What does having a house (to live in) actually 'cost'?

JimmyTheWig

If you decide not to move now, will you be looking to trade up to the same extent at some point in the future? E.g. when your family gets bigger will you _need_ a bigger house, or when you retire are you planning on moving to an expensive part of the countryside, etc?

If so, you need to consider, and estimate, house price inflation between now and that point in time when you would move up anyway. You can then take this average annual percentage off your 5% interest payments. What is left is the cost per year to move now.
Note that you may estimate house price inflation over the next few years to be zero, or even negative. In which case your figure would remain at 5% or increase!

But if you aren't necessarily planning on moving up in the future then the question is if you move up now will you downsize again later? If so, then the date when you downsize is the date when you need to estimate house price inflation up until. Take that annual figure off your 5% and that gives you your cost.

But if your choice is to stay where you are until you die or move up and stay there until you die, there are no real costs you can take off the 5% (I'm ignoring the benefit of leaving an inherritance). You need to calculate the 5% of the mortgage across the term of the mortgage and then divide this total by the number of years you will be there.

Harry_Powell

michaels wrote: »

It isn't for investment purposes at all - it is a question of what will bring most benefit/utility/happiness to me and my family - a bigger house with a big garden and off street parking or £1180/£833/£333/Some other amount if you make different assumptions re property and general prices....

Sorry michael, I must've got the wrong end of the stick with my 'investing' talk. If you're looking at a larger house to provide more space for your family and because it's in a better area (better schools, etc.), then your main focus should be on affordability and life goals. Many people have large homes and large mortgages but have lifestyles built around their home (i.e. they are so called 'home bodies' who prefer to holiday at home than overseas). I'm not one of these people and so I'd always look at balancing my social life and ability to travel against what I'd pay for a house. If you are a 'home body' and tend to spend time at home, then I guess a large home would be a good 'investment'.

Only you know if you'd be happier with a large home and subdued social life or a more modest home and increased social life. We all have different priorities in life, the most content seem to be the ones who know what they want from life and go out and get it.

Primrose

Do you want to still be able to sleep at night if the going gets tough?
If you do, and don't want to spent the rest of your life looking over your shoulder, worrying what you'll do if the financial axe drops, settle for what you've got.

silvercar

The benefit of moving depends on the starting point. How much better is the area? Will it enable you to access better schools and better peers for your children.

Also if you are living with 4 children in a one bedroom flat, then a 3 bed house will bring big improvements; if you have 2 children in a 3 bed house and move to 5 beds, will the gain be as great? (:o avoids looking in the mirror at this point).

If you are confident you can afford it long term and a better home makes you and your family happier, then why not? What else can you spend your money on in this economy?

henrik1971

This is a real 'horses for courses' type question. Make's me think of the theme tune to the 80's show Diff'rent Strokes. Apologies for this answer being more a philosophy than an economic rationale

In my opinion a house is for living in - not a status symbol or an image thing or an investment. As long as it is provides most of what you want - convenient location, large enough to accomodate your family, and it's in an area where you can go out your front door and not be harassed by ASB in all its forms, why do you need more?

I think the three most important things in life are:
1. Good health
2. Peace of mind
3. Time and ability to do what you want with the people you love most

The fastest way to achieve all of these is:

1. Be aspirational in how you live, but not for frivolous material possessions. Buy the house that realistically matches your means. Stretching yourself for that overpriced new build with the shiny kitchen can be a fools errand.
2. Work hard and save hard. Every 70p saved is £1 less that you have to earn.
3. Work towards making yourself mortgage free as soon as possible.
4. Retire (or at least reduce working hours and do a less stressful job) as young as possible.

You can't take it with you when you go.

michaels

I agree with what everyone is saying - unfortunate as some is contradictory...

I can manage where I am, where I am looking is better but what I want is a good way to measure how much that better will cost - anyone any more thoughts on what the real monthly cost of 200k is so I can do the trade off of better house vs less money?

silvercar

michaels wrote: »

I agree with what everyone is saying - unfortunate as some is contradictory...

I can manage where I am, where I am looking is better but what I want is a good way to measure how much that better will cost - anyone any more thoughts on what the real monthly cost of 200k is so I can do the trade off of better house vs less money?

