House Owning vs Renting

Mr_Matey

Thrugelmir wrote: »

Your first comment, raises the additional issue of people renting better property than they could otherwise afford to buy.

Your second is that it maybe cheaper to rent and save than incur a high rate of interest.

Hi Thrugelmir,
Agree that people can rent properties they couldn't afford, but it also highlights that it's cheaper to pay that 3.5% yield than the 6% mortgage. All part of the first point really.

The second comment is that say you get a payrise or windfall, you have access to a good investment that you wouldn't otherwise. Knock off some debt, and you're saving yourself 6% in mortgage payments each year that would otherwise come from your after-tax income. As a renter it's hard to get an after-tax return equal to the mortgage rate without taking on more risk.

lostinrates

JonnyBravo wrote: »

Absolutely.

This was never designed to to show that renting is a bad idea full stop. The shorter the period the more swings you can get in the figures. eg House price deflation over a couple of years changes the figures vastly for that 2 year period etc.

This was simply done to show that all things being equal and going on past historical norms you really don't want to rent for 40 or 50 years as you will, in all likelihood, be worse off.
People need to read the other thread to see why this discussion came about.

I have a question.

we have stats for homeowners etc, but do we know how many people inUK invest in shares etc?

Thrugelmir

Mr_Matey wrote: »

The second comment is that say you get a payrise or windfall, you have access to a good investment that you wouldn't otherwise. Knock off some debt, and you're saving yourself 6% in mortgage payments each year that would otherwise come from your after-tax income. As a renter it's hard to get an after-tax return equal to the mortgage rate without taking on more risk.

I was taking the view that if you could afford to buy the house that you were renting at 3.5% cost. You would be better paying the rent and saving the difference between that and a 6% mortgage rate, in the short term. As the savingin interest costs is considerable on a 20 year plus loan even on .5% per annum lower rate.

JonnyBravo

lostinrates wrote: »

I have a question.

we have stats for homeowners etc, but do we know how many people inUK invest in shares etc?

Proshare in conjunction with Computershare and Mori Financial Services undertook a survey of over 1000 private shareholders in 2002. Together with other data, some of the conclusions were as follows:

• 22% of adults held stocks or shares, but 12% held only “privatised” or “demutualised” shares. The median value of share portfolios was about £5,000, and the median number of companies held was only 3. 89% held some shares in the form of share certificates, 31% held some in a PEP/ISA nominee account, 50% held some in a brokers nominee account, 12% held some in a company nominee account, and only 4% held some in a personal Crest account.
• The average number of trades executed in the last 12 months was 3. Note though that this appears to represent a wide distribution with probably a few active traders (less than 10% of the total) and a large number of inactive traders (with zero or 1 trade per year).

The above information is consistent with the figures on private share ownership published in the Department for Work and Pensions survey last published in 2005/6 - see www.dwp.gov.uk/asd/frs/2005_06/index.asp where it suggests that 20% of UK households hold shares.


Source:
http://www.uksa.org.uk/Uk_stock_market.htm

Thrugelmir

lostinrates wrote: »

I have a question.

we have stats for homeowners etc, but do we know how many people inUK invest in shares etc?

Not very up todate. - published July 2007

Investors from outside the UK owned 40 per cent of UK shares listed on the UK Stock Exchange at the end of 2006. This was up from a 36 per cent share at end-2004.

At the end of 2006 the UK Stock Market was valued at £1,858 billion – an increase of £378 billion (26 per cent) since the end of 2004.

Rest of the world investors now hold £742 billion of UK shares – up from £538 billion at the end of 2004. Of this, £245 billion (33 per cent) was held by investors based in North America. The increase since 1994 (when foreign investors held 16 per cent of UK shares) partly reflects international mergers where new companies are listed in the UK, flotation of UK subsidiaries of foreign companies in which the parent has retained a significant stake, and companies moving their domicile to the UK.

UK individuals owned £239 billion of shares (13 per cent) down from 14 per cent in 2004.

Insurance companies owned £273 billion (15 per cent) - down from 17 per cent in 2004. The percentage holdings of pension funds have also reduced to 13 per cent (£236 billion) from 16 per cent in 2004. Since 1999 there has been a trend for pension funds to move towards bond investment, and some pension funds have moved away from equities entirely.

After a significant rise between 2000 and 2001 (3 per cent to 7 per cent), holdings of UK shares by ‘other’ financial institutions’ have gradually increased to 10 per cent (£179 billion) at the end of 2006.

Banks own £63 billion (3 per cent) of UK shares – their highest proportion since the survey began in 1963.

