Author Topic: How to hold investments for a UK house purchase in 2016  (Read 2401 times)

adjoining_penguin

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How to hold investments for a UK house purchase in 2016
« on: September 14, 2013, 12:47:31 PM »
Dear MMM community,

I wonder if I could get some advice and opinions on how to hold funds to buy a house in the UK in a few years.  We plan on returning to the UK in 2016 after a few years working overseas.  We have investments built up so we can buy a house outright and are probably looking at spending GBP300-400k.  How should I hold these funds for the next 2.5 to 3 years?

Should I just park it all in cash?  Does it make sense to move it to pounds gradually?

Are bonds risky for this period of time given interest-rates must rise at some point? 

Is 3 years long enough to benefit from a really conservative allocation to other things - eg few% stocks and bonds . . .  in with cash?

Do REITs or any specific stocks or other assets provide any decent correlation to UK house prices?  Something to hedge against a sudden rise in UK house prices would be nice as the UK housing market is a bit bonkers. 

Any other ideas? 

Thanks!




gmuk

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Re: How to hold investments for a UK house purchase in 2016
« Reply #1 on: September 22, 2013, 04:04:25 AM »
Hi. I'm in a similar boat. Currently live in London and my partner and I are saving for a house purchase. We want to get a large down payment (at least 50%). Currently have it all in a savings account. Would love any advice as well from UK Mustachians...

daverobev

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Re: How to hold investments for a UK house purchase in 2016
« Reply #2 on: September 22, 2013, 08:53:35 AM »
IMHO - if you know you have enough money NOW to buy what you need, cash it all in and get it to the right currency.

Why take risk when you don't need to? If this money is specifically *for* a house.

The market could go up, house prices could go up, but conversely the pound might go up (fingers crossed for me - living overseas with UK assets has been rough the last few years).

It's all about risk vs timeframe. If you can get 2% in savings, and inflation is at 3%, you'll lose a miniscule amount over 3 years.

adjoining_penguin

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Re: How to hold investments for a UK house purchase in 2016
« Reply #3 on: September 23, 2013, 08:10:03 PM »
Thanks Dave.  Getting it to pounds certainly avoids one risk. 

How about a more general question - how can you hedge against rising residential property prices?  It seems the rent/buy calculation is different in many places but often quite close.  What if someone plans to rent for say 5-10 years and wants some protection against house prices going mad again - eg 2000 to 2008 in UK (and still haven't actually gone down in real terms that much).  That seems a big factor in the rent/buy calculation that's hard to actually calculate.  With buying you at least protect against that (and if prices go down your asset and the cost of other houses you may want to buy are perhaps are somewhat in synch). 

It doesn't look like REITs are actually that correlated.  House builder stocks? 

Anybody any thoughts?

daverobev

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Re: How to hold investments for a UK house purchase in 2016
« Reply #4 on: September 24, 2013, 07:30:29 AM »
Well, one option is to buy a house and rent it out. Or, but *the* house and rent it out. If you just buy 'a' house it'll cost you a couple of percent to sell and buy another one.

I wouldn't fret *too* much about house prices going nuts. As you say, they haven't reverted much, plus the govt's stupid 'make it easier for first timers' scheme will drive prices up in the short term.

You can possibly find a more related REIT or REIT sector - not commercial property. Residential. Not sure of any in the UK though, and then you have specific risk, liquidity risk.

You could go for something like Sainsbury's or another company that owns a lot of property. SBRY has a tangible book value of just under 3GBP, and a market price of about 4GBP. Unlike Tesco, it owns its shops.

Honestly though short term investing is a bad idea (ie isn't investing!).

Oh, you could try getting in on inflation-linked savings things at the Post Office.. or not, if you're not in the UK at the moment.

Honestly my feeling would be get it into GBP and in the highest interest account you can. Look into when the govt scheme for first timers ends. See if you can find a house that'll meet your needs now, and if you can, buy it now and rent it out for a couple of years, expecting to spend some money making it 'home' when you move in.