# Which is higher priority? Property or pension?



## TTV (14 Aug 2007)

*http://www.independent.ie/business/personal-finance/some--home-truths-1058453.html*

Interesting article in the Indo on the whole property vs pension debate, pretty definitive opinion on the advice of starting a pension early. Personally, I completely disagree and think it is never too early to start a pension. 



> The consensus of opinion seems to be that you can't be too young to start a pension.....
> This is the advice of most financial advisors. This is the advice of the    Pensions Board. This is the advice of the Government.
> But this advice is wrong.


One of the main points I disgree with is - 





> When Johnny starts his first job at 23, his main financial objective is to    buy a house and then to get his mortgage under control.


, that is a pretty sweeping statement and may be the financial objective of certain people but not of all the 23 year old Johnny's that I know. 


I would love to hear other peoples views on this especially in the current climate and if people agree that holding off paying into a tax effecient pension scheme is better than gambling on the housing market to keep inflating so that the possiblity or releasing equity may be achieved. Do others agree that getting on the ladder is far more important than paying into a pension? Are the majority of the countries financial advisors wrong?


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## tiger (14 Aug 2007)

*Re: Property vs Pension*

I think in "normal" times, e.g. when it doesn't look like we have a massive property bubble and the stock market isn't down 10-15%, it makes more sense to prioritise buying a home over beefing up the pension.  (I hate the phrase "getting on the ladder"...).


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## TTV (14 Aug 2007)

*Re: Property vs Pension*

care to expand on why it makes more sense? Also wondering when someone should ideally start a pension in relation to buying a house i.e. if they are to wait until the mortgage is managble and they have the best rates then what age would this typically be at? If people buy into the whole ladder methodology then what happens if they cannot trade up, do not build up enough equity to get the lower rates, do they hold off a pension indefinitely?


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## geckko (14 Aug 2007)

*Re: Property vs Pension*

_

This thread should be used for discussing the substantitive issue.  Posts containing off-topic, irrelevant content will be deleted 


Brendan

_


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## ClubMan (14 Aug 2007)

*Re: Property vs Pension*



TTV said:


> *http://www.independent.ie/business/personal-finance/some--home-truths-1058453.html*
> 
> Interesting article in the Indo on the whole property vs pension debate, pretty definitive opinion on the advice of starting a pension early. Personally, I completely disagree and think it is never too early to start a pension.


Just in case people did not notice - that article is by _AAM _founder, _Brendan Burgess_.  Nothing new in his comments (see the _AAM Guide to Savings & Investments_) and nothing new in some people disagreeing with his analysis! 

Also - the thread title is a bit misleading. I would have called it _"Buy your own home before starting a pension" _and not _"Property versus Pension"_.


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## ClubMan (14 Aug 2007)

*Re: Property vs Pension*



magoko101 said:


> I think what is at issue here is that the article suggests that an individual should have either one or the other.


I don't think that the article (or the _AAM Guide to Savings and Investments_) says that at all. My understanding of what _Brendan _has said here and consistently in the past is that the ideal is that it's not either/or but having both (a _PPR _and a pension). Just a question of timing which to prioritise first. I would not disagree *in general *with the idea of prioritising getting a _PPR _over pension and other savings and then concentrating on the latter once the PPR mortgage is down to a "comfortable" level. However, as with most general rules of thumb, there will always be exceptions and nuances. For example if your employer will match pension contributions up to a certain level then it usually makes sense to contribute enough to avail of these - even when looking to buy your _PPR _- due to the tax benefits and long term investment advantages. And there is no point in scrimping and saving to fund either a _PPR _or a pension to the extent that your quality of life suffers due to lack of finances to live on! There are probably other gotchas too. General rules of thumb are all well and good but ultimately I believe that many individuals probably need to get independent, professional advice specifically tuned to their particular needs and circumstances.


> But the above, almost alludes to pensions as being some sort of get rich scheme.


 I don't take the same cynical reading from the quoted extract as you do to be honest. On the other hand I feel that the comment in the article is probably distracting from the real issues. In particular talk of "compound interest" in the context of most likely equity based pension funds is quite misleading since we are (hopefully!) taking capital growth and not interest.


