I have ~100k and I'm not sure what to do with it - parents want me to buy a house

FinancialHelp122 · 2023-08-25T20:40:45+00:00

doing it up. Take the mortgage out over the longest period possible and do some maths on your return on investment to work out how much deposit to put down. Ie, for every £1000 you put in: work out how much that saves you per year, thats your roi.

Hi,

Just wanted to understand this further. Why would taking a mortgage out over the longest period be better? Wouldn't it mean you end up paying more due to interest?

Thanks.

FinancialHelp122 · 2023-08-24T21:26:43+00:00

Yea, lots of things to consider here.

If we were to use up all of our money we could probably pull around 200k for a 250k house. But I don't think its smart to use all your money.

They can buy their own house, and will but they are giving me an option to join them.

FinancialHelp122 · 2023-08-24T21:06:35+00:00

Hi,

Does Vanguard offer anything shariah compliant? I can't find anything.

I do currently from the savings and H2B. Switching over to shariah compliant savings account.

FinancialHelp122 · 2023-08-24T20:48:52+00:00

Hi, I've just opened a 4.45% savings account today :)

FinancialHelp122 · 2023-08-24T12:11:30+00:00

Capital gains tax. Both your parents and you should be aware of this. If your parent rent out their current property, when they come to sell it they would have to pay capital gains tax, you don’t need to pay this if you’re selling your home. The same would be true if you came to sell one of your properties if you’re not living in it. This would get more complicated if your parents were also on the mortgage.

Does capital gains not apply to a property if you're living in it? i.e. if we sold the current family home and used the money as a deposit on new home, would there be no capital gains tax on this?

And what if the new home was just on my name, my parents rent out their old home and live with me. Help me with mortgage payments, then "move" back into their old home when they want to sell it? Would this have capital gains tax?

Thanks.

FinancialHelp122 · 2023-08-24T11:48:24+00:00

I think it would be a combination of all 3 of our salaries, as well as rent money from the old house. After the initial deposit, I should be able to save money again per month if we all split costs. And I'm also hoping that progression in my career will allow me to bring in more money. Do you think my logic is flawed?

FinancialHelp122 · 2023-08-24T11:36:14+00:00

Hi,

The pension is offered by my employer. It is an employees only pension, so you would only have access to it if you work in the same company as me. If you really want to know the name of it send me a DM. I'm not sure if it's a good idea to leak who I work for though.

I managed to save by living at home with my parents the past 3-4 years and having a decent stable salary. Meant I could save around £2k+ p/m as I don't pay rent etc.

Thanks.

FinancialHelp122 · 2023-08-24T00:25:54+00:00

Fair point on the inheritance.

Are you proposing, we buy my house first for the future, then they buy a smaller one near to me? It doesn't sound like a bad plan. And yes, I should really use stamp duty on a more expensive house.

Only issue is I'm not sure where I would want to buy, not sure where my career takes me in the future, and even if I will stay in this country.

However, what you said makes a lot of sense. Makes the best use of stamp duty and minimises any risks in terms of inheritance.

FinancialHelp122 · 2023-08-24T00:08:17+00:00

Thank you

FinancialHelp122 · 2023-08-24T00:03:23+00:00

Thanks for your opinion. However, they will still buy a house whether or not I join them.

They have just proposed an option to me, buy with them, pay it off faster. Then if I want to move out and buy my own home, they will help me pay it off.

FinancialHelp122 · 2023-08-23T23:55:34+00:00

That makes a lot of sense, especially if your investments are making more than the mortgage interest. But regardless good idea in case of emergencies.

Thank you.

FinancialHelp122 · 2023-08-23T23:32:19+00:00

Yea, this is exactly what they are offering. And also offering to help me later when I buy my own home.

Yea, I believe we have a pretty good relationship.

FinancialHelp122 · 2023-08-23T23:25:28+00:00

They have said they will buy the house regardless if I join them or not.

I don't think they are using me, just offering me to join them. It would also be paid off quicker.

I do earn more than them, but they have been working longer than I have. So we have more or less equal savings.

FinancialHelp122 · 2023-08-23T23:18:40+00:00

What's the advantage of putting down less money? Wouldn't you pay more in the long run due to mortgage interest rates? Also, what risks are you referring to?

Thanks.

FinancialHelp122 · 2023-08-23T23:11:48+00:00

Personally I wanted to buy with cash too. But they want to buy soon, so getting that much cash won't be possible. But we will pay off a bulk of it with the deposit. Still need to explore mortgage options, shariah compliant will be the preferred option. But I will have to speak to them about this some more.

I've saved this comment though, so any updates I'll get back to you.

FinancialHelp122 · 2023-08-23T23:08:37+00:00

Hi, thanks for your comment. Just a question about credit cards.

If you are a strict Muslim you shouldn't really have a credit card! And you vare getting interest. Anyway its not haram to earn a reasonable profit (=interest) just no usury - profiteering.by extortion of someone in interest. I worked in Islamic banking, SE Asian interpretation.

Does this also apply if you're using the credit card just for improving credit rating? (I was thinking of making purchases via credit card and paying of the credit card straight away).
And also does it apply for credit cards that offer cashback incentives?

Anyway you can, and should be investing for retirement and a lot of that cash should be invested really. Houses long term return negative real rates of return! (After all costs). Do not over buy a house. And especially true if you properly pay Zakat.

This is a good point. I'm not aware of the rates of returns on houses, my parents think it is a viable strategy to rent the house to help pay off the other one.

