"Rent money is dead money"

neverdespairgirl

IveSeenTheLight wrote: »

"house price recorded history"

What I mean is since the statistics for house prices were recorded.

Nationwide average house price stats goes back to 1952

That's not far over 2 periods of 25 years - big deal, in historical terms, really!

PasturesNew

Rent money is dead money if your annual savings are not outstripping the £value of HPI for the house you're after, while an upward trend and all indicators are pointing at prices continuing to go up.

Rent money is wisely invested money while things are uncertain.

Mortgage interest is dead money when prices are going down or when your savings are outstripping the price rises £-for-£ of the house you're after.

IveSeenTheLight

neverdespairgirl wrote: »

That's not far over 2 periods of 25 years - big deal, in historical terms, really!

Feel free to show any "house price records" further back in history

PasturesNew wrote:

Having said that, here are some house price data from 1930 to 2007

http://www.communities.gov.uk/docume...xls/141272.xls

But that needs to be compared for inflation and wages too to give proper comparisons

Nice, going back a little further.
Still don't see anywhere where the house price was less than it was 25 years earlier.

PasturesNew wrote:

And I'd have never bought if I'd have stood any chance of getting a council house. As a single person it's darned near impossible to afford a rent with one salary.

I know loads of people that have rented with one salary. In fact most people I know have rented or bought at some point of their lives on one salary.

It may currently depend on where you are, I don't dispute, but certainly not "darned near impossible" as a whole

LydiaJ

IveSeenTheLight wrote: »

How?
After a typical 25 years, the current short term depreciating asset is fully yours and you no longer have to pay a monthly amount in order to live under a roof.
Can the same be said about rented accomodation?

Additionally, over 25 years, recorded history has shown that properties are never less than what was paid for them 25 years later

I didn't say anything about buying over 25 years or renting for 25 years. I was comparing renting now, this month, with buying now.

If I could have bought a house years ago, I would have, but circumstances didn't allow me to. So now here I am, in 2009, not owning a house.

Nobody knows exactly what the housing market will do, but I'm not alone in my opinion that it will probably carry on falling for a while longer and probably turn round fairly slowly so that even when it starts rising again the rises may not be very big immediately.

In that situation, I think the money I am paying in rent is no more dead than the money I could spend on buying a house now. I'm watching property prices in my area on PropertyBee, and at the moment they are falling faster than I could possibly hope to be paying off the principal if I was paying a mortgage.

So, to quote someone else's example numbers:

Suppose mortgage was £600pcm interest and £100pcm repayment.
If I bought the house now, then by the end of 2009, I would have paid for £1,200 of house, but the house might have fallen in value by £10,000.

If I pay that £700pcm in rent, and then buy the house at the end of 2009, I end up with the same house, but £8,800 less mortgage debt to pay off between Dec 2009 and retirement. (And that's without factoring in any interest that my deposit money might be earning during 2009). That's the money I consider would be dead because of the depreciation.

I'm not interested in trying to call the exact bottom of the market, but I'm not going to take on any mortgage debt while prices are falling as fast as they are at the moment.

Of course this argument only really applies to FTBs, but then anyone who's renting presumably would be an FTB if they bought. If I already owned a house, I wouldn't be rushing to STR. I would be living in my home, and trying to overpay the mortgage while the rates are low.

Furthermore, this argument clearly doesn't hold if you think prices are going to start going back up very soon. I don't, so this course of action is my best bet.

IveSeenTheLight

LydiaJ wrote: »

I didn't say anything about buying over 25 years or renting for 25 years. I was comparing renting now, this month, with buying now.

I am not going to disagree with your personal situation, it may be so in your area that it is better to rent than to buy

however.....

you said

LydiaJ wrote:

Originally Posted by LydiaJ
Money spent buying a depreciating asset is dead money.

In my area, house prices on average is down 1.12% YoY or in nominal terms £2,026.
The rent on an average property in this area would be on average in excess £1,000 per month
Theoretically then, even taking out a full 100% of the average price, the yearly rent money is roughly equivalent to the full capital and repayment, with the capital paid off in the first year being approx £3,100. More than the theoretical depreciated value.

Therefore there are still areas and instances where there is such a small drop in average property prices that it is still worthwhile buying a depreciating asset rather than renting.

Thats not to say in the future the percentages could be different

At the end of the day, when discussing what is dead money, you really have to compare rent with only the mortgage interest.

Deciding on whether the property is reducing by further than the capital part is being paid off is a different matter

carolt

IveSeenTheLight wrote: »

I have thought it through and I agree with your above statement.
I made no ascertations on whether the rent was cheaper or more expensive than the interest while buying. You have made the ascertations by assuming and saying IF the mortgage interest is more than the rent.

