Psychology of Home Owning

SingleSue

But the choice is still there Harry...you say zero return but I beg to differ.

My parents could sell up and have enough from the sale to go on a round the world cruise and generally have lots of fun plus have enough left to rent a bungalow on their return for far longer than they have left in their lives.

They could see a return if they so wished and a blooming healthy one due to HPI (they were one of the lucky ones who paid their mortgage off within 3-4 years so no huge cummulative interest on the principle sum)

the_ash_and_the_oak

SingleSue wrote: »

But the choice is still there Harry...you say zero return but I beg to differ.

My parents could sell up and have enough from the sale to go on a round the world cruise and generally have lots of fun plus have enough left to rent a bungalow on their return for far longer than they have left in their lives.

They could see a return if they so wished and a blooming healthy one due to HPI (they were one of the lucky ones who paid their mortgage off within 3-4 years so no huge cummulative interest on the principle sum)

But this is a different argument to the one you were making. Your original argument was a renter in x years still has to rent while an owner is mortgage free. But if both make the same money from their choice of investment then the renter could be a cash buyer in x years and the owner could STR and have the interest pay the rent.

Of course thats a 'big if" but you are making a different argument - that HPI had made enough over the last 30+ years to leave renters behind - making the above scenario impossible for the equivalent renter. This is a much better argument. The debate on this really is, will the next x years be the same as the last x years? and which is "better" at any given time period

Harry_Powell

SingleSue wrote: »

But the choice is still there Harry...you say zero return but I beg to differ.

My parents could sell up and have enough from the sale to go on a round the world cruise and generally have lots of fun plus have enough left to rent a bungalow on their return for far longer than they have left in their lives.

They could see a return if they so wished and a blooming healthy one due to HPI (they were one of the lucky ones who paid their mortgage off within 3-4 years so no huge cummulative interest on the principle sum)

Your parents could also sell their house, invest the equity in the stockmarket and live off the interest, using some of the money to pay 100% of their rent. This means they are in exactly the same position as the life-time tenant with one major difference... TAX.

The tenant has been able to invest his money in an ISA and so the income from his investment is completely tax free. If your parents sell up and bank the equity, they cannot shield all that money from the tax man (they could invest £10K each year in an ISA, but with £250k of equity, this would take 25 years... They could put money into NSANDI bonds and Premuim Bonds, but again they would have to drip feed this in and these would be inferior investments than those in the stock market).

baileysbattlebus

Harry_Powell wrote: »

Do you not think that the OO and the renter are in exactly the same position?

The owner occupier has invested his money into a single asset (his home) and the return from that investment is that he gets to live in it.

The renter has invested his money into a portfolio of funds (his ISA) and the return from that investment pays the whole of his rent.

The differences are that if there is an excess of money, the renter can also choose to reinvest that excess or can use it to pay other bills. The home owner cannot access his equity and so cannot use any of that money.

The financial fact that many people can't grasp is that paying a mortgage off doesn't mean you live in a house for free. It means that you have invested a significant amount of money and will receive zero return for that huge investment, other than having a roof over your head.

But surely the O/O can invest too......

If, as in our case the mortgage over the last 16 years has been relatively stable and OH's income has increased significantly over the same period - we potentially have a larger disposable income than a renter - the renters rent increases on an annual basis - in line with inflation or what ever - so while the renter may be able to invest more in the first few years the O/O will be able to invest more later on.

Assume the O/O will invest the difference between mortgage repayments and rent as time goes on.

To rent our house would cost around £1750 - £2000pm (assuming renter and owner lived in the same type of house and earn the same sort of money) our mortgage currently costs around £400pm - though that is low - typically we have paid between £550 - £650pm in mortgage payments.

If we had invested the money saved by not renting over the years - what would the difference be then - the O/O potentially has an asset they can sell or live in - and an investment income -

The renter will have the investment income to cover an ever rising rent.

Sorry for the ramble - but do you see where I'm coming from?

I don't know the answer by the way.

SingleSue

It's all by the by anyway...my parents are the most risk averse I have ever met!

Mind you, it does mean that by buying once and buying well, never mewing and paying it all off early, they can have a decent and fun retirement if they so wish.

Doubt my parents would know where to start with the stock market or investing in a manner to give the same sort of return complete with tax breaks (apart from the ISA dad took out to boost his retirement on top of his private pension and the lump sum invested on the death of his mother)...something which I would suggest is common in a fair few.

SingleSue

baileysbattlebus wrote: »

But surely the O/O can invest too......

If, as in our case the mortgage over the last 16 years has been relatively stable and OH's income has increased significantly over the same period - we potentially have a larger disposable income than a renter - the renters rent increases on an annual basis - in line with inflation or what ever - so while the renter may be able to invest more in the first few years the O/O will be able to invest more later on.

Assume the O/O will invest the difference between mortgage repayments and rent as time goes on.

