Psychology of Home Owning

treliac

Mr_Matey wrote: »

Hi all,
I have a few questions for those of you who are home owners, and those who aspire to be. I think it'd be interesting to see how owning a property changes people's perspectives.

I took on a mortgage in the first place (and let's face it, I didn't become a home owner, just a mortgage owner :rolleyes:) because I wanted my independence, I wasn't prepared to get pregnant and I could just about afford it if I rarely went out and took on a second job. There was very little in the way of single person rentals around.

As life changed, marriage, children and all that stuff, including a duff pension mortgage (which had to be recovered from) having a mortgage and increasingly owning a larger proportion of the family home representated a feeling that we had some control over our own lives. We aren't subject to the will or financial position of a landlord and we can choose (within reason) to live where we choose in the country.

It's been a long hard slog but I have no regrets because eventually (I hope!) I'll reach retirement and we'll no longer have a mortgage. Costs, in relation to rental charges, are already decreasing in our favour and in the end we'll be living mortgage free. That should represent some security in retirement which will make the hard work in getting there, all worthwhile.

HAMISH_MCTAVISH

Harry_Powell wrote: »

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.

No, that's untrue.

Not paying rent means you are not expending 5% (the national average) of that asset value per year in rent.

So on a 200K house, you are saving (earning) 10K per year, just by not paying rent.

HAMISH_MCTAVISH

Harry_Powell wrote: »

True, but everything I've read has said that the stock market performs better than the housing market over the long term (and 25 to 30 years is 'long term' to me

The average return for the stock market from 1929 to 2008 was 8.9% per year. 4.6% in capital growth, plus 4.3% in dividends. However, this is a nominal return, and does not adjust for inflation.

The average long term return for the UK housing market is inflation plus 2.9%. Average long term inflation (RPI) is 3.9%. And average rental yield is around 5%.

So in fact, housing beats stock markets by an average of 2.9% per year, when you include the costs or returns of rent.

HAMISH_MCTAVISH

Originally Posted by Harry Powell
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?

Because the difference between the average rent and the average full repayment mortgage is now down to between 10% and 20% depending on region.

So when comparing the monthly housing expenditure, the renter can only invest the difference. Between 10% and 20% of the mortgage payment.

And there is no way that investing 10% or 20% of a mortgage payment invested in the stock market can ever beat the returns from buying a house.

boomerangs

Hi Hames, tell your missus I'll be around tomorrow night at the usual time. I'm really looking forward to it I can tell you.

HAMISH_MCTAVISH

boomerangs wrote: »

Hi Hames, tell your missus I'll be around tomorrow night at the usual time. I'm really looking forward to it I can tell you.

I was sure I'm missing some socks from my top drawer... That would explain it.

cake21

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.

I could also get £450 a month rent for my property, but the mortgage is £800 repayment at 2.99%. If I'd either bought before HPI or after the crash it might be a different matter :rotfl:

Harry_Powell

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.

As another poster has mentioned, when did you buy this, how much longer do you intend living there, and most importantly, how much equity do you have tied up in the property?

If you have a £250k house and just £50k left ont he mortgage, that means you have £200k of your cash sat not earning any money. The renter with £200k cash in the bank could also subsidize his rent with some fot he income from his £200k investment. There is no difference.

Harry_Powell

HAMISH_MCTAVISH wrote: »

No, that's untrue.

Not paying rent means you are not expending 5% (the national average) of that asset value per year in rent.

So on a 200K house, you are saving (earning) 10K per year, just by not paying rent.

Even in these troubled times, I can get a better rate on £200k than 5%, especially as this is an average, so some people will be expending 3% on rental costs while making anything upto 7% on investment returns.

Harry_Powell

HAMISH_MCTAVISH wrote: »

The average return for the stock market from 1929 to 2008 was 8.9% per year. 4.6% in capital growth, plus 4.3% in dividends. However, this is a nominal return, and does not adjust for inflation.

The average long term return for the UK housing market is inflation plus 2.9%. Average long term inflation (RPI) is 3.9%. And average rental yield is around 5%.

So in fact, housing beats stock markets by an average of 2.9% per year, when you include the costs or returns of rent.

Interesting how your figures only go to 2008, and so don't cover the house price crash?

We're not talking about BTL, we're talking about renting instead of buying your primary home, so any figures that include rental income as part of the return, are completely bogus.