I'm not buying

moneysaver

sss555s wrote: »

Graphs or it's not true!

If you work out renting for 25 years and buying and considering house values historically increase substantially over that period it looks like your trying to play the long odds game.

It will be very much up to luck if you come out on top.

I am not against buying, I would just like to pay for a place & feel I have got a fair deal. Not pay over 100k for a 1 bed flat which was happening not so long ago.



Moneysaver

Mr.Brown_4

There is a clear argument for just buying a house and getting on with life. And a counter argument, equally clear and persuasive, for saving money and waiting for the right time. Houses are still overpriced, even more so considering the crash that aborted part way through.

Where there is surely no doubt however, is in the get rich quick BTL or renovating fad that occupied a lot of people during the mid 2000 period. This is the phase that priced normal people out of houses, and built a mountain of debt which wrecked the world economies. That time is over and that is where the remainder of the crash has yet to come from. Distressed sales and bankruptcies partly, but more an end of the love affair with 'easy' money and debt.

Procrastinator333

@ conrad - No need to talk about me like I'm not here! lol.

Yes I agree there are many arguments beyond the sole monetary terms. Very valid ones. We go round to a friends who have bought and I am very jealous of what they can / we can't do. But on the opposite side, I just can't bring myself to throw away what I think has / will be tens of thousands of pounds just to be able to decorate etc. A few years time when we have kids, that may not be so true, but at present for me the money saved and the extra room or cheaper mortgage it will bring outweigh this.

As mentioned by others, the saving isn't huge on the renting alone. I guess really I'm just using that as an example to argue against what I see as the rather ignorant one size fits all "renting is a waste" argument. Not saying anyone has said that on here, but it is often stated by so many. It is true under a lot of circumstances, but not all.

By renting, I'm making a small saving, I have added flexibility and when I do buy will have a larger deposit. Because I see so much risk in the economy I would not be comfortable having a large mortgage that if interest rates rose could end up costing a fortune. After the election and the first few months, hopefully the future will be a bit more certain.

Regarding deposit. We didn't have much of one 3 years ago, but it didn't matter then. We have more than enough now and could probably have bought at almost any point in the last 3 years.

@sss555s Yes agreed, over any 25 year period, I reckon you will be hard pressed to ever find renting being best for the duration. I'm not saying renting forever is best. I said if house prices are flat and rent is cheaper it is better. I didn't expressly state it, but took the 25 year argument for buying as a given and was really making the point over short term.

The point at which you jump on the housing ladder does have a very large impact on either the size of house you own, or money saved to spend on other things. Someone who bought a house in 1997 and lived there for 25 years will have paid a significantly lower portion of their disposable income towards housing costs than someone who bought the house next door 3 years ago over the next 25 years.

DaddyBear

Don't biat the McBeast

Procrastinator333

I think he is scared of me....:cool:

Radiantsoul

Procrastinator333 wrote: »

@sss555s Yes agreed, over any 25 year period, I reckon you will be hard pressed to ever find renting being best for the duration. I'm not saying renting forever is best. I said if house prices are flat and rent is cheaper it is better. I didn't expressly state it, but took the 25 year argument for buying as a given and was really making the point over short term.

I am not sure if that is true or not. Historically there are relatively few independent(ie non-overlapping 25 year periods). I think you might expect returns on renting and buying to be broadly equal.

HAMISH_MCTAVISH

Procrastinator333 wrote: »

I have rarely posted on here before, but reading thorugh I reckon I'm about to get flamed! Come get me Hamish! :eek:

:rotfl:

No, I liked your post. Good argument, nicely put.

And new posters should be encouraged.

We have to be nice to moneysavers, even if we can demonstrate their actions didn't actually save them any money.;)

I'll take the average nationwide house price as an example. My own area is currently significantly up on the January 2007 price, other will be lower.

So, 3 years ago this month, the average house price was £173,225. (January 2007, Nationwide).

The most current data we have today is Dec 09, which was £162,103.

So, simple enough, you gained around £11,100 on the purchase price by delaying purchase for 3 years.

However, you also added lifetime housing costs by doing so. The average rental yield in 2007 was 5.5%, it's north of 6% today, but lets take the 2007 figure for now.

