Reply to: Buying a house outright - views please

[expat]

A mortgage at 6% is not a bad thing. The real rate on inflation (the rate at which new money is being created by the banks and bank of england) is much higher than 6%.

Surely it's only a good thing if the rate at which you personally are coining it is higher than 6%?

[vista]

Pension

I really can't believe people here think investing in pension funds is a good thing to do - does anyone remember any of the pension scams?

Agreed but if your purchasing a 'defined benefits' pension administered by your good self the chances of getting hosed are tiny (bar stock market crashes assuming a tracker). You have to do something about a pension because of the 40% tax break, if you make alternative arrangements you're still gonna have to pay tax on the income so you may as well get the tax break on the way in.

[donaldduke]

Just wondered what the view from the pub floor would be on the following.

Let's say you have a house worth £450K with a mortgage on it of £180K, for £250K you could buy a house that would be big enough (the current house is too big anyway) and in a nice enough area, would it be wise to sell up and buy outright, thus having no mortgage? Or would this be a daft thing to do?

I'm trying to think of all of the pros and cons.

Daft,

12 years from now your house will be worth 900K, while the other one
will be worth just 500.

My plan would be to get the mortgage down to 150, then down to 100K, over the next few years or so.

The transactions costs of downsizing will be almost years worth of interrest payments on your 180K mortgage anyway.

A mortgage at 6% is not a bad thing. The real rate on inflation (the rate at which new money is being created by the banks and bank of england) is much higher than 6%.

Should you hit bad times you can always remove equity from the house until things improve.

[gables]

I really can't believe people here think investing in pension funds is a good thing to do - does anyone remember any of the pension scams?

Agreed, and whilst I mentioned it in my last post, I have real difficulty gaining confidence in them. It's what to do instead?

[SandyDown]

I really can't believe people here think investing in pension funds is a good thing to do - does anyone remember any of the pension scams?

[MarillionFan]

"Maybe talk to MF and buy some Thai Tat?"

Going cheap.

[glashIFA@Paramount]

You only get tax relief on up to a maximum of your net earnings for the year or ~200k, whichever is the lesser.

If you're set up as a ltd company you can get a bit of latitude with the level of contribution if it's made by the company. Needs to be wholey and exclusively for the purpose of the trade. All down to the Local Inspector of Taxes so different thoughts in different parts of country.

You could invest into the development of residential property over commercial property - this gives tax breaks at your highest marginal rate. Shorter term than pensions and all monies available at the end.

[gables]

This is why I paid off my mortgage, £220K mortgage on a house worth £400K at the time but for me it all boiled down to the security of having somewhere to live whatever happens next to me and never ever having to regret the hair brained idea I would have sunk/wasted £250K into instead ;-)

The £500K barrier is also very real my house hit £500K real quick but has remained stubbornly on or around this number for the last year 18 months.

Now all I have to do is buy another house to live in, sell this one and start dumping the cash into a pension with 40% tax relief turning my pension from 500K to 700K. (I'm hoping this idea illicits some better ideas?)

That's an interesting point about the 500K \ 4% barrier, already mentioned but one I hadn't even thought about. Begs the question, for me whether we'd be better to pay off the mortgage by buying outright (round here we're talking a 4 bed detached), hopefully this would grow at a faster rate than the house we currently have due to the barrier so the gain would be bigger, and at the same time put the mortgage payments into savings\investments\pension.

[bobhope]

This is why I paid off my mortgage, £220K mortgage on a house worth £400K at the time but for me it all boiled down to the security of having somewhere to live whatever happens next to me and never ever having to regret the hair brained idea I would have sunk/wasted £250K into instead ;-)

The £500K barrier is also very real my house hit £500K real quick but has remained stubbornly on or around this number for the last year 18 months.

Now all I have to do is buy another house to live in, sell this one and start dumping the cash into a pension with 40% tax relief turning my pension from 500K to 700K. (I'm hoping this idea illicits some better ideas?)

You only get tax relief on up to a maximum of your net earnings for the year or ~200k, whichever is the lesser.

[vista]

Big plus

That is a very good point, running costs should be fine, hell you could work at Tesco or Burger King and make enough for house running costs if you have no mortgage - assuming your kids don't go to most expensive private schools

This is why I paid off my mortgage, £220K mortgage on a house worth £400K at the time but for me it all boiled down to the security of having somewhere to live whatever happens next to me and never ever having to regret the hair brained idea I would have sunk/wasted £250K into instead ;-)

The £500K barrier is also very real my house hit £500K real quick but has remained stubbornly on or around this number for the last year 18 months.

Now all I have to do is buy another house to live in, sell this one and start dumping the cash into a pension with 40% tax relief turning my pension from 500K to 700K. (I'm hoping this idea illicits some better ideas?)

[gables]

It's great to see these different views, each offering a different perspective. Just got to decide which is appropriate for us.

Cheers,

[GreenerGrass]

The big pro of buying a big house is that any gains are tax free when you come to cash in. You are also leveraging the gains if you are taking out a mortgage. In the long term I think you'll struggle to beat it as an investment when factoring in tax. It can be argued that by investing fully in ISAs each year you may give it a run for its money but you won't have the same leverage.

If you know you will be defo happy in the 250K house and aren't looking to trade back up again then selling up now ( at a time of high house prices ) and removing the worries of a mortgage could be a good idea. However if you are trying to time the market and eventually buy back in again then I reckon its not worth the hastle on what is a gamble. You might make a killing but the odds are that you won't !

Agree with these points, you'd have to be confident you wouldn't want to upsize again and face a whacking great stamp duty bill.
Other factors to consider, if you stay put once your place reaches 500k (if we don't have a crash ) it may struggle to go higher for some time after that due to breaching the 4% stamp duty limit. Maybe a good time to exit then.
In the event of a slowdown higher value properties may be hit much harder in % drops than sub 300k houses.
If rates in your line of work look like taking a tumble, or you see work drying up, or you fancy trying out a Plan B, or just working less then its a no brainer. Downsize, and pick up a positive cashflow BTL if you're worried about missing out on property gains. Have a repayment mortgage on that if possible.

[Paddy]

If you have enough cash to buy property then the most sensible way is to take your money out of the country and purchase your property through your own offshore company. Under Panamanian law company directors can remain anonymous. This way you will avoid inheritance tax and capital gains tax. Most large property owner in the UK do it this way.

[rootsnall]

Just wondered what the view from the pub floor would be on the following.

Let's say you have a house worth £450K with a mortgage on it of £180K, for £250K you could buy a house that would be big enough (the current house is too big anyway) and in a nice enough area, would it be wise to sell up and buy outright, thus having no mortgage? Or would this be a daft thing to do?

I'm trying to think of all of the pros and cons.

The big pro of buying a big house is that any gains are tax free when you come to cash in. You are also leveraging the gains if you are taking out a mortgage. In the long term I think you'll struggle to beat it as an investment when factoring in tax. It can be argued that by investing fully in ISAs each year you may give it a run for its money but you won't have the same leverage.

If you know you will be defo happy in the 250K house and aren't looking to trade back up again then selling up now ( at a time of high house prices ) and removing the worries of a mortgage could be a good idea. However if you are trying to time the market and eventually buy back in again then I reckon its not worth the hastle on what is a gamble. You might make a killing but the odds are that you won't !

[Churchill]

Having the cash in hand and able to make an immediate exchange can also bring the purchase price down significantly.

Cash?

How vulgar.