The price of a house

bob79

Dualcyclone,

I agree with you that home buyers also pay what they think a property is worth. But here 'worth' does not necessarily mean 'worth to live in' since the 'investment' bit also comes into it. It seems to be generally agreed now that this investment bit went crazy the last couple of years.

Renting is throwing money in the wind as much or as little as paying interest is throwing money in the wind. By buildings up a savings pot you can also basically live rent free as a tenant (the interest on the savings covering the rent).

I agree with you that in the long term buying is better than renting here in the UK. Mainly because of the lack of rights for tenants and the fact that repaying a mortgage is basically tax free saving, something that above the ISA allowance is unavailable to tenants: they have to pay tax over their savings. The laws in this country are very biased towards home owners. But 'buying is better than renting' is only true if you buy a house for the 'right' price. Buying at a price such that the interest is twice the rent you would have paid does not make sense whatever way you look at it.

Dualcyclone

bob79 wrote: »

...I agree with you that home buyers also pay what they think a property is worth. But here 'worth' does not necessarily mean 'worth to live in' since the 'investment' bit also comes into it. It seems to be generally agreed now that this investment bit went crazy the last couple of years.

Renting is throwing money in the wind as much or as little as paying interest is throwing money in the wind. By buildings up a savings pot you can also basically live rent free as a tenant (the interest on the savings covering the rent).

I agree with you that in the long term buying is better than renting here in the UK. Mainly because of the lack of rights for tenants and the fact that repaying a mortgage is basically tax free saving, something that above the ISA allowance is unavailable to tenants: they have to pay tax over their savings. The laws in this country are very biased towards home owners. But 'buying is better than renting' is only true if you buy a house for the 'right' price. Buying at a price such that the interest is twice the rent you would have paid does not make sense whatever way you look at it.

Yup, I do agree with you about the investment bit going crazy; the people that did this for profit have their share of winner and losers; those who knew how to profit, and those who thought it was a quick buck.

And those who buy a house that would require more in interest than in rent are silly; they've obviously not done their research fully and are being taken for a ride!

But like you say, I got fed up with renting after university, and the disinterest landlords and estate agencies had when dealing with problems I had with the housing. Plus it doesn't belong to you, so everything you do it at your expense. I never felt fully settled while renting either. My bad experience renting made be believe buying a house would be infinitely better than paying someone else to buy a house I'm living in!

I guess it depends on what your bag is; if you're saving and renting, and that pretty much equals mortgage and interest, then its all much of a muchness!

dopester

bob79 wrote: »

Deflation on a grand scale is such a horror that the government will do anything to stop it (probably including printing money which is a very easy way to stop deflation:D).

No it isn't any sort of remedy. Printing money just makes the country poorer.

It sparks selling of gilts, forcing up interest rates, and would probably see the end of credit altogether - an outcome which would doom an advanced economy.

No one would do any real sort of business (other than barter in stuff other than money - as wealth would be driven in to other forms like jewellery and cigarettes and livestock and food and perhaps habitable accommodation) because the value of money would be devalued so much. It would hinder all sort of investment.

The quickest way for the UK to run out of money is to print more of it - so ready yourself for deflation - with perhaps quantitative easing and other tricks just to try and limit the most devastating aspects of it.

PasturesNew

bob79 wrote: »

You are paying too much rent!

But now without kidding: your figure corresponds to 7.6% interest. Maybe that's the right figure, my 6% was only a (somewhat reasoned) estimate.

I am renting the smallest, cheapest self-contained place possible for probably 15 miles. I aspire to one day renting somewhere that has a bath.

LilacPixie

Does the x 200 multiplier really apply?? I own a 2 bed flat. Not got a clue what its worth at the moment and not really all that fussed because I refuse to move until everything stabalises. There is a flat in the next block for rent at £400 pcm!!! Seriously I cannot imagine this being worth 80k

PasturesNew

LilacPixie wrote: »

Does the x 200 multiplier really apply?? I

No, the OP made it up based on one flat in his/her road.

carolt

I've read similar things based on a 100 X multiplier, and , IIRC, 114 (? - very precise, I know - think it might have been Conrad who posted this - anyone remember?).

So the maths is entirely arbitrary - take your pick.

Obviously makes a v big difference as to what you come up with as a fair price though!

bob79

carolt wrote: »

I've read similar things based on a 100 X multiplier, and , IIRC, 114 (? - very precise, I know - think it might have been Conrad who posted this - anyone remember?).

So the maths is entirely arbitrary - take your pick.

Obviously makes a v big difference as to what you come up with as a fair price though!

I agree with you, it's impossible to get the multiplier exactly right. And as Gorgeous George mentioned before, it also depends on whether it is a home or an investment. Over an investment you have to pay tax, so to make a decent after-tax profit from the rent you will need a smaller multiplier.

The 100 or 114 multiplier might therefore make sense for an investment, but not for a home I think.

I had a good reason for picking 6% interest (just above what you can get a 10 year mortgage for). There is a case for using something like 7%, but 12% (which gives you the multiplier of 100) seems outrageous (again: for a home, not necessarily for an investment).

bob79

LilacPixie wrote: »

Does the x 200 multiplier really apply?? I own a 2 bed flat. Not got a clue what its worth at the moment and not really all that fussed because I refuse to move until everything stabalises. There is a flat in the next block for rent at £400 pcm!!! Seriously I cannot imagine this being worth 80k

You can't do statistics with N=1. You should look at all 2 beds within a reasonable distance of your property. If there are lots of 2 beds of approximately the same size and character as yours to rent for 400pcm then IMHO your property may indeed be worth around 80k.