5.5% of £173,225 is £9527 per year in rent, for 3 years, is a total expenditure of £28,582.

But of course, there is also the matter of mortgage interest. Now the simple fact is that mortgages today are at least 2% higher, in terms of bank margins above base, than those of 2007. And of course, base rates have fallen considerably since 2007, and a purchaser then has been able to take advantage of the lowest rates in history.

Whilst these margins will decrease, they look likely to stay divergent for the next few years anyway, plus of course the three years so far.

So the 2007 buyer is around 2% per year better off per year for, lets say, the first 5 years of the mortgage than the 2010 buyer. So roughly a £3465 gain per year, for 5 years, or another £17,322, from bank margin alone. And of course the already achieved base rate falls of 5%, which we can safely assume for at least the last year anyway (although likely all of this year too), for another 5% gain of around £8660. (There is a partial base rate fall in 2008 as well, but ICBA calculating it)

So, on a positive note for delayed purchasers, there is the roughly £11,000 savings on the house price.

But it has cost them £28,000 in rent.

plus

£17,000 on mortgage margins.

plus

£8660 in reduced base rates already achieved (actually more like 11K or 12K to date, but CBA calculating precisely)

For something approaching a £42,000 gain by buying then versus now.

Now, we can argue the details, or the amounts, and everyone will, of course, be slightly different.

But on the averages, and with any type of variable rate mortgage, or even a 2 year fix reverting to SVR from a major lender, it's very, very hard to make delayed purchase stack up even as a breakeven, never mind any kind of significant gain.

It was easier back in February, as the falls were bigger, and the rent expenditure smaller. It may be easier in the future, if we have further large falls, greater than the costs of additional rent, but it's very hard to make it work as things sit today.

Procrastinator333

Radiantsoul wrote: »

I am not sure if that is true or not. Historically there are relatively few independent(ie non-overlapping 25 year periods). I think you might expect returns on renting and buying to be broadly equal.

I haven't read stuff on it for a while, but thought that the cost of renting vs buying was about the ame on a 25 year period, difference was you owned the house at the end if buying. Like I said, a while since I read anything on that, so if wrong, stand corrected....

HAMISH_MCTAVISH

Procrastinator333 wrote: »

I haven't read stuff on it for a while, but thought that the cost of renting vs buying was about the ame on a 25 year period, difference was you owned the house at the end if buying. Like I said, a while since I read anything on that, so if wrong, stand corrected....

No, it's significantly cheaper to buy than rent on a 25 year period.

http://www.timesonline.co.uk/tol/money/calculators/article5771800.ece

200K house, 30K deposit, 5% mortgage, 3% net (after tax) savings interest rate, HPI of 2% per year (well below long term trend), rent increases of just 1% (also below long term trend), and 900 p/m rent.

Buyer is £180,000 better off than the renter over 25 years.

Procrastinator333

HAMISH_MCTAVISH wrote: »

:rotfl:
We have to be nice to moneysavers, even if we can demonstrate their actions didn't actually save them any money.;)

Looking forward to it. :j

Ok.... Perhaps I just ain't following correctly, but I don't follow your numbers. Do you agree that for the purposes of this discussion, ignoring repayments is the way to go as any repayment is just offset by an amount saved for an increased starting deposit. Really the debate focuses on the shift in the house price and the difference in the rental cost vs the interest cost (both are wasted money).

So happy to use you example that is a 6.4% fall. Apply that to my situation (kind off). A £250k house with a rent of £1,100 3 years ago. Assume the rent doesn't change.

Assume you get a good rate, 3% yr 1, 3% yr 2, come off you fix, but low LTV, so then 6%

The rental cost is £39,600.

The interest cost is £7.5 + £7.5 + £15k. Total £30k.

However you have then saved 6.4% on the purchase price - £16k.

So by renting you have spent £39.6k, but then when you do buy at the end of 3 years you save £16k. In effect, the cost of living has been £23.6k for the last 3 years.

Or by buying the cost has been £30k.

Not trying to be obtuse, just don't get why you are adding rent to mortgage margins and reduced base rates? Surely the comparison is just Rental cost - house price fall compared to the interest cost?