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## TTV (14 Aug 2007)

*Re: Property vs Pension*



> Originally Posted by *Clubman*
> I would not disagree *in general *with the idea of prioritising getting a _PPR _over pension and other savings and then concentrating on the latter once the PPR mortgage is down to a "comfortable" level.



My main gripe is how long does it take to get to a comfortable level? and what happens if the value of the house decreases thus preventing the person from obtaining a more favourable ltv? Should all the eggs be in one basket until such a time? This will of course be fine as long as property only goes up but you could be talking decades of time holding off on paying into a pension while paying out for a roof over your head. 

I find the advice of getting on to the ladder as more important than spreading the risk and investment from early on as not only short sighted but as dangerous. Personally if a FA advised me to place all my money on property until it started paying off before starting a pension I would seriously wonder the motivation behind it.


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## magoko101 (14 Aug 2007)

*Re: Property vs Pension*

It's not so much a cyncial interpretation, as interpreting the words "_magic of compound interest"_, in a fincancial advisory capacity, as a spot of scaremongering/exageration

I'm guessing the choice of words was possibly to dramatise his point but they probably were a pretty poor choice ... its the first time I've ever seen compound interest referred to as magic anyway...

of course... as far as I am aware, compound interest should be used in reference to deposit accounts and not pensions ...


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## Brendan Burgess (14 Aug 2007)

The "magic of compound interest" is a widely used expression:

=

Brendan


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## magoko101 (14 Aug 2007)

Brendan said:


> The "magic of compound interest" is a widely used expression:
> 
> =
> 
> Brendan



But shouldn't his refer to deposit accounts or the like instead of pensions, or am I being pedantic?


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## TTV (14 Aug 2007)

This article seems to have sparked debate in other places too..[broken link removed]

They have a poll too - *Pension or House: Which would you wish for first? , *80 - 20 in favour of house but I do think the wording of the poll is misleading. If I was to wish for something, a house or a pension I would wish for a house, but if I was to start preparing for one it would be a pension and already has been. I am in no rush to get a house and I dont think I should be nor should I hold of my pension until I get one.


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## Brendan Burgess (14 Aug 2007)

I would take it as referring to the compounding effect of the return on any investment - deposits, equities or property. 

People selling pensions use this and similar expressions. Here are the results for the 

Brendan


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## geckko (14 Aug 2007)

*Re: Property vs Pension*



magoko101 said:


> It's not so much a cyncial interpretation, as interpreting the words "_magic of compound interest"_, in a fincancial advisory capacity, as a spot of scaremongering/exageration
> 
> I'm guessing the choice of words was possibly to dramatise his point but they probably were a pretty poor choice ... its the first time I've ever seen compound interest referred to as magic anyway...
> 
> of course... as far as I am aware, compound interest should be used in reference to deposit accounts and not pensions ...


 
Indeed.

The term that should be used is compound *returns*.

And there is nothing magic about it.


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## ClubMan (14 Aug 2007)

TTV said:


> My main gripe is how long does it take to get to a comfortable level?


In my opinion what is a comfortable level will vary from person to person so it's difficult to come up with rules of thumb that have general applicability.


> and what happens if the value of the house decreases thus preventing the person from obtaining a more favourable ltv?


You mean it decreases at the same or faster rate than the capital outstanding is decreasing? I don't necessarily see this is a critical factor. As long as the individual can service the loan and is not planning to sell up/move in the short/medium term I see no obvious reason why they should worry unduly about such issues.


> Should all the eggs be in one basket until such a time? This will of course be fine as long as property only goes up but you could be talking decades of time holding off on paying into a pension while paying out for a roof over your head.


But the capital outstanding is also reducing on an annuity mortgage.


> I find the advice of getting on to the ladder as more important than spreading the risk and investment from early on as not only short sighted but as dangerous. Personally if a FA advised me to place all my money on property until it started paying off before starting a pension I would seriously wonder the motivation behind it.


