Our current situation is as follows;
UK Expat Family of 3 (7month old) living and working in Singapore, our earnings are good (SGD 600k), taxes reasonably low (17%) but cost of living is high.
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We will return to the UK in the next 2-5 years - so our saving rate in absolute £ terms will reduce owing to higher taxes and potentially lower wages, but should still be 40%+ of earnings.
The big conundrum we have is how much to spend on a house which we intend to buy in 6 months time. We can comfortably put down a deposit of £350 to £400k and borrow £500,000. At current interest rates, sub 2% is very achievable and working in Singapore for next 18-24 months we can save £150k+ to pay down the mortgage or invest.
Property in the UK is relatively expensive, if we buy a house at a much lower value than we can afford we potentially price ourselves out of moving to more expensive areas (south) in the future if we need to for work or family reasons. This of course assumes a general uptrend in property prices over the long term.
Our conundrum is whether to spend £800-£900k+ on a house whilst debt is cheap or buy something much cheaper say £500k and invest aggressively?
So let me recap this quickly, just to make sure that I got all the facts straight:
- You currently live in Singapore and intend to stay there for the next 2-5 years
- As an expat in Singapore, you most likely rent or have employer-sponsored accommodation
- You want to buy a house for future personal use in the UK and wonder how much it should be
Why would you want to buy any house in the UK right now? I am making assumptions now, but I hope that my point gets across:
- You don't need the house in the UK right now to live in
- You could turn it to a rental in the meantime, but you most likely would need a local property manager - if not, your house would have exactly 0% return (not factoring in potential appreciation in book value)
- Location choice might be difficult since you don't know what the future brings and some locations might limit your options after your return from Singapore
To be honest, I would just wait to buy your house until you are back from Singapore and know what exactly you need. Most likely, passive index investment will be a better and more liquid way of investing in the mean time. If you are very positive towards the UK housing market, you can add REITs to your portfolio, but you don't need to make a choice as big as your location choice and house purchase right now.
I guess this whole train of thought is somewhat connected to the fear that interest rates may rise soon and house prices continue to increase.
Isn't that somehow an attempt to time the market? While it could be possible that house prices continue to increase it could be also possible that a second housing bubble bursts and prices are falling again. Or that the economy does not evolve as predicted and the central banks keep the interest rates low.
Another way to think about this situation could be the differentiation between consumption spending and investment.
Would you buy a car in the UK now and park it in your garage and leave it untouched for the next 2-5 years? Most likely not, no matter what the interest rates and car prices are right now. In my opinion, buying a property for personal use is quite similar to the car purchase (=consumption), since you don't get any investment return. The only return you have is not spending rent and a potential increase in the value 10 or 15 years down the road. These increases in value could also be offset by required updates or repairs.
If you are dead serious about buying a house, you could think about
forward loans or other, similar financial instruments to lock in today's interest rates for the mortgage. This would at least eliminate the rising interest rate part of your equation. While these financial instruments might have a carrying fee, I guess this might be still substantially cheaper than the opportunity cost of lost returns of your down payment.
tl;dr: Why limit your options already now: Buy a house (or rent) when you actually need it and know what you need and want in terms of location and size - in the meantime, invest in other, more liquid assets.