#15 - Finance Fridays - UK’s Rent vs Buy Calculator, Stamp Duty Limit, Giving Up on the Lifetime ISA

*This is not financial advice, just me brainstorming about things related to money. Stocks are extremely volatile - value can go down as well as up. All investments and income streams may be subject to tax.

Contents:

• 💡 Idea of the Week - I've stopped investing into my Lifetime ISA

• 🥗 Idea of the Week - Even the Stamp Duty Policy is outdated

• 🤔 Dilemma of the Week - 5 Signs FOMO is ruining your financial goals

• 🎒Useful Resource - The Best Rent vs Buy Calculator I’ve Found On the Internet

💡 I've stopped investing into my Lifetime ISA

In a previous issue, I've spoken about how difficult the UK housing market has become especially for first time buyers. And one of the many schemes given to UK First Time Buyers is the Lifetime ISA.

I've had one since it was available but I've stopped paying into it as of 2024. This is because it has become less likely that the house I'll buy will be under the value of £450,000.

These are some numbers the average price of homes, courtesy of rightmove:

• London - £730,885 

• East London - £527,736

• South East - £483,360 

• East of England - £401,211

I would happily live in a commuter town outside of London but those prices are also becoming unaffordable since everyone else has the same idea.

Being an office worker means that staying close enough to London to abide by the mandating of office days limits my buying options massively.

This means I risk being penalised 25% when I eventually buy a property that exceeds that amount.

MoneyExpert illustrates this in simple terms:

Imagine you saved £1,000 and so got a £250 bonus, you'll have £1,250 total (ignoring interest, for ease). If you then withdrew it and closed the account, the 25% penalty would be £312.50. So you'd get £937.50 back.

So I will now divert my money to my Cash ISA until the UK government gets their ish together.

Hopefully, Martin Lewis' campaign succeeds in making the government increase the limit but until then I'll abstain.

💡 Even the Stamp Duty Policy is outdated.

First-time buyers in England or Northern Ireland, will pay no Stamp Duty on properties worth up to £425,000. On any amount beyond that, you’ll pay 5% of the cost of the house.

I've already touched on how the Lifetime ISA is no longer a viable investment with the 450k limit. Now looking into this, the Stamp Duty waiver was also set at the similar limit.

It seems years of the government's own housing policies have cannibalised themselves by propping up an unaffordable housing market unsustainably. This article snippet below was written in 2016 so we can’t pretend this wasn’t foreseeable:

The danger now is that, as with cheap and easy credit, demand subsidies like Help to Buy become difficult to withdraw, even as house prices become increasingly unsustainable. The government has become enmeshed in an endless treadmill of market inflation which only makes housing more expensive.

🤔 5 Signs FOMO is ruining your financial goals

The definition of Keeping Up With the Joneses:

“to always want to own the same expensive objects and do the same things as your friends or neighbours, because you are worried about seeming less important socially than they are” - Cambridge Dictionary

Keeping Up with the Joneses is killing your finances. Here are some examples:

1. You jumped on the Crypto hype without bothering to do any research yourself (and subsequently lost money)

2. You can't say no to social occasions even when they exceed your budget

3. You've borrowed money just to participate in a social event

4. You spent more than you would like at either Christmas, someone's birthday or a Wedding

5. You fear being seen as cheap so you spend more on clothes, cars, restaurants that you don't even like

🎒The Best Rent vs Buy Calculator I’ve Found On the Internet

Recently, I discovered this Rent vs Buy Calculator.

This is a great tool for working out whether you should continue to rent or attempt to buy a house. Given the ongoing Housing Crisis, this will be more applicable to more people in this high interest environment.

Even if you don't have all the numbers at hand, you can make a good estimate as to how far off you are from buying your first house.

For the calculator these are probably the fields that are most important to the calculation.

1. Property Price 

2. How long do you plan to stay? - 

3. Mortgage Rate - Rightmove estimates 5.23% in early 2024

4. Property Price Growth Rate - ONS doesn’t project more than 2% from 2024

5. Monthly investment whilst renting - With 5% Cash ISAs available, you don’t have to deal with volatility of the stock market.

6. Stamp Duty - since house prices have started to exceed the limit

7. Service charges - Since they have got out of hand recently

House prices may never get cheaper but saving accounts are paying more interest, lower interest rates are on the horizon and you can work towards a higher salary. All these factors and more can mean being patient might lead to better house purchase in the near future.

✍🏿Quote of the Week 

“A digital product doing $250/month in revenue ($3,000/year) has the same return as $100,000 invested in a 3% government bond ($3,000/year). Keep that in mind when setting goals for your side hustle.”

― Dickie Bush

Key takeaway: Investing gets a lot of attention but the potential return of a good side hustle might be a better bet in the long term.