To rent our house would cost around £1750 - £2000pm (assuming renter and owner lived in the same type of house and earn the same sort of money) our mortgage currently costs around £400pm - though that is low - typically we have paid between £550 - £650pm in mortgage payments.

If we had invested the money saved by not renting over the years - what would the difference be then - the O/O potentially has an asset they can sell or live in - and an investment income -

The renter will have the investment income to cover an ever rising rent.

Sorry for the ramble - but do you see where I'm coming from?

I don't know the answer by the way.

Must admit, I hadn't thought of that.

If my parents had had a little bit of financial knowledge (I do know their scenario is not the norm), they could have been investing at a higher rate than someone paying rent since 1973.

As it was, they made sure they never took credit and always only used what they earnt (well dad earnt as mum was a stop at home mum).

Their current house to rent would be approx £1k a month.

Harry_Powell

baileysbattlebus wrote: »

But surely the O/O can invest too......

We're talking like-for like, so the OO is paying £300pm onto his repayment mortgage, and the tenant puts the same £300pm into the stockmarket. The OO can invest a further £300 in the stockmarket, but then so could the tenant.

baileysbattlebus wrote: »

If, as in our case the mortgage over the last 16 years has been relatively stable and OH's income has increased significantly over the same period - we potentially have a larger disposable income than a renter - the renters rent increases on an annual basis - in line with inflation or what ever - so while the renter may be able to invest more in the first few years the O/O will be able to invest more later on.

The tenant's income can increase significantly too over time. Rents have been relatively stable over the last 16 years too and don't necessarily increase on an annual basis with inflation. I know people who have rented for 5 years without an increase, simply because the BTLer is pleased to have a decent tenant.

If the OO stays in the same house all his life (and we have shown earlier on the thread that this does not often happen), then I'd agree with you about the reducing mortgage costs v rental. However, the average person moves 6 times and usually moves up the 'ladder', increasing his mortgage costs. He also incurrs a large amount of costs just in the process of moving. A tenant incurrs minimal costs when he moves. In this scenario, the housing costs remain similar for both tenants and OO's.

baileysbattlebus wrote: »

To rent our house would cost around £1750 - £2000pm (assuming renter and owner lived in the same type of house and earn the same sort of money) our mortgage currently costs around £400pm - though that is low - typically we have paid between £550 - £650pm in mortgage payments.

Your mortgage payments are low because you have a significant amount of money (equity) already invested in the house - in the same way, the tenant could use some of his investment income to subsidize his rent.

baileysbattlebus wrote: »

If we had invested the money saved by not renting over the years - what would the difference be then - the O/O potentially has an asset they can sell or live in - and an investment income -

The renter will have the investment income to cover an ever rising rent.

Sorry for the ramble - but do you see where I'm coming from?

I don't know the answer by the way.

That's the point I'm making, given the high cost of home ownership, entailed especially through moving house, I'm arguing that the cost of housing for the average OO is pretty much the same as the average tenant. If this is the case, then there are no savings to be made by not renting over the years.

I do see the point you're making and for those people who make a 'below average' number of house moves, then OO is probably financially better than renting and investing, but for those who make the average or above number of house moves, then renting and investing is probably financially better.

chucky

HAMISH_MCTAVISH wrote: »

Yes, it may well do. When you are talking about the same level of investment in each.

But there is no way in hell that the stock market can outperform property with just 10% of the investment. Which is all you can put in when the other 90% is spent on rent..... Paying someone elses mortgage.

wouldn't that all depend on what stocks that you selected.

over the last 10-15 years property has looked a better investment than stocks.
however, the next 10 years will most probably show stocks a s a better investment.

it's not good to selectively choose one or other - diversity is much better

roswell

Harry_Powell wrote: »

Why is there "just 10% of the the investment" by the tenant?

OK, he has to pay rent but then the house holder has to pay interest on his mortgage. What's the difference?

If a renter pays £550 per month rent and an OO pays £550 per month Interest Only on his mortgage, then they're both losing the same amount of 'dead money'.

If the OO pays a further £300 per month as part of his mortgage repayment and the renter pays £300 per month into an ISA, then they're both investing the same amount of money.

Please explain why you think the renter cannot invest the same as the Owner Occupier?


p.s. it's not my 'supposed £60k for moving costs", I got it from the BBC. If you want to refute that figure, then please do, though with more evidence than your 'gut feeling'.

I dont agree with that, i have a property that costs £145 a month in mortgage, i could get £450 a month rent.

That would put me in a position of having an extra £305 a month to invest in a different asset the renter is still £450 down.

the_ash_and_the_oak

roswell wrote: »

I dont agree with that, i have a property that costs £145 a month in mortgage, i could get £450 a month rent.

That would put me in a position of having an extra £305 a month to invest in a different asset the renter is still £450 down.

when did you buy it?