in itself. Your life and how you plan to live it is the first thing to think about and then manage your assets and wealth according to that - not the other way around.

ToneControl

BluesLover said:

My house is now paid for, so in my retirement I've got somewhere to live that's mine. I'd rather be in this situation than continuing to pay rent indefinitely.
I wouldn't want to buy leasehold.

Most people feel that way, because it's easy to think about and is reassuring, it's just that for some people it's not the most logical choice:
e.g. my mate who has a nice house but very little pension saved up - what does he do? Live in a nice house but can't pay the bills?
Most if not all equity release schemes are a scam, but there are other ways to provide shelter, food and comfort during retirement. Moving house is one option.

Another friend is yet to retire - he has a zero pension pot. He owns his house, his wife has taken some unwise loans out recently (she has been very good at spending lots of money for decades) and he is 62, doing a manual job. What's right for him? 

Also worth noting is that AFAIK pensioners can receive housing benefit, so if you live longer than expected, help is at hand.

Another alternative is to downsize. Again, not possible for some people, everyone's needs are different and complex.
When some other friends downsized, it was to be able to spend money on their boat, and give cash to their kids. That's when I accidentally found the shared ownership houses, and realised that rent correlating to 2%-3% interest was far far lower than equity release rates. NB: some shared ownership properties have rent more like 5.5%, and some have stupid property management fees as part of the rent, obvs these can be avoided.

strtdv

IMO unless you're in your early 20's you're crazy taking out a 40 year loan at 85% LTV, and even then think long and hard about getting a cheaper house, better LTV and shorter term. 

We bought our first house at under £200k at 80% LTV on a 25 year term, and 10 years later sold it while we moved to a small flat to finance renovation costs on our current house. Fortunately we were in a position to sell quickly before the interest rate rises hit things so sold pretty much at the peak. 
Our current mortgage is a 20 year term, and while it's for a bigger amount than I'd ideally like we're in a good position with equity (LTV is below 40%).

Rob1742

You can always find an argument against buying a house, like you can find an argument for virtually anything.

But in general it is better to live in a house and pay off the loan for 25 years rather than spend 25 years on rent that is wasted.

Okay if you are very wealthy you could look at it in different ways, like investing in pension etc. But the majority of the people initially have limited money to spend and not spending it on renting and using it to pay off a loan on what in general is an appreciating asset is the most sensible thing to do. 

strtdv

Yes but it's a huge difference paying off a house you can reasonably afford over 20-25 years and paying off one that stretches your finances so you pay it over 40 years. 

If you've a £60k deposit on a £400k house and you pay it off over 40 years you'll pay over £1 million for the house over the 40 years. 
Put that same deposit towards a £300k house and your mortgage payments will be the same with a 20 year term and your total outlay will be under £440k (at current rates) which looks like much better value

WezV

The important bit is to not stretch yourself.   I know some say to go for the most you can  afford because it only gets easier to pay for as equity increases, but that is too risky for me.

I remember being offered stupidly big mortgages that would take all my spare cash prior to 2008.  I'm really glad I didn't.

My purchases have always been lower end of the market.  £74k for my first terrace  with a tiny deposit, but  few years later that gave me a £15k deposit on a £150k semi.   Then I got divorced and had £60k of equity to split with my ex .  I got  £150k terrace with mine, which is currently worth about £180k... I have £60k of equity again within 5 years. I'm paying approx half that i would be if I rented.

If I lost my job or had to sell i still have that equity to play with.  If I was renting, I would have no spare cash for saving anything and no equity as a back up.   It may be a different equation for people better off higher up the market, but I'm happy to be a home owner in my "average earner" position.

boogieman

The problem with renting is what happens when you retire? Unless you’ve got a load of savings stashed away or a sizeable pension, how do you pay the rent?  

Sporky

boogieman said:

The problem with renting is what happens when you retire? Unless you’ve got a load of savings stashed away or a sizeable pension, how do you pay the rent?  

OnlyGrans? 

ToneControl

boogieman said:

The problem with renting is what happens when you retire? Unless you’ve got a load of savings stashed away or a sizeable pension, how do you pay the rent?  

Initially from your pension savings / the money you released downsizing.

AFAIK you would get Housing benefit once your income gets low, and savings go below £16k

It's certainly not an ideal situation, but for people who have not saved for retirement, and downsize to fund their initial retirement, it stands as a safety net if the cash runs out. Much better to actually save money in advance if possible.

My uncle and aunt have had to cope with no personal pension for about 20 years, after saving nothing for retirement. The assumption was he could carry on doing joinery part time into retirement, but shoulder injuries put him onto benefits before the state pension age. They had paid off the mortgage, but then had to do all the normal things to save money, not heating the house properly, etc. They had considered downsizing to a "park home", but chose to stay. Quite a lot of people live in retirement park homes, which baffles me tbh, since they seem expensive for what they are.

The thing with this idea that the prime objective should be "to pay off the mortgage" stops people thinking about the full perspective needed to plan for the future. 

Sadly, I know a couple who were throwing everything at the mortgage, to the point where they declined private health cover that was offered as part of his employment, to get extra income to pay off the mortgage. She got cancer, which the NHS failed to spot for a long time, and she died with both kids still in school and uni. Life insurance then paid off the mortgage, but we are so sad that this happened, although we can't be sure that she would have been saved by earlier diagnosis.

btw for those who pay higher rate tax, and over ~45 years old,  it's worth thinking about sinking as much cash as possible (above the 40% threshold) into your pension instead of a mortgage (if you have a reasonably low mortgage interest rate).

boogieman

Sporky said:

boogieman said:

The problem with renting is what happens when you retire? Unless you’ve got a load of savings stashed away or a sizeable pension, how do you pay the rent?  

OnlyGrans? 

Bugger, I thought I’d kept that a secret.