You seem to be judging the _PPR _as mainly or solely an investment here. While I believe that it's important not to lose sight of the fact that one's _PPR _is an investment it is also much more than just that.


magoko101 said:


> But shouldn't his refer to deposit accounts or the like instead of pensions, or am I being pedantic?


I agree with you and don't think that you are being pedantic. I find it disconcerting for people to use "compound interest" in relation to what are usually equity based investments.


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## magoko101 (14 Aug 2007)

So this "magic of compounding" refers to both the pension and property?

Can you clarify this?
_"The consensus of opinion seems to be that you can't be too young to start a pension."
"__This is the advice of most financial advisors. This is the advice of the    Pensions Board. This is the advice of the Government. _ _   But this advice is wrong."_


So I should not contribute to a pension but solely save for a property when I am young?


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## ClubMan (14 Aug 2007)

You've got me confused too - who are you responding to?


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## magoko101 (14 Aug 2007)

Sorry Clubman... That was in reply to Brendans link/comment on "magic of compounding"  above... 

You type two quickly for me...


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## TTV (14 Aug 2007)

> You seem to be judging the _PPR _as mainly or solely an investment here.


Exactly - the gist of the article is treating the PPR as an investment against a pension rather than as a home i.e. looking forward to when you can do equity release  





> If, at some later stage, you need money to start a business, for example,    you can borrow cheaply using the security of your home.


  or releasing money ala Miley from Glenroe 





> When you do retire,    if you run out of cash, there are many options available to you to use the    value of your property to fund your retirement.


The poll on the irishpolitics.ie site tries to compare a PPR/investment and home that it is against a pension but we are not arguing about the utility value of a house, rather whether to pay into it as an investment to the detriment of paying into a pention until such time as it has become manageable or as defined in the article 





> I would say that a comfortable mortgage is around    twice your annual salary and around half the value of your home.


 - rough question, how long before someone on 30k has the capital down to 60k on a 300k mortgage?


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## ClubMan (14 Aug 2007)

TTV said:


> rough question, how long before someone on 30k has the capital down to 60k on a 300k mortgage?


2033 if they start now on a €300K mortgage over 30 years at an assumed rate of 5%. I guess you'd need to factor in inflation, salary increases etc. to get a more accurate answer but the end result is probably the same - "a good while"!


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## TTV (14 Aug 2007)

A good while is right, now if thats in Dublin - that 300k will get a 30 year old on 30k a nice shoebox (not that they should be getting loaned 10x  but hypothetically) that they can pay off until they are 56 before starting to invest in a pension for the next nine years knowing that property only goes up and that they can use their house to borrow more money on should they need it..

Either way going on the advice of the article I reckon it means without substantial rise in house prices people will be holding off starting a pension until far into their working life and I can hear the shrieks of the QFA's around the country as I type this. I dont think you'll find many people advising to hold off starting a pension until you are in your mid fifites and your mortgage repayment is now manageable..


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## command (14 Aug 2007)

One or two items in Brendan's article struck me.  

The vagries of the rental market are surely no worse than the property market. Rental yeilds are lower than interest rates which must translate into tennancy being good value for money. 

he also said that gains on ones PPR is expempt from CGT, so are gains made by the pension fund. 

Certain self administered schemes can avail of borrowings which allow the individual with the pension to take advantge of low cost credit. 

The tax relief on pension contributions outweigh the tax relief on mortgage interest payments?

And finally the notion of borrowing money to start a business, I know when I started my business the one condition of giving up a nice PAYE job to become self employed, take 2 hour luches and play golf 3 times a week was that under no circumstances could the family home be used to finance the business venture. 

The argument for property is an emotional one. In fairness there are very few people out there who could hand on heart say that they would pick pension over home. 

If I set up a self administered scheme when I first start work, gearing it up and then purchasing a rental property with my pension fund I would getting the best of both worlds. I could probably buy a more expensive property, with tax relief my depost would grow a lot quicker. I could then rent an appropriate property, probably in Dublin City rather then somewhere in the midlands.


