“I’ve already made 12k in 2 years on my house, in 20 years time I’m going to be rich”

BobProperty

meanmachine wrote:

Yeah, that last post convinces me more than ever that we're back in 80s territory.

Looaaaddsamonnneeeey!

WAD!

howididit_2

I think the OP had an interesting way of viewing the rent v buy question.

I did the sums for 2 people who move move in next door to each other in identical properties and stay there for 25 years! The only difference being that Person A rents, while Person B has bought.

Person A - Year 1
- Earns: £2,000 per calender month (assumed to increase by 3% per year)
- Rent: £500 pcm (assumed to increase by 3% per year)
- Other Costs: £500 pcm (assumed to increase by 3% per year)
- Savings: £1,000 pcm (assumed to be invested at 3% per year).

Person B - Year 1
- Earns: £2,000 per calender month (assumed to increase by 3% per year)
- Mortgage: £600 pcm (assumed to increase by 0% per year - this is a key point)
- Other Costs: £500 pcm (assumed to increase by 3% per year)
- Savings: £900 pcm (assumed to be invested at 3% per year).
- Property Value: £140k (assumed to increase at 3% per year).

Note I have assumed the mortgage is more expensive (initially) to reflect what I think is now true across the country i.e. its cheaper to rent in the short term.

But moving on 25 years the picture looks like this:

Person A - Year 25
- Earns: £4,066 per calender month
- Rent: £1,016 pcm (note this has doubled)
- Other Costs: £1,016 pcm
- Savings: £2,033 pcm

Person B - Year 25
- Earns: £4,066 per calender month
- Mortgage: £600 pcm (note this is the same)
- Other Costs: £1,016 pcm
- Savings: £2,449 pcm (savings higher as mortgage now less than equivalent rent).
- Property Value: £285k

Result over 25 years

Person A who rents has accumulated savings of £627k over the 25 years.
Person B who bought has accumulated savings of £671k over the 25 years.
Person A actually does better in the early years when rent is cheaper than the mortgage, however by about Year 8 the monthly mortgage payments are lower, meaning Person B starts to save more per month.

So there's not much in it in terms of savings.

However, Person B is celebrating paying off their mortgage, and now has slightly more in savings, and owns an asset now worth £285k.

Maybe Person A's landlord will invite them around to a party to celebrate paying off his mortgage for him!

nearlyrich

So I must be very rich then because my house is worth almost £300k and we paid £60k for it in 1992. However I don't see it as a liquid asset, it is our HOME and I plan to be here till they carry me out.

It is possible to own a home and have a reasonable standard of living on an average income just seems that everyone wants to live like celebrities and own a property empire at 25 these days.

lynzpower

howididit wrote:

I think the OP had an interesting way of viewing the rent v buy question.

I did the sums for 2 people who move move in next door to each other in identical properties and stay there for 25 years! The only difference being that Person A rents, while Person B has bought.

Person A - Year 1
- Earns: £2,000 per calender month (assumed to increase by 3% per year)
- Rent: £500 pcm (assumed to increase by 3% per year)
- Other Costs: £500 pcm (assumed to increase by 3% per year)
- Savings: £1,000 pcm (assumed to be invested at 3% per year).

Person B - Year 1
- Earns: £2,000 per calender month (assumed to increase by 3% per year)
- Mortgage: £600 pcm (assumed to increase by 0% per year - this is a key point)
- Other Costs: £500 pcm (assumed to increase by 3% per year)
- Savings: £900 pcm (assumed to be invested at 3% per year).
- Property Value: £140k (assumed to increase at 3% per year).

Note I have assumed the mortgage is more expensive (initially) to reflect what I think is now true across the country i.e. its cheaper to rent in the short term.

But moving on 25 years the picture looks like this:

Person A - Year 25
- Earns: £4,066 per calender month
- Rent: £1,016 pcm (note this has doubled)
- Other Costs: £1,016 pcm
- Savings: £2,033 pcm

Person B - Year 25
- Earns: £4,066 per calender month
- Mortgage: £600 pcm (note this is the same)
- Other Costs: £1,016 pcm
- Savings: £2,449 pcm (savings higher as mortgage now less than equivalent rent).
- Property Value: £285k

Result over 25 years

Person A who rents has accumulated savings of £627k over the 25 years.
Person B who bought has accumulated savings of £671k over the 25 years.
Person A actually does better in the early years when rent is cheaper than the mortgage, however by about Year 8 the monthly mortgage payments are lower, meaning Person B starts to save more per month.

So there's not much in it in terms of savings.

However, Person B is celebrating paying off their mortgage, and now has slightly more in savings, and owns an asset now worth £285k.

Maybe Person A's landlord will invite them around to a party to celebrate paying off his mortgage for him!

but theres no way a mortgage is going to have 0% increases over 25 years though is there?

lynzpower

and your also presuming that incomes will double over 25 years, telling you now, mine wont!!

howididit_2

Well on the mortgage not changing, obviously if you had a 25 year fix it would be constant. In reality when you remortgage sometimes you'll do better over the 25 years, sometimes worse. Like the savings rate won't be a constant 3%, but it will vary.

On the salary - yes that amazed me also! But thats the power of compounding! Modest annual increases over 25 years leads to a doubling. Maybe it won't happen to you or I but if you think the average will be 3% per year that's what happens!

For this analysis its a bit irrelevent anyway as for both A&B enjoy the same rise. If I change it to 1% the outcome is the same (A will save £374k; B £418k, so B is better off and owns the house!)

nelly_2

and then he dies

happenstance

Interesting post howididit although in this case person A's rent & bills is less than 300 and person b's mortgage and bills is over 1k. Both persons are on lightly less than 2k and person b does not manage to save anything. Person A is also at the start of his career working for a public company and person B is not looking to progress in his career and is working for an la. Still interesting post tho.

If I was confident that interest rates would stay at their current rock bottom rates then no question I would seriously look at buying.

meanmachine_2

The other issue in favour of buying long term is one of means tested pensions.

If you've got savings - because you've been a good boy - Gordon Brown Jnr (or his clone) will have that off you in 25 yrs, quick as you like.

But the problem is that you're extrapolating a benign environment similar to that seen in the last few years.

As the BoE say, the next period of our so called evolution is likely to be much nastier.

Sorry to bring a downer on things but as humans we're habitually complacent.

Again I point out that, in the 70s it was argued that rising oil prices could be contained. The same was being said just a few weeks ago - then inflation starts kicking in and whoops, party's over.

Still, if you go bankrupt, this nice government will let you escape your duties with nay bother these days.

howididit_2

I know I think in your circumstances happenstance I'd keep renting, absolutely. My comparison was for a more general rent v buy situation to allow me to see how things measured up.

Onto the two morbid posts on the thread, think I may be missing the point a little (some dark humour!!!) but even if I drop dead on the day I pay off my mortgage I would be happy thinking my kids now have an asset they can sell or indeed live in mortgage free. If I rent I do not have this and am still dead! (I know kids/family not a consideration for all).

Though I totally agree a house is primarily a HOME. That is why its valuation deifes other investments as I'm yet to find a share certificate that provides warmth and shelter, or is big enough to hold a kids party etc!!!