To some extent it will depend on what else you would spend the £800 a month on. If you would blow it on eating out/ fancy holidays etc then you have to put that against the life improvement - happiness gain you would get by living in a nicer home.

If you spent it on school fees because the schools accessable to your current home were not on a par to the ones you could get from the new home, then that is a different value.

To some extent these things can't be valued in monatory terms.

You could look at it that house prices have nearly always risen in any 25 year period. So spending that money means increasing the profit due to HPI in the future, so its a worthwhile investment. But if this was the sole reason, you would be better off rejigging your finances and getting a BTL for 200k and pocketing the rent!

If you want an emotional response rather than financial, we made a move similar to yours - nicer area and bigger home within same town and I'm very happy we made the move. But, if we hadn't felt financially secure in doing that move, I would now be regretting it. So my vote would be, make the move if you can afford it.

dopester

silvercar wrote: »

You could look at it that house prices have nearly always risen in any 25 year period. So spending that money means increasing the profit due to HPI in the future, so its a worthwhile investment. But if this was the sole reason, you would be better off rejigging your finances and getting a BTL for 200k and pocketing the rent!

There have also been system-balancing corrections throughout the years. Times to buy and times not to buy, or hold even.

Here is a little insight going back through hundreds of years, with some of the system-correcting depressions through history. Times where shifts in the economy caused misery for some, but helped to give others fresh opportunity. (full-post here.)

Every depression radiates unforeseen consequences across generations. It puts those who lose fortunes in good company and motivates human ingenuity in unexpected ways.

The story of an Englishman whose life illustrates this point has been much in our minds. He is a successful businessman who has fallen on hard times, as so many have. In the early sixties he inherited a farm from his father. He was not much good as a farmer, his hedges were a disgrace to the neighbourhood, but he always had an eye for a bargain. He sold the farm, built up a business in textiles and leather goods, put money into other businesses, and joined the local council.

Before he inherited the farm, as early as the fifties, he had an interest in properties, and as his business expanded, he bought more properties. By the late sixties he had reached a high point in his civic career. He was appointed the bailiff of the local market town in which he lived. His operations were on a substantial scale. He was part of the English enterprise culture before Mrs.Thatcher.

Unfortunately, it was the crisis of the mid-seventies that turned his fortunes for the worse, as it did those of many other businessmen and property people. He was overstretched. Some of his deals went sour. Unemployment was rising and money was tight. Life became a lot less pleasant for him. He had to sell most of the property he had bought, often for low prices, although he was able to keep his home. He retired from the council. There were lawsuits, even appearances in court and threats from the bailiffs. For twenty years he had become steadily richer; for the next twenty years he became steadily poorer

Who is this old man? His name is John Shakespeare; his son’s name is William. The facts are recorded in Dennis Kay’s Shakespeare. The years are correct, but the century was, of course, the sixteenth. John Shakespeare lived on until 1601, “a merry-checked old man,” and saw his son’s theatrical and business success.

Since the mid-sixteenth century there have been nine of these depressions. All followed periods of excessive debt, all involve a credit crisis, all lead to a collapse of property values, all ruin independent businessmen, all have serious political consequences, and all cause high unemployment and social distress.

Harry_Powell

Primrose wrote: »

Do you want to still be able to sleep at night if the going gets tough?
If you do, and don't want to spent the rest of your life looking over your shoulder, worrying what you'll do if the financial axe drops, settle for what you've got.

I found the above really quite depressing. While I agree that it's folly to overstretch ourselves to the point of breaking, I also think it's equally damaging to be so afraid of life that we give up on our aspirations and 'settle'.

I'm going to hold my hand up and say that while I am not going to rush out and buy a penthouse apartment, I certainly don't intend to remain in my 2 bed terraced house for the rest of my days either.

JimmyTheWig

michaels wrote: »

anyone any more thoughts on what the real monthly cost of 200k is

As per my post #22 above, if you don't trade up now, will you be looking to trade up at some point in the future? If so, when?

If you do trade up now, will you be looking to trade down at some point in the future? If so, when?

I can't answer the question without these pieces of information. With them, I can begin to guess.