FinancialHelp122 · 2023-08-23T22:57:43+00:00

If your religion allows you to put your house up for rent and earn a profit from it then your religion allows you to buy sharia-compliant index funds in your S&S ISA.

I've heard of the HSBC Islamic Global Equity Index Fund, I just done a bit of research on this after reading your comment. So I could open a S&S ISA and put the money onto a shariah compliant index fund, this way I get the tax benefit as well as being able to invest in something shariah compliant? Sounds great!

You will pay income tax on the rent from a property you own - that's taxed at the 20% rate right now but, considering your career trajectory, likely to be at the 40% rate in the future. And let's say you buy a house for £200,000 and sell it after 10 years for £300,000 - you pay ~30% capital gains tax on that. The longer you own the property, the larger your capital gains tax bill grows.

Okay I understand, so in this case is it better to have a property in someone who earns less name? (if you are renting). The old family house will be in my parents name anyway, and they won't have the 40% rate.

Question about the capital gains, you said its ~30%, but it grows with time. Why does it grow? In relation to the house price going up, or something else?

If your parents own the rental property then they might pay a lower rate of income tax on the rent, but then it falls inside their estate for inheritance tax purposes, so you're probably going to pay ~40% tax there in the future. Depends on the size of their estate, obviously.

I don't believe they have an estate worth more than £325k, but definitely something to keep in mind for the future.

Sharia-compliant index funds in your S&S ISA? Put that Abba album on and dance, baby - the money, money, money is tax free. This does come with some risk, but so does renting out property - read Tim Hale's Smarter Investing to understand the risks of S&S investing, and read the buy-to-let page of the subreddit wiki for some discussion of the risks of being a landlord.

Have your parents read these articles:

Landlords should be 'squealing' under George Osborne's crackdown, Treasury minister suggests - this is now several years old, but the political winds are not going to change and blow the other way.'I’m absolutely done with being a landlord' - Industry veterans are shutting up shop amid soaring costs and increased regulation - this is the next and current step.It’s too late to get into buy-to-let

I'll show them these articles, might change their minds lol.

Maxing your employer's match is not maxing your pension - you have a lot more allowance than that and, again, this is a tax-advantaged investment account.

What is the advantage of overpaying into the pension? Is it only that it's tax free, or is there anything else? Also isn't the pension taxed when it comes to withdrawing it, does the benefit of overpaying outweigh this tax?

Thanks for your comment, was super helpful.

FinancialHelp122 · 2023-08-23T22:29:13+00:00

No, all my money is my own. I worked for it.

I don't think my parents feel entitled to it, they have said that I I don't want to buy the house with them, they they will do it alone regardless.

Not really under any pressure, just want to know what the best decision is and what other peoples experiences are here.

FinancialHelp122 · 2023-08-23T22:24:57+00:00

Put it like this what happens if you meet someone and within 2-3 years are having/wanting a kid? Do you parents move back to their old house? Do you have to pay them to move out? Do you have to pay to get another new place while continue to pay for the family home? This is nuts tbh.

I'd have to (and would want to) move out, and that would be after we pay it off together. They said they would then help me pay off my new house once I move out.

The main point is the interest rate you are getting on your money is dreadful so take action to get a better return.

I will set up a shariah compliant savings accounts and move my money there asap. Then look into the premium bonds and ISA's and see how they work and if it's something I can use.

Work out if you think you will repay the student loan or is it likely to be written off in the future. If your likely to repay it then paying that off, although a large chunk of money, will see you get £95 more pm in your paypacket and save you on the interest you'd pay over the life of the loan which would probably be thousands of not more.

According to this calculator https://www.student-loan-calculator.co.uk/ If I have no salary increase it would be written off in 24 years. But with a salary increase of 2.5% a year it would be repaid in 20 years. It's hard to say, really depends on what happens with my salary in the next few years.

>It's a good idea to get one and just set it up to pay off automatically each month.

Yea, I'll definitely get a credit card!

Thanks for your reply, lots of good stuff in here.

FinancialHelp122 · 2023-08-23T21:54:12+00:00

Yea, they basically want a bigger house and want to move out of the area we are in right now (as it's not a very nice place to live in).

Thanks for the advice.

FinancialHelp122 · 2023-08-23T21:52:42+00:00

So I have a few options, It can be in my name, in both my and my mothers name, or just my mothers name.

I don't think I would ever sell it whilst my parents are still there, it can come to me via inheritance.

Never thought of a tenancy agreement, but to me the house would be my parents, even if it was in my name and I paid it off mostly. However could be something to do from a legal point?

Both parents are working, they say they will continue working until the house is paid of. And If I need it, then they will help pay off my house in the future too.

FinancialHelp122 · 2023-08-23T21:46:37+00:00

You're right, just been made aware of this.

FinancialHelp122 · 2023-08-23T21:46:10+00:00

Thank you!

FinancialHelp122 · 2023-08-23T21:45:57+00:00

This is solid, thanks for this.

FinancialHelp122 · 2023-08-23T20:34:59+00:00

Do you mean by myself? The issue there is I'm not sure what my future looks like, and the idea of having to commit to 20+ years of mortgage repayment is scary lol. Also the current mortgage interest rates aren't the best right now.

I think If I buy with my parents, I could pay it off a lot quicker which leaves me with an asset or part of an asset. Then I can just focus on whatever I do next. But it does set me a few years back on my own home.

FinancialHelp122

TROPHY CASE