Rent or Buy equation

kinesin_2

lapat wrote:

buy buy buy
how can you go wrong.if you rent your just paying for your landlords property
if you buy its all your even if you dont like it after say two years sell it there will be some profit there regardless of what the threads on here are saying.

Given that the latest YOY% grow rates continue to drop and are running below inflation, with parts of london already having negitive YOY figures. To suggest there will always be some profits is foolish.
Earlier this month government figures reported that average price increased (for the month) by .. £1 :eek:
Not the greatest return from your deposit.
The costs involved in buying and selling a house are not just small change. They can be several thousands of pounds. Early repayment fees on mortgages, future costs of seller packs. Increases in estate agents fees, due to much lower sale volumes etc, all takes a bite of any rise. I know from my area that prices aren't going up, but just static in a head down position. It has been years seen adverts would have reduced/new price on them. The number of auctions in on the up. The time on the market is longer, the time of fast rising, and even rising prices have gone.

and if you go back to renting then this would go back into your pocket.all the other expenses are the same i.e council tax,insurance and bills

With renting insurance is lower as there is no building to cover, council tax and bills can be reduced by moving to different areas if needed. Depending on locations moving closer to work can be cost/time benefit. Sharing is always an option in cutting down those bills.

and if your worrying about having work to do on your property but a new or nearley new one then it will be covered for 10 years under the nhbc scheme,plus its a fact that new houses are rising faster than older ones especially if bought of plan

It's known fact the newer houses don't increase faster - infact new builds offen drop in the early years. The last 4 years HPI has masked this. The market doesn't have a chance to set the price on a new build and it comes down to guess on what the developer thinks they can squeeze out of the buyer. Buying of plan even with discount very risky in the current market. The new builds still not sold can offen lead to direct competition from the builder if you were to put your new build on the market. - The builder will be will drop more than you as they need the cash flow to operate as a business.

anticlaus105

I have seen some very myopic and foolish responses to this question. I was in the same position 1 year ago. 2 flats were available 1 to buy and 1 to rent. The interest alone on the mortgage was the same as my rent. On top of the "dead money" I would be paying as interest were management fees, solicitors fees, mortgage arrangement fees etc. As a result over 1 year I would have been about 2 grand worse off by buying. If I came to sell after 1 year make that about 5 grand after fess etc. I know for a fact the property hasn't gone up in value by £5000 to equal break even in fact it's probably gone down which would increase the short term loss. Also the landlord has replaced the washer/dryer, shower and fixed the shaving point in the bathroom in that time. This would have cost me another £1000 if it was mine.

I think it does depend a lot on how long you intend to stay there and what you expect house prices to do in that time. For the short term definately rent would be my opinion as long as you save towards bying in the future.

BTW for the record renting may be dead money but so is mortgage interest, management fees and anything else you have to pay above and beyond that of renting.

Pal

The point that Lapat misses is that it doesnt matter that you are paying off your landlord's mortgage!!!! Unfortunately there are a few people on this site who can't get their heads around this simple concept.

The IDEAL situation when renting is that you are paying less rent than the mortgage interest on buying would have cost, but you are paying enough rent that your landlord's SMALLER mortgage interest is covered. This means that you are making a profit, your landlord is making a profit and everyone wins. Importantly, the landlord is less likely to kick you out or put your rent up in order to stem his losses if he is making a profit already and you are a good tenant.

What the landlord does with your money is irrelevant. It is like saying that I am not going to buy petrol for my car because BP might give the money to their shareholders. Who cares what happens to it after you have spent it?

As long as your rent is lower than the interest you would have to pay on a mortgage, then there is a financial reason to rent.

In my opinion the choice on renting to buy comes down to two financial factors and lots of non-financial factors at the moment. The financial factors are the rent vs mortgage-interest debate mentioned above, plus whether you want to take the risk that house prices will rise or fall. Obviously no-one knows the answer to that one.

The non-financial factors have largely been mentioned in this thread already. Do you want to change the property or decorate? Do you want to risk having to move again in a few years if the landlord wants you out? Are you planning to move again in a few years anyway (in which case renting might be the option)? Do you not know where you want to live in the future? Do you want someone else to be responsible for the maintainance?

etc etc.

michaels

It seems so obvious - the dead money everyone talks about in rent is no different from the interest payment (/loss of interest on deposit) - and of course renting saves in other costs. Thus if these two figures are equal then owning rather than renting becomes a huge punt on house prices - this is a hugely leveraged punt and I am sure if it were your pension most people would not want to take this risk...

As a footnote where I live rents only cover about 70% of mortgage interest - landlords are obviously so confident about prices that they are willing to give up some of the potential capital gain to the renter just to 'be in the market' - thus the renter is taking part of any possible gain from house price appreciation without facing any of the risks - I no which side of the equation I would rather be on. (and sadly I am not on that side as there is the cost/hassle factor to sell to let)

Bestthingsinlifearefree

Hi !

Over a 25 year period a HO will pay £111,000 less than a renter for a like for like property and of course the home owner gets to keep the house as well and the renter gets nothing.

The following analysis builds in all the pluses and minuses into the renting versus buying equation....the result ? Over the medium to long term buying wins big time.


http://www.moneyweek.com/article/1316/investing/other-viewpoints/ce-renting-cheaper-buying.html


Long term renters always lose, it a risk buying a property but long term renting is always greater risk.