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## Brendan Burgess (14 Aug 2007)

This is an argument that people use. "My mortgage is so big, that there is no point in increasing my repayments". 

To me it's very clear. If your mortgage is very big, then you absolutely must prioritise getting it down to a more comfortable level. Most people are uncomfortable for a few years, but then things ease off. 

Someone on €30k should not be borrowing €300k in my opinion. If they do manage to get a mortgage of that size, it will be on the assumption that their salary will be rising very quickly. They should be making inroads on that mortgage well ahead of any pension provision

Brendan


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## Purple (14 Aug 2007)

Brendan said:


> This is an argument that people use. "My mortgage is so big, that there is no point in increasing my repayments".
> 
> To me it's very clear. If your mortgage is very big, then you absolutely must prioritise getting it down to a more comfortable level. Most people are uncomfortable for a few years, but then things ease off.
> 
> ...


What if someone has a €1'000'000 mortgage and earns €300'000?
Does scale change the advice above?


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## Brendan Burgess (14 Aug 2007)

> he also said that gains on ones PPR is expempt from CGT, so are gains made by the pension fund.


 
The gains are not taxed within the pension fund itself, but will be taxed as income when you draw it down - probably at an effective rate of around 30%. 

The rent or buy argument is a separate argument. At the moment it is cheaper to rent than to pay a mortgage. I doubt if many people believe that this will be long term structural position of the Irish market. It may well turn out to be a good idea to rent rather than buy at the moment. But you should still be accumulating your savings outside a pension fund, so that you can buy a home when you decide that buying is more attractive than renting. 

Brendan


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## command (14 Aug 2007)

A large percentage of people in the age bracket between 40 and 20 will have to use their property to support them in retirement. If we take this as a given in light of the pensions deficit in that age group then does it not make sense to use your pension fund to purchase the appreciating asset and for you to live in the area that you want to as opposed to the area you can afford to. 

I am never going to be able to afford to buy in Ballsbridge no matter how attractive buying is over renting or how hard I save, but I might be able to rent there.


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## ClubMan (14 Aug 2007)

command said:


> A large percentage of people in the age bracket between 40 and 20 will have to use their property to support them in retirement. If we take this as a given in light of the pensions deficit in that age group then does it not make sense to use your pension fund to purchase the appreciating asset and for you to live in the area that you want to as opposed to the area you can afford to.


Is this realistically an option for many people - i.e. having a pension fund that can invest directly in a property which they then occupy? Is it even possible to do this at all even in limited circumstances? I thought that where you structured your pension fund to invest directly in peoperty there were certain "arm's length/hands off" limitations on what you could do? Or do you mean having a pension mortgage (pension and interest only mortgage) to buy your _PPR _(again presumably an option only available to a small subset of the general population)?


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## New_Buyer (14 Aug 2007)

I cannot understand the logic in your article Brendan. In the article you say the following:


> You should now be making the maximum possible contributions allowed to your    pension scheme, as it is simply the best way to save for the long term.


Surely this refutes all of your earlier arguments! If contibuting to your pension is the best way to save long term then why would any decide to pay off more on their mortgage prior to this.



> n Brendan Burgess is the founder of consumer finance website    Askaboutmoney.com where you can discuss the issues raised in this article.


And are we really allowed to discuss ALL the issues raised in the article!


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## ClubMan (14 Aug 2007)

New_Buyer said:


> I cannot understand the logic in your article Brendan. In the article you say the following:


Haven't you omitted the key bit preceding the bit that you quoted:


> So get your mortgage down to a comfortable level and then you can start your    pension. In fact, if your mortgage is comfortable, you can go in the    opposite direction and switch to an interest-only mortgage.
> 
> You should now be making the maximum possible contributions allowed to your    pension scheme, as it is simply the best way to save for the long term.


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## New_Buyer (14 Aug 2007)

ClubMan said:


> Haven't you omitted the key bit preceding the bit that you quoted:



But if the aim is to have the highest funds available for retirment then why pay off your mortgage any faster than you have.


