Shortish term UK property investment?

[matchdat]

Hello fellow fools.

I’m a sporadic reader here but this is my first post. I hope you forgive the selfish use of this great site, but I write seeking advice. I am considering a short to medium-term property investment and am not sure where to turn.

My situation:
Fast closing in on 40. Married + 2 kids. On an expat assignment with a plan to ultimately move back to the UK. We have a family home back in Blighty near Edinburgh but it will be much too small for our family when we return. We currently let it out, long term, unfurnished. We also own a smaller holiday cottage which we use on visits home and we Airbnb the rest of the year. We have pension pots and a modest ISA-based HYP, however we also hold substantial savings in cash. Our vision is to return to the UK in about 3 years (but could be longer!) then sell the family home and combine the proceeds with the cash savings and buy a better-sized family home. We don’t know where we will settle accurately enough to sell the current place and step up the property ladder now. And out international location would make it hard to do and the cap gains tax implications a nightmare. For what it is worth, we hope to retain the holiday cottage.

Concerns:
i. Returns on our cash are close to zero. In fact, its value is effectively eroding in real terms despite mainly sitting in tax-sheltered accounts (ISAs, premium bonds).
ii. Market timing risk. Earning a better return would be fantastic, but we don’t want the usual stock market exposure because we risk the bad luck of a market dip/crash just when we need the cash for the new home.
iii. Being left behind by the UK property market! I realise Scotland is not the highest growth market, but 3+ years feels long enough that some appreciation could occur meaning the house that we can theoretically afford now would be unattainable when we return. That would frustrate the hell out of us!

Questions:
1. I would welcome investment ideas but am specifically wondering whether you have any ideas for UK property market exposure without actual bricks and mortar (and associated stamp duty/LBTT in Scotland, running costs, council tax, etc) and without the stock market fluctuations?
2. Am I thinking about this the right way? What am I missing or misunderstanding!?

Any and all suggestions, questions and comments welcome. Thanks so much!

Mat

[syrio]

Don't invest in more property.

You have 2 properties, you have a lot of property exposure already, why would you want more exposure.

If you need the money for a bigger house in 3 years time, just put it into a cash account or bond that matures in 3 years time when you expect to need it.

Yes, returns on cash are close to zero. Tough. Returns on other investments could be considerably less than zero.

I suppose you could try some of the more established peer to peer lenders - you could maybe get between 3% to 5% with Ratesetter.

Maybe you could try spreadbetting on a house price index if that is possible, but there is no guarantee that the prices where you want to buy will be reflected in the house price index you can bet on.

Maybe there is some property related investment you could try, but again there is no guarantee that it will match the performance of house prices where you want to buy.

You need to consider the risk of any investment you make underperforming the housing you want to buy. At least with cash the risk is limited.

For such a short timescale, keep it simple and just invest in cash.

[matchdat]

Hi Syrio

Genuine thanks for your reply and advice. It is much appreciated.

Regarding exposure, to clarify, I consider my current property exposure pretty low. Both of the current assets are of pretty low value and the step up we are looking to make is big. The cash sums we are talking about are substantial, to us at least.

My answer to you question “why would you want more [property] exposure” is that I want to own a more expensive family home in the future but can afford it now. Is it fair to say you see the risk to UK property is weighted to the down side right now? If the market rises say 10 or 15% in the next 3+ years I will feel like I am losing! So, to me, more exposure now would de-risk, or hedge my situation, albeit with some “basis risk” (if I am using that term correctly?) that you rightly point out. Does that logic pass the sniff test?

That said, if there is no real way of achieving the exposure then this is a mute point! But hope that provides you and others a bit more background to my questions.

[Corvid]

Hi

Not sure how closely this corelates with Scottish property prices.

https://www.ishares.com/uk/individual/e ... individual

There may be other, more relevant property ETFs. I've only ever invested in index tracker ETFs so have no experience.

Corvid.

[syrio]

IUKP iShares UK Property UCITS ETF is UK commercial property - REITs such as Land Secs, British Land etc.

So not related to the UK housing market.

[syrio]

I can't think of any way of achieving the exposure you wish, other than buying the house you want now. Maybe someone else can suggest something.

I think your logic is sound in trying to think about how to hedge against rising house prices, but I don't know how you can do it.

You could spreadbet on UK house prices, but I don't recommend this.
http://moneyweek.com/why-you-should-avo ... ets-20900/

You could spreadbet on UK housebuilders, again I don't really recommend this.
http://moneyweek.com/the-best-way-to-sp ... ces-11820/

You could invest in UK housebuilders, UK estate agents, residential property companies etc. It will be difficult to work out how much to invest and how sensitive they are to property prices. There are some other suggestions in the Telegraph here.
http://www.telegraph.co.uk/finance/pers ... uying.html

The Castle Trust HouSA which the Telegraph mentions seems to have gone, but it wasn't without its potential problems anyway.
http://moneyweek.com/why-the-housa-isnt ... as-houses/

I won't try to predict the direction of the UK housing market. I tend to always think down and am always wrong. There are reasons to think it will go down, or perhaps stagnate for a long time if homeowners are unwilling to sell and make a loss.

In the event of rising house prices, yes you might have a bit of a problem but maybe you have other options in the event of rising house prices - saving more over the next 3 years, taking out a bigger mortgage, selling the holiday cottage, buying a slightly smaller house than you would perhaps have wished for. Not ideal options for you I suppose.

Maybe you should think about different scenarios, what sort of situation would you be in if house prices went down / stayed the same / went up 10%, 20%, 30% or more.

[Clitheroekid]

The Castle Trust HouSA which the Telegraph mentions seems to have gone, but it wasn't without its potential problems anyway.

Yes, it was for a fixed 3 year term, and closed out on 5 August last year with a pretty healthy 38% return on the original investment.

I personally think people pay far too much attention to the financial value of a house and far too little to the fact that it should first and foremost be a home. Sadly, this is due to the fact that our entire economy appears to be addicted to and dependent on rising house prices, encouraged by the ludicrous tax advantages that home ownership has over other investments.

However, in your position I think I would forget about trying to forecast the housing market (which nobody can do anyway) and just concentrate on finding the house you want now. If you're successful you can buy it and then rent it until you want to live in it yourself.

The rent is bound to give you a better net return than interest on cash while you're waiting, and if the market rises you will get capital growth as well.

And even if the value of the house falls so what? You've still got the house you want, which is far more important, and as you neither need nor intend to sell it you won't actually realise that loss anyway.

[matchdat]

Hi everyone - i just wanted to say another thanks for your responses. Plenty of food for thought.