It does not matter whether you buy in 2000 or 2005 or 2010 the moral of the
story is that in the medium to long term renting is always a mugs game

So if you want to save £111,000 AND get a house I guess the answer is to buy ASAP.

devils_advocate

This argument that "Over a 25 year period a HO will pay £111,000 less than a renter for a like for like property", used to support an assertion that people will be better off buying houses now, is completely fallacious. It assumes that Joe moves in to one house, and Bob moves in next door. Joe buys, and Bob rents. 25 years down the line, they bring out their spreadsheets and compare costs over the previous 25 years.

So how many people want to live in the same house for 25 years? Can I perhaps quote from the article "But the financial advantages of buying over renting do not accrue from day one. In fact, thanks to the substantial upfront costs of homeownership, buyers are worse off than renters for several years. In our example here, the cumulative costs of buying only fall below the cumulative costs of renting after 161 months or 13 years and 5 months."

So if Joe moves before 13 years and 5 months, he starts the cycle again, and has an accumulated loss from his property to carry forward to the next one.

My personal, unsupportable view, based purely on gut reaction is that a buyer will probably be better off than a renter over a 25 year period. The difficulty is that it is all dependent at what point in the cycle they start, and when they move. If anyone really wants my views on where we are in the cycle, PM me.

anticlaus105

devils_advocate wrote:

This argument that "Over a 25 year period a HO will pay £111,000 less than a renter for a like for like property", used to support an assertion that people will be better off buying houses now, is completely fallacious. It assumes that Joe moves in to one house, and Bob moves in next door. Joe buys, and Bob rents. 25 years down the line, they bring out their spreadsheets and compare costs over the previous 25 years.

So how many people want to live in the same house for 25 years? Can I perhaps quote from the article "But the financial advantages of buying over renting do not accrue from day one. In fact, thanks to the substantial upfront costs of homeownership, buyers are worse off than renters for several years. In our example here, the cumulative costs of buying only fall below the cumulative costs of renting after 161 months or 13 years and 5 months."

So if Joe moves before 13 years and 5 months, he starts the cycle again, and has an accumulated loss from his property to carry forward to the next one.

My personal, unsupportable view, based purely on gut reaction is that a buyer will probably be better off than a renter over a 25 year period. The difficulty is that it is all dependent at what point in the cycle they start, and when they move. If anyone really wants my views on where we are in the cycle, PM me.

Agree with this very much. Would say that it matters a lot in a cyclical market when you buy as to when you pass the threshold for being better of buying vs renting as oppose to what Bestthingsinlifearefree says. If you move a lot during that 25 years you may never be better of buying and have a lot more hassel in the meantime.

A lot of the views aired here seem to relate to property prior to it's performance over the last few years. I doub't it will perform like that again for a few years. I agree with the 25 year thing if you started back in 2000 or before. Today we live in a new paradigm. Price have risen so much lately I doub't thay can continue much more, but then again you never know. If they do stagnate/fall slightly and inflation remains low you will take on massive debt that will never be erroded.

I'm not sure myself how the market is going. I intend to sit it out a couple of years and continue saving like mad. This would have been foolish to do while prices were rising (I wasn't interested in buying back then) but now it make complete sense to do this while they remain static to see where they go next. While I wait my money is gaining about 4.80% (knock off true inflation so it's staying the same really). At the same time house prices are not really moving (except for down a bit). And in the meantime my landlord pays all my repair bills etc and I've save on fess with buying and selling etc.

skintchick

Pal wrote:

.

What the landlord does with your money is irrelevant. It is like saying that I am not going to buy petrol for my car because BP might give the money to their shareholders. Who cares what happens to it after you have spent it?

.

I do. It's why I have an ethically investedpension fund, for example.

I do not give my money to companies who do things I dont; agree with, because otherwise I would be funding those things I disagree with, which woud make no sense.

Although I agree that in this case regarding landlords it is irrelevant, I disagree with your BP argument for the reasons above.

GDB2222

michaels wrote:

As a footnote where I live rents only cover about 70% of mortgage interest - landlords are obviously so confident about prices that they are willing to give up some of the potential capital gain to the renter just to 'be in the market' - thus the renter is taking part of any possible gain from house price appreciation without facing any of the risks - I no which side of the equation I would rather be on. (and sadly I am not on that side as there is the cost/hassle factor to sell to let)

I don't disagree with you, but there is another reason why landlords may hang in there, even if they are not too confident of house prices going up, namely CGT. If a property was bought say 10 years ago, a sale now could easily generate a Capital Gains Tax bill of around 25% of the sale proceeds.

So, from the landlord's point of view, he would have to pay sale costs, lose 25% in tax, and then reinvest the money somewhere. Not worth doing unless he is pretty certain that house prices are going to drop well over 30%.

lew

Perhaps also you may wish to consider security. Private rented, (not council) property has insecurity. There is no guarantee of length of stay. Due to various circumstances, not our fault, we have had to move many times when we did not wish to (landlord selling mostly). Now we seem to be settled, but that could change!!! To have your own home must be great in many ways. As said in a previous reply, you can do as you wish, whereas in rented you cannot.