I'm not buying

Mr.Brown_4

Procrastinator333 wrote: »

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?

Prepare yourself for a very long post in response to this.

moneysaver

Mr.Brown wrote: »

Prepare yourself for a very long post in response to this.

Hamish is away to get calculator:rotfl:

Radiantsoul

HAMISH_MCTAVISH wrote: »

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.

But assume a non inflationary world(ie0% HPI, 0% rent increases). Rent £900/month versus £175k interest rates of 4% on savings and mortgage rates of 5%. Stampt duty of 1% and costs of £600.

The result then is that renting beats buying.

You are assuming that house price inflation will continue faster than rent does which has a large effect as a result of compounding.

Put another way you are assuming the rental yield falls from 6.17% to 4.8% - a fall of 22%.

HAMISH_MCTAVISH

Procrastinator333 wrote: »

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).

Not exactly.

Repayment decreases interest paid over time.

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%

Why 6% in year 3?

Lloyds and Nationwide have a capped base plus 2% SVR for 2007 borrowers.

Plus you're not including the additional costs you will pay through higher margins above base for at least the next few years.

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?

But the interest cost is different. Not just base rates, but also the margin above base.

To use an extreme example for illustrative purposes, you could get a lifetime tracker at base plus 0.5% on a 100% mortgage in 2007.

Today a 90% LTV borrