There are plenty of reasons why you might not want to buy a house: it’s very expensive, it’s inflexible and the housing market is having a bit of a wobble right now. Here are five alternative options for your finances while you make your mind up.
Save for your retirement
It’s boring, but it’s good. You should have a pension at work, but consider supplementing it with a private pension. Groups such as Hargreaves Lansdown or AJ Bell offer read-made Sipp options. Adrian Lowcock, investment director at Architas, says: “Many young investors have a 30 – 40 year investment horizon. Given this long term focus you are in a position to take some risks, although that doesn’t mean unnecessary risks. An increased focus on shares makes sense as over the longer term they have been the best performing asset class. By deciding to rent you will need to make sure you have the finances in place to pay rent when you stop earning, which means that you will need a much larger pension and retirement pot than someone who owns their own home.”
These are a way to get exposure to the residential or commercial property market, but without having to buy a whole building. The TM HearthstoneUK Residential Property fund, for example, invests in a range of house types across the country so it is broadly in line with the make up of the UK’s housing market. This makes it useful for ‘Generation Rent’ because it helps their money keep pace with house price inflation while they save. Historically residential property provides low volatility and attractive returns with low correlation to equities and bonds so it can also be useful for diversification.
You could also try commercial property funds. Kay Ingram, director of public policy at LEBC, says: “Commercial property funds invest in offices, shops, factories and warehousing. The value of commercial property goes up and down but the main contributor to investment returns is the rental yield. Most commercial leases are long and contain upward only reviews. This can provide inflation proofing.”
Buy to let
23 providers now offer buy-to-let mortgages for first-time buyers, according to data site Moneyfacts, which offers an alternative way of helping first-time buyers onto the property ladder. You can buy in a cheaper spot, for example, and rent it out without having to move yourself. If you do it right, you may even be able to generate an additional income from it – though take into account estate agents fees and repairs, which can add up. See our article here
Invest to create an income
Savings accounts don’t pay much at all, but you can find plenty of collective investment funds that focus on dividend-paying shares. These will often pay around 4% (though the income is not guaranteed) and give you some extra income. You may even get some capital growth if the stock market rises. Consider keeping it in an Isa to make sure it is tax-free
Give yourself flexibility
Life changes, stuff happens – don’t rule out buying a home just yet. If the property market crashes, you might just be tempted. Lowcock says: “Getting some investments in place to give you the flexibility to choose is essential. It means you won’t become trapped by decisions you made earlier in life. Using the Lifetime ISA could be an effective way of doing this as it has duel function of allowing people to save for a deposit and a pension in retirement, meaning you don’t have to make a decision right away.”
Source: Your Money