Psychology of Home Owning

Harry_Powell

HAMISH_MCTAVISH wrote: »

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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.

You just don't understand (or don't want to), a rent is the same thing as an interest only mortgage. If someone pays £500pm in rent and someone pays £500pm in mortgage interest payments, they're both the same. They both pay £500pm to live in their houses. If the home owner then pays an additional £200pm repayment (taking his complete monthly mortgage payment to £700pm. The tenant can do the same, but rather than paying down a mortgage with his £200pm, he invests it into an ISA.

The only difference between the two is the rate of return from the two investments. One person is relying on a single asset to increase in value, the other is relying on a balanced portfolio of funds, bonds, and shares that he can move around at a whim.

You rely on rampant HPI to make up the difference, but I can't see the sort of boom we've seen over the last 8 years happening again for a generation.

JonnyBravo

Harry_Powell wrote: »

You just don't understand (or don't want to), a rent is the same thing as an interest only mortgage. If someone pays £500pm in rent and someone pays £500pm in mortgage interest payments, they're both the same. They both pay £500pm to live in their houses. If the home owner then pays an additional £200pm repayment (taking his complete monthly mortgage payment to £700pm. The tenant can do the same, but rather than paying down a mortgage with his £200pm, he invests it into an ISA.

The only difference between the two is the rate of return from the two investments. One person is relying on a single asset to increase in value, the other is relying on a balanced portfolio of funds, bonds, and shares that he can move around at a whim.

You rely on rampant HPI to make up the difference, but I can't see the sort of boom we've seen over the last 8 years happening again for a generation.

I've done the sums and posted it in this thread

http://forums.moneysavingexpert.com/showthread.html?t=2060415



However as an aside, one thing about the scenario you're outlining above that is missing is inflation. The house owner is buying leverage on the full value of the mortgage with his interest payment right from the start, the investor isn't doing that.

JonnyBravo

Harry_Powell wrote: »

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.

Genuine question..... which investment gaurantees over 5% on over £200k at the moment?

nearlynew

JonnyBravo wrote: »

Genuine question..... which investment gaurantees over 5% on over £200k at the moment?

.............Nice one.

JonnyBravo

nearlynew wrote: »

.............Nice one.

thought you'd like it......

I'm starting to think I might do it til this time next year...... 100% gauranteed

Harry_Powell

JonnyBravo wrote: »

Genuine question..... which investment gaurantees over 5% on over £200k at the moment?

With my first google, and I believe that there are far better products for ISAs and especially if you're looking for company or government bonds that are pretty safe (government bonds are v. safe), here is an offering from Yorkshire bank:

http://www.ybs.co.uk/email/existing/landing/e-bond_5yr.html?cmpid=158

With £200k, you'd have access to much better financial products than those offered by high street banks, and as part of a diversified portfolio that is actively managed by an IFA, you'd be able to get a much better return.

JonnyBravo

Harry_Powell wrote: »

With my first google, and I believe that there are far better products for ISAs and especially if you're looking for company or government bonds that are pretty safe (government bonds are v. safe), here is an offering from Yorkshire bank:

http://www.ybs.co.uk/email/existing/landing/e-bond_5yr.html?cmpid=158

With £200k, you'd have access to much better financial products than those offered by high street banks, and as part of a diversified portfolio that is actively managed by an IFA, you'd be able to get a much better return.

Ta.

Note its a 5 yr fix with no get-out though. One would certainly being keeping ones fingers crossed inflation doesn't appear and one ends up losing money.

Oh and I agree it is possible to get a much better return by actively managing your portfolio but that rarely carries any ....... wait for it..... 100% gaurantee

CloudCuckooLand

The 5.3% 5-yr bond would need to have tax paid, so is really only 4.24%...even worse for a higher rate taxpayer...3.18%?

?

HAMISH_MCTAVISH

Harry_Powell wrote: »

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.

And some people would be expending 7% on rental costs whilst struggling to make better than a 3.5% investment return, after tax....:rolleyes:

HAMISH_MCTAVISH

Harry_Powell wrote: »

You just don't understand (or don't want to), a rent is the same thing as an interest only mortgage.

And you just don't understand, or just don't want to, that is simply not true anymore as a national average.

In every region of the country except London, mortgage interest is now cheaper than rent as an average.

In some areas, rent is MORE than a full repayment mortgage.

The best mortgage available today is around 3%. Rent in Aberdeen today is between 6% and 8%. Rent in hundreds of other towns is similarly expensive.

If someone pays £500pm in rent and someone pays £500pm in mortgage interest payments, they're both the same.

A big IF...... It is simply no longer the case in most areas.

As previously stated, the national average varies by region, but rent is now within 10% to 20% of a FULL REPAYMENT mortgage.

So if I pay £880 on a repayment mortgage, and you pay £800 in rent, you can only invest £80 a month.

But as time goes by, my house is inflation proofed, I have locked in the lower price. And as time goes by your rent will rise, and rise, and rise some more. Until soon enough you have nothing left to invest. And then it costs you more than a mortgage, and then vastly more, and it keeps on rising inexorably until you reach retirement broke, miserable, and with the thought of having to find hundreds of thousands of pounds to pay for rent for the next 20, 30, 40 years until you die.

It is virtually impossible to make the numbers add up for renters. And you are advocating what is effectively financial suicide for most people.