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## MugsGame (14 Aug 2007)

> Is this realistically an option for many people - i.e. having a pension fund that can invest directly in a property which they then occupy?



command is suggesting buy an investment property somewhere you can afford it, and then rent a PPR where you actually want to live. Buying the investment property inside a pension scheme is just a way to benefit from some of the associated tax breaks.


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## ClubMan (14 Aug 2007)

Ah - I see now. Thanks.


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## Brendan Burgess (14 Aug 2007)

New Buyer

If you have a point to make about the article, you can do so well within the Posting Guidelines.

If you use it as an excuse to discuss the future direction of  house prices, your post will be deleted, as has been explained to you many times before.

Brendan


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## SidTheDweeb (14 Aug 2007)

A few things struck me with the article.

Let me go through them.



> getting on the housing ladder is more important, writes Brendan Burgess


 I dislike this phraseology immensely. The housing ladder? What the hell is that?



> When Johnny starts his first job at 23, his main financial objective is to    buy a house...
> Apart from the security and psychological advantages of owning your own    home, there are huge financial benefits also.
> It's more tax efficient than renting and you won't be subject to the    vagaries of the rental market. The gain in value of the house will be exempt    from Capital Gains Tax.


 Wouldn't it be more tax efficient and save money if instead of Johnny hoping on this 'ladder' at 23, he waited a year or 3, and started on the second step of the ladder? 
What I am getting at is, is it more fiscally prudent to 'jump' on the ladder at a young age (23), because that is the 'done' thing, than to gain some life/job experience and purchase a home slightly later on in life.
A simple example.


> *Scenario 1*
> Johnny, single @ 23, salary €30k
> Purchases starter home, €200k
> Mortgage, €200k
> ...


 At the end of year four, house price will have increased by €25k
At the end of year four, you will have paid off the capital amount of €18k
At the end of year four, you will have paid off the interest amount of €38k
TRS relief will be maxed out during first 3 years, benefit, €1.6k*4




> *Scenario 2*
> Tony, single @ 28, salary €80k
> Purchases starter home, €500k
> Mortgage, €500k
> ...


Similar to Johnny, Tony pays no stamp duty on first home and TRS is maxed out.

OK so after 4 full years of living for Johnny he decides he wants to move up one step on the ladder, and he follows in Tony's footsteps, buying an identical home under identical conditions.
Cost for Johnny, €500k + €37.5k + extra costs (bought and sold first house) = ~ €550k
But shrewd Johnny was on the ladder, therefore has €18k in equity + €25k in capital appreciation. This is €43k. Therefore Johnny pays €507k net

*Other/different variables:*
How long does Johnny remain in first home.

Does Johnny/Tony partner up. Tony could technically avail of increased TRS band if partnered up. Johnny wouldn't benefit to the same degree.

House price inflation, conservative at 3% ?
_I_ don't think so.

Where did Tony live for 4 years?
Well while Johnny was paying interest of €38k, Tony lived in a variety of accomodation both in Ireland and abroad - sampling different cultures and sampling different lifestyle choices. He spent €9.5k a year on this.

Is Tony's €9.5k a year accomodation comparable to Tony's €200k abode? 
_I'd_ imagine so.

So my question is 



> When Johnny starts his first job at 23, his main financial objective is to    buy a house...
> Apart from the security and psychological advantages of owning your own    home, there are huge financial benefits also.
> *It's more tax efficient than renting and you won't be subject to the    vagaries of the rental market.* The gain in value of the house will be exempt    from Capital Gains Tax.


 Is it more fiscally prudent for Johnny to buy at 23?


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## GeneralZod (14 Aug 2007)

As someone that followed the conventional advice of starting a pension first and then buying a home I'd agree that doing it the other way would have been better. This may be coloured by the fact that my pension dropped massively with the market collapse in 2000. If I'd bought property earlier I'd be sitting on a bigger capital gain now. I subsequently changed strategy by paying down the mortgage and then shifting to AVCs.

I think the main difficulty with implementing the article's advice is determining  and getting to the "comfortable level" at which the focus can be shifted from accelerating the paydown of the mortgage to boosting the pension. With the bubble in property prices between 2002 - 2006  mortgages have grown much more than salaries so it's harder now to get it down to a comfortable level.  A lot of people will struggle for years to pay most of it off and then have little time to build up a pension. They're losing out on a lot of favorable tax treatment of pension contributions over those years. I'd start to feel very uneasy without a pension while approaching retirement.


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## hmmm (14 Aug 2007)

This is very much non standard and unorthodox investment advice and should have come with a big health warning. Everyone else isn't wrong with only BB seeing clearly.

Of course property would have been a better investment over the past 10 years, but there is no guarantee it will be over the next 10 years. 

Advising people to hold off on a pension until they are "comfortable" with their mortgage is amateur hour advice. I'll be comfortable with my mortgage the day I pay it off and everyones comfort level will vary.


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## Brendan Burgess (14 Aug 2007)

Hi Sid

I have read that a few times, but I am confused between Johnny and Tony. 

You seem to be implying that a 23 year old should wait until he is 28 to buy the house because he will be better off because the stamp duty will be lower on the more expensive house? 

That is a very good point but it does not conflict with the point that I am making at all. I am saying that buying a home is a higher priority than starting a pension. If the figures work out that you are better off waiting 4 years and buying a bigger home, or the second step on the ladder, then that's fine. But save outside a pension scheme for those four years so that you will have as big a deposit as possible available. 

I made this very point to someone in person today who is trading up. I told them to wait a while until they can trade up 2 steps of the ladder, rather than trade up now and trade up again in 5 years. 

Brendan


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## stuart (15 Aug 2007)

hmmm said:


> This is very much non standard and unorthodox investment advice and should have come with a big health warning. Everyone else isn't wrong with only BB seeing clearly.


 
I'm not sure it would be unorthodox investment advice

With the level of today's mortgages (in excess of €400k would not be unusual) and the long term risk of interet rate levels (mortgages granted for 30-40 years), personally you'd be crazy not to try and get a grip on your mortgage as soon as is reasonably possible

No one can predict what interest rates will be in 5 years time never mind 20 years
e.g €400k mortgage for 30 years at 5%, balance outstanding in 20 years is still €204k

I wouldn't like to bet what interest rates would be then, I wouldn't have a clue

Stuart

BTW, I havenlt been on AAM in a long time now but I never thought I see someone argueing with Brendan that he has pro-property ideas


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## comanche (15 Aug 2007)

GeneralZod said:


> As someone that followed the conventional advice of starting a pension first and then buying a home I'd agree that doing it the other way would have been better. This may be coloured by the fact that my pension dropped massively with the market collapse in 2000. If I'd bought property earlier I'd be sitting on a bigger capital gain now. I subsequently changed strategy by paying down the mortgage and then shifting to AVCs.



Would this not have been the time to shift money into your pension? I presume that your pension was well enough diversified not to all be tech stocks! So if stocks were going cheap, sure this was the time to get in? ... I'd say your pension has just about recovered by now, however if you were paying in your avc's you would be been ahead sooner!


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## SidTheDweeb (15 Aug 2007)

Brendan said:


> Hi Sid
> 
> I have read that a few times, but I am confused between Johnny and Tony.
> 
> ...



Hi Brendan,

I agree entirely with the premise of the article. 

The article, however, seems to tackle more than just this issue. Assertions made in the article that I believe to be not relevant include:



> it is absolutely critical to look at the    financial objectives of the person and take all factors into account.     When Johnny starts his first job at 23, his main financial objective is to    buy a house and then to get his mortgage under control.


Shouldn't the argument be; Johnny wants to prepare/provide for the future - he wonders if he should start a pension or purchase a home first.



> Apart from the security and psychological advantages of owning your own    home, there are huge financial benefits also.
> It's more tax efficient than renting and you won't be subject to the    vagaries of the rental market. The gain in value of the house will be exempt    from Capital Gains Tax.


These benefits will exist whether you buy a home before you start a pension or not. What is their relevance to the argument?

Soon after the article becomes an information piece on approaching paying/getting a mortgage.



> So don't think about contributing to a pension until you are on the housing ladder. And when you do get on the housing ladder, your next priority is to get your mortgage to a comfortable level. Only you can decide what level of mortgage is comfortable for.



I would say that soon after the above paragraph there is no more argument put forward about pension versus 'ladder'. Including this paragraph this is 365 words.


Within the next 512 words, the following 115 words may be viewed as relevant


> So get your mortgage down to a comfortable level and then you can start your pension. In fact, if your mortgage is comfortable, you can go in the opposite direction and switch to an interest-only mortgage.
> You should now be making the maximum possible contributions allowed to your pension scheme, as it is simply the best way to save for the long term.
> You get tax relief on the contributions as they go in. There is no tax paid on the income within the fund. Any increase in value of the fund is not subject to Capital Gains Tax. When you retire, you will be able to take around 25pc of the fund tax free.



To me, a reader, the article seems to take on more than the pension versus 'ladder' debate, and I fear the message looks quite like a 'why buying property is a good idea' article. Of course you do throw in a disclaimer about irish property prices



> Some will argue that now is not a good time to buy a home as prices will fall and therefore it's better to put your money in a pension.
> But this argument is not valid. If you believe that house prices will fall, by all means defer the decision to buy a house.
> But save your money outside a pension scheme so that you will be ready to buy a house when you think that prices are more reasonable.



The disclaimer itself is flawed though. Could it not be more tax efficient to save the money in a pension and then take out a 100% mortgage? Then you could pause future pension payments for a time to help bring the mortgage under control?


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## Brendan Burgess (15 Aug 2007)

Hi Sid 

I thought my article was clear but obviously it's not.  The following is by no means a disclaimer. 



> Some will argue that now is not a good time to buy a home as prices will fall and therefore it's better to put your money in a pension.
> But this argument is not valid. If you believe that house prices will fall, by all means defer the decision to buy a house.



I am not arguing that every 23 year old should buy a property. The objective is to get on the property ladder. I should have added in a sentence along the lines you suggested - i.e. prepare to get on that ladder even if you have to wait until you are 28 or 30. 

You ask what the relevance of the tax advantages of buying a house is? And these apply before and after your pension. 

The whole point of the article, which you seem to agree with, is that buying a home is a higher priority. It is important to explain why buying a home is important. If buying a home is not important, then it would not have a priority over starting a pension.

I have heard the argument before that it's better to start a pension now and borrow 100% when you buy your home. 100% mortgages may not always be available. Even if they are available, they should really be a last resort. With a 100% mortgage, you are really constrained. If you need to move house for a job or for some other reason, you might not be able to. 

You can probably cut the figures to show that it is more tax efficient over 40 years to contribute to a pension from the start. Take out a 100% interest only mortgage. Put every spare cent into your pension. But I am arguing that this is not a good idea because you lack total flexibility. 

Brendan


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## GeneralZod (15 Aug 2007)

comanche said:


> Would this not have been the time to shift money into your pension? I presume that your pension was well enough diversified not to all be tech stocks! So if stocks were going cheap, sure this was the time to get in? ... I'd say your pension has just about recovered by now, however if you were paying in your avc's you would be been ahead sooner!



I'm not going to argue with your point because intellectually I agree with you. I'll just explain the classic mistake of why I didn't do that. 

The year before buying the home I changed jobs to a company with a DC pension with a compulsory employee and relatively generous employer contribution. In total 15% of gross basic salary. So I had a feeling that the pension is covered and I don't need to worry about something that is decades away anyway.

The pension funds continued to perform badly for a few years so I concentrated on repaying the mortgage. By the time I realised the stock market was on the way up again I felt I'd probably missed most of the growth before the next fall.  At that stage I'd made great strides in clearing the mortgage and eliminating it completely became an emotional target. 
About 5 months before finally clearing the mortgage I did increase my AVCs from 0% to 10% when I saw the market continuing to do well so you could say I finally coped on to my mistake.


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