Property - is it worth the investment?

Gwhiz

pizzagirl wrote: »

It's amazing how many people believe this falllacy. If your rent is less than the mortgage interest then rent isn't dead money, it's money saved.

But if, at the same time you rent, property is appreciating you are missing out on capital gains so renting MAY be dead money. So your argument is only valid in certain circumstances.

Myrmidon_J

I think there are several points to raise.

Not only will inflation reduce the spending power of the interest earned on your capital, it will also reduce the value of the capital / deposit itself.

In addition, whilst house prices are currently falling almost universally in this country (and elsewhere), house prices have historically risen faster than inflation. I believe they will continue to do so - in the long-term.

So, although £25K might represent a 20% deposit on a £125K house today, it may only represent a 10% deposit on the same house (now worth £250K) in ten or twelve years.

Of course, as you say, you'll be saving the interest payments on a mortgage. However, at present, borrowing is (relatively) cheap, whilst saving is expensive.

Finally, as people have already mentioned, a home is more than just numbers! I'm proud to have a mortgage, to own a property and to come "home" to my house - rather than a rented apartment. Having tried the latter, I don't think I could stick it for long!

Good luck.

Lansdowne

Another consideration must be that interest rates are now at an historic low.
So whatever your estimate of future mortgage payments, you need to allow that they will be significantly higher some years down the track.

laffer

Are you not all assuming that as a first time buyer I could obtain a mortgage in the first place? Looking to buy a flat in London is not cheap by any stretch of the imagination and needing a 40% deposit on that is quite difficult. I do understand that deposits are coming down to 25% but still that is significant on say a £250,000 flat in London.

a7man

Dont forget that a house is generally a very high value asset, so a 1% increase in house prices is a huge difference to 1% increase in a fund, unless you have hundreds of thousands invested.

There are also tax advantages - such as the growth in your main residence will be CGT free. I think the next couple of years will be the perfect time to buy, and even if you get an interest only mortgage it will work out more beneficial then renting in the long run.