FTSE 100 companies continue to dominate the UK Stock market. The proportion of funds unvested in these companies varies between 58 per cent for individuals and 83 per cent by overseas investors. Overall 76 per cent of equity investment is in FTSE 100 companies.

More generally the long term trend shows that the percentage of shares held by foreign investors and 'other' financial institutions continues to increase while the percentage holdings of individuals, insurance companies and pension funds is decreasing

http://www.statistics.gov.uk/cci/nugget.asp?id=107

lostinrates

Thank you both. So....perhaps I misunderstand, but it seems to me that JB's excellent stuff and a whole host of our debate about this is sort of ...(lir scans head for word...)..redendant because a lot of house owners and renters are not investing at all, let alone investing anywhere close to these possible averages...?

Thrugelmir

lostinrates wrote: »

Thank you both. So....perhaps I misunderstand, but it seems to me that JB's excellent stuff and a whole host of our debate about this is sort of ...(lir scans head for word...)..redendant because a lot of house owners and renters are not investing at all, let alone investing anywhere close to these possible averages...?

As a nation we've favoured property and deserted shares over an extended period.

We all follow the FTSE but actually own very little of it. So the majority of dividends flow abroad.

Maybe an incoming Government will change the rules to incentivise long term investment again.

Mr_Matey

lostinrates wrote: »

Thank you both. So....perhaps I misunderstand, but it seems to me that JB's excellent stuff and a whole host of our debate about this is sort of ...(lir scans head for word...)..redendant because a lot of house owners and renters are not investing at all, let alone investing anywhere close to these possible averages...?

Not really, the comparison is to show which is the better option if you have the money or capacity to invest. Do you put your extra money into paying off a home, shares or something else?

Lots of renters and indeed home owners don't have extra money to invest in shares. Also a lot prefer to steer clear of share markets because they either don't understand them or don't like the risk. Most people, in my experience, are not very financially literate.

Averages here are a bit pointless, as in general people invest in share markets after their mortgages are paid off. A lot of people "save a deposit" but don't invest it in shares.

Another point is that most people who have a pension fund may have share exposure but may not know it.

lostinrates

Mr_Matey wrote: »

Not really, the comparison is to show which is the better option if you have the money or capacity to invest. Do you put your extra money into paying off a home, shares or something else?

Yes, I understand that.

Lots of renters and indeed home owners don't have extra money to invest in shares. Also a lot prefer to steer clear of share markets because they either don't understand them or don't like the risk. Most people, in my experience, are not very financially literate.
Yes, this sort of ties in to what I'm trying, pooly, to express as a query

Averages here are a bit pointless, as in general people invest in share markets after their mortgages are paid off. A lot of people "save a deposit" but don't invest it in shares.
Yes.

Another point is that most people who have a pension fund may have share exposure but may not know it.

Yes, true, and exactly why I sort to draw a difference in actually making a planned investment.


I'm sorry mr Matey, I know I'm not being very clear. I think Thrugelmir sort of gets what I'm trying to ask though. I need to formulate the question better though, because I see how I'm asking is not clear or correct.:o

carolt

Great OP, Jonny - but surely a little redundant in practice, as I find it hard to believe there are any people out there (except for a few with specific lifestyle issues, like need to keep moving for work, or rent cheaply off family, or something), who see private renting as a long-term solution. (Obviously, council tenants are a whole different ball game.) I mean, how many people really make the decision whether to buy now based on a 40 year calculation? They make the decision based on the facts on the ground at this moment.

So, for example, in 2007, I stopped looking for a property to buy at all, and decided that at those (peak, as it turned out) prices, it just did not make sense for me to buy, as it was far cheaper to rent. At that point.

It didn't mean that I'd committed at that point to never, ever buying in the next 40 years - prices could fall (they did), my salary could rise (it did), I could win the lottery (I didn't), etc etc.

The reality that your beautiful piece of calculation ignores is that people's situations change during that 40 years - to look at it in reverse, the person who buys might get divorced, move abroad, or for any number of other reasons decide to sell up within that time period, just as those who decide not to buy NOW because it doesn't suit them, the monthly costs don't stack up in favour of buying at this moment, they can't get a mortgage in the current climate or with current deposit demands, etc etc etc. may change their minds.

The person who bought in 2007 at peak prices may be better off than the person who buys 3 or 4 years later, or they might not. It has a lot more to do with 2 unknowns - how far house prices fall and or rise in that time, and what interests rates both parties are able to get over the course of their mortgages.

Which are both variables that no-one can predict, will vary from person to person depending on specific property bought, personal credit rating, deposit saved, and luck, etc, and is entirely unallowed for in your interesting but ultimately enjoyably meaningless calculation.

Sorry Jonny - it was fun - but no more applies to reality than a lot of the tosh posh economists come out with.