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Civil Servant

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No rude replies please. I hope I’ve posted enough over the last few months for people to know I’m not a troll.

Currently overseas, and with a growing family to house, we had been anticipating returning to London/the South East sometime in the next year or so. Having sold a small flat some time ago, and with the bulk of the proceeds of my STR earning 4.75% (the rest in gold and shares), we’ve recently been sitting cash-rich hoping to save enough to put down a very sizeable deposit on a house upon our return. More recently we’ve thought about renting for a while first with the twin goals of i) hoping for some house price falls and ii) being really sure about which area of London/SE we wanted to live in (we aren’t sure if we want to live in the London suburbs or out in commuter-ville and what with stamp duty, lawyers and estate agents fees, buying a house in the ‘wrong’ area and then regretting it would be an expensive mistake worth a year or more’s rent). We’ve never put very substantial sums into equities, gold etc, since we’ve always been a little nervous about the downside risk involved in doing so and because we’ve never been sure when we’d be moving back to the UK and might need our cash ready.

Our situation has now changed somewhat and, subject to the completion of what are hopefully a few formalities, I’m in the happy circumstance of being sent overseas again for four years from early 2007. The question then is what to do now?

My natural instinct is to stay pretty much as we are, perhaps getting a little more heavily into gold if it dips further, but continuing to stash away cash savings with the aim of accumulating a bigger deposit or even enough to buy a house outright. If Dr B’s 2011 stagnation thesis is correct, our timing could be pretty fortuitous. The recent rise in interest rates adds weight to my gut feeling that since we’ve been out of the market for this long we may as well hold our nerve.

However Mrs Civil Servant is still attracted to the idea of establishing roots back in the UK and buying some form of house – either the ‘ideal’ family home we’d rent out and hope to come back to in four years time or a small flat we’d leave empty and use for return trips to the UK. This latter idea is one I’ve successfully argued against: my feeling is that small flats are the sector of the market most likely to be hit by price falls and that keeping an empty flat is a liability anyway.

Although my heart isn’t in trying to buy the ‘ideal’ family home right now (Mrs Civil Servant’s other idea), I think this has probably got more merit as an idea than buying a flat. It will generate (admittedly low in percentage terms) rental income and would enable us to keep our position in the market if prices continue to rise. On the downside, I’m still nervous about price falls, unexcited by the likely rental yields, and utterly un-thrilled at being a remote control landlord dependent on agents etc. I’m also somewhat under-whelmed at what our hard-earned savings and mortgage would enable us to buy right now and can’t help feeling we’ll get more for our (increased) money in four years time.

I know that some of you out there will see this as a no-brainer. But there are two nagging doubts that plague me about my Plan A (save as much as possible till we get back in 2011). The first is that I can’t make my money work as hard for me as some of you have for yourselves e.g. Dr Bubb and other investors. Firstly we don’t have the talent, and secondly (and consequently) we are financially risk averse. No amount of persuasion is going to change Mrs Civil Servant on this one. I don’t really have the heart for riskier investments either – my workday is too busy to track the FTSE and my family life doesn’t really encourage spending night after night following the financial pages to track my investments – I’d rather put it somewhere safe and forget about it…. The result of this is that the bulk of our deposit will only ever increase slowly through bank interest or our own salary savings.

The second nagging doubt is that I can’t help feeling that the ‘four-five bed house in the London/SE area’ section of the market is going to prove much more resilient than the ‘two bed flat in the London/SE area’ section simply because of recent demographic and building trends – with the result that the sort of house we might want to live in is less likely to fall in value between now and 2011 and might yet rise further (Ouch :unsure: !).

Even allowing for these two doubts, my current assessment is we’d be best to follow my Plan A (save and buy in 2011) in all circumstances other than continued above-inflation rises in our desired market segment. I welcome your views to help my thinking this through. Do you think this analysis is correct? And if so, what chances do you think there are of such continued inflation? Do Bears confidently believe that Cash (as opposed to riskier investments I will never fully master) will keep pace with or outpace property over the next four years? Do Bulls feel there is still an argument for continued year-on-year above-inflation rises in prices of the sort of home we hanker after?

Finally, don’t worry; I’ll take all your advice with a large pinch of salt – but I will find your views helpful in thinking through my own.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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