Amount to spend on a new house [UK]

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JamesUK
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Amount to spend on a new house [UK]

Post by JamesUK » Tue May 08, 2018 10:04 am

Hello all,

I was wondering if you could please offer me some advice.

My mother owns her property which is worth roughly 500k. She has a pension which more than covers her cost of living. She has around 250k in index funds and around 700k in cash.

She would like to move houses asap. What would be the maximum you think she should spend on a house should be? Would putting something like 1.3m in a property be wrong?

She is from London.

What would you recommend someone in this spot who is elderly?

Thanks,

James

barnaclebob
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Re: Amount to spend on a new house

Post by barnaclebob » Tue May 08, 2018 10:37 am

I probably wouldn't put that much of my net worth into real estate. What are her needs? Does she really need to spend 1.3million to meet them? Is the difference between what she needs and what she can spend worth the quality of life improvement? Any large healthcare expenses expected if shes not still in London?

Jags4186
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Re: Amount to spend on a new house

Post by Jags4186 » Tue May 08, 2018 10:44 am

Need more information:

What is the pension and what are her expenses?

Why the jump from $500k to $1.3 million? Is it simply moving from London suburbs to London proper? Or is it from a house to a much bigger/nicer house? Elderly people don't need giant homes to take care of.

I wouldn't put all of my money into a property even if I had a pension covering expenses. She should have some cash aside.

JamesUK
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Re: Amount to spend on a new house

Post by JamesUK » Tue May 08, 2018 10:45 am

barnaclebob wrote:
Tue May 08, 2018 10:37 am
I probably wouldn't put that much of my net worth into real estate. What are her needs? Does she really need to spend 1.3million to meet them? Is the difference between what she needs and what she can spend worth the quality of life improvement? Any large healthcare expenses expected if shes not still in London?
Hi and thanks for the reply.

My father recently passed away. I will most probably look after her if her if need be. She is currently in good health and no healthcare expenses expected. She will most probably stay in London and not move abroad or anywhere else.

I think she would probably want to give money to me to invest in an index or property. I introduced her to indexing and she converted her actively managed funds to an index. However, I really want her instead of giving me money, to buy a place she likes in a decent area. You still can for that money in the suburbs.

magicrat
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Re: Amount to spend on a new house

Post by magicrat » Tue May 08, 2018 10:53 am

Will her pension still cover her cost of living once she has a $1.3mm house?

staythecourse
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Re: Amount to spend on a new house

Post by staythecourse » Tue May 08, 2018 11:03 am

I've got no dog in the fight, but still doesn't explain why she wants to move from an inexpensive house to one that is DOUBLE what she now owns? All the while now living alone. I am not sure I have ever heard of that. I'm sure folks do that, but frankly never seen anyone do it.

Good luck.
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dcdowden
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Re: Amount to spend on a new house

Post by dcdowden » Tue May 08, 2018 11:35 am

I would probably also want to look at rental options as well. You didn't mention her age or health situation, but often assisted living facilities are rental properties with extra services available. Sometimes they include an opening 'deposit' that is mostly refundable when the resident leaves the facility.

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Watty
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Re: Amount to spend on a new house

Post by Watty » Tue May 08, 2018 11:53 am

Some considerations,

1) If she is 65 then she could invest the 1.3 million and pretty safely spend 4% of it each year on renting an even nicer place with little risk of outliving her money. If she is older than she could withdraw a higher percentage.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

At 65 withdrawing 4% would be 52,000 a year(4,333 a month). I am not sure if that is dollars or pounds or what that would be after taxes but either way I would think you could rent a very nice place in London or the suburbs that is even better than the place in the suburbs that she is looking at buying.

2) What are the transaction costs of selling and buying property in the UK? I vaguely recall hearing about some sort of expensive stamp tax along with all the other normal costs. Some of the same costs might happen again if she needs to move into assisted living or after she dies. Those costs could be used to rent a better place.

3) Is the pension adjusted for inflation? If not then she could be in a financial bind later on.

4) Will the pension cover any increase in costs with the more expensive property.

5) You mentioned that the house is in the suburbs. How is the public transportation in that area? If it is not good then she could find herself pretty isolated as she gets older and doing things like getting to the grocery store and doctors office could be more challenging. A ten minute walk to the nearest bus station now might not be doable in five or ten years. The US suburbs may be a lot different but when my Mom was elderly we could not get her to move out of the long term family house in the suburbs and she was very isolated at times. In addition to her not being very mobile it was also difficult for her elderly friends to visit her.

6) As she ages if she want to keep living in the home instead of going into some sort of assisted living then she may need have people come in to help her. I'm not sure what the government programs are there but she might need to pay a lot for that and she may not have enough liquid funds for that cost. In the US there is a way to tap your home equity by what is called a reverse mortgage here. Would she have anyway to tap her home equity there if she needed to?

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Pajamas
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Re: Amount to spend on a new house

Post by Pajamas » Tue May 08, 2018 12:03 pm

Sounds like a third of her net worth is already tied up in her house. If anything, she might want to move into something that costs less.

Might be better to decide what she needs in a house and what she wants in a house beyond what she needs and see what that would cost rather than to start with "How much should I spend on a house?"

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Re: Amount to spend on a new house [UK]

Post by LadyGeek » Tue May 08, 2018 6:14 pm

This thread is now in the Personal Finance (Not Investing) forum (personal finance - buying a house).

JamesUK, Welcome! I also retitled the thread to attract our UK experts. If you want to change the title further, just edit the Subject: line in Post #1.
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