My BTL that I bought in Jan 2007 interest payments are currently circa £450 per month on a fixed rate mortgage. The rent I receive on this property is £850 per month.
Therefore the rent received is far more than the interest on the mortgage

I therefore can reverse your statement and say: -

If the money spent on interest payments to buy a house currently depreciating in value is less than the rental costs for the same property, then it may make financial sense to buy it instead.

For an otherwise intelligent woman, you seem not to have this one through very well from both sides of the financial market.
Not everywhere is as unaffordable as your area.

Tee hee.

No, not everywhere is, but my area is pretty typical. In most of the UK, it still costs more to rent than to buy. Currently house prices are falling, redressing that balance - but so are rental prices, meaning that it will take longer to reach that point.

I think, because you live in one of the few outposts of the UK where house prices continued rising past the peak, and where renting is relatively expensive, you tend to imagine that your exception is the rule rather than proves the rule.

I don't know anywhere down south where that applies, particularly for nice family houses. And it's rather a long commute from Aberdeen to here.

Don't forget that at the bottm of the last market ie mid 90's, rental costs in London (where I was renting at the time) were about double the costs of buying the same property. And they bumped along at about that level for several years - it wasn't as though everyone suddenly went - wow, so cheap, must buy now before they go up! - so I wouldn't expect that to happen now, either.

My point being that there's room for house prices to fall way below the point where mortgage interest costs = rental costs.

IveSeenTheLight

carolt wrote: »

Tee hee.

No, not everywhere is, but my area is pretty typical. In most of the UK, it still costs more to rent than to buy. Currently house prices are falling, redressing that balance - but so are rental prices, meaning that it will take longer to reach that point.

I think, because you live in one of the few outposts of the UK where house prices continued rising past the peak, and where renting is relatively expensive, you tend to imagine that your exception is the rule rather than proves the rule.

I don't think my exception is the rule. Not once have I said ""keep buying, prices are up as prooved from my area"
Some people do however say "don't buy, prices are lowering and will continue to lower" which is when I tend to step in and remond people to check more locally

The thing I keep banging on about like a broken record is that each area is different

carolt wrote: »

My point being that there's room for house prices to fall way below the point where mortgage interest costs = rental costs.

A valid point, fully agree that it is good to compare mortgage interest with rent costs for the same type of property.

When they become close, people will look at other things such as security, no mortgage after the 25 years etc

anguk

I have 2 grandmothers in their late 80's, one owned her own home the other has rented all her life. The one who is the home-owner has now got dementia and has sadly had to go into a nursing home, her house has been sold to pay the nursing home fees. The renting grandmother only receives state pension so doesn't have to pay any rent as the council gives her housing benefit, when she is unable to look after herself she will go into the same nursing home as my other grandmother and the state will pay her fees.

Both grandmothers have lived rent/mortgage free in their later years and both will receive exactly the same level of care in the same nursing home. So was it worth it for my home-owning grandmother to buy her home, I don't know because she doesn't seem to have benefited from it or had a better lifestyle or retirement than my renting grandmother.

IveSeenTheLight

anguk wrote: »

I have 2 grandmothers in their late 80's, one owned her own home the other has rented all her life. The one who is the home-owner has now got dementia and has sadly had to go into a nursing home, her house has been sold to pay the nursing home fees. The renting grandmother only receives state pension so doesn't have to pay any rent as the council gives her housing benefit, when she is unable to look after herself she will go into the same nursing home as my other grandmother and the state will pay her fees.

Both grandmothers have lived rent/mortgage free in their later years and both will receive exactly the same level of care in the same nursing home. So was it worth it for my home-owning grandmother to buy her home, I don't know because she doesn't seem to have benefited from it or had a better lifestyle or retirement than my renting grandmother.

There are some major differences first of all, when discussing the differences.

First of all, the grandparent who was a home owner is more likely to be accepted directly into the home without having to go on some sort of council waiting list.
I had a grandmother who went into hospital and needed to go into a nursing home. As she was a home-owner, this was sorted relatively quickly, however we did see non home owners spending considerably longer before moving ito a home.

Another major factor is that one is a burden on the tax payer, while the other is not. Harshly, but a bit similar to those that receive unemployment earnings and others that go out and work

Another difference is that nowadays, council homes are not similarly available to when your granparent went into rented accomodation. That oppertunity is severly limited nowadays

mr.broderick

IveSeenTheLight wrote: »

PN, by your own admission, you only rally have the cash to buy or indeed earn interest because you previously bought and sold property.

You wouldn't be in the position you are in now if you never bough property in the first place

Thankyou, you beat me to it, never heard such a load of tosh from the likes of carolt etc for a long time, i cannot understand how these people can come here and talk about buying a house being a bad idea and yet it seems they are desperate for houses to come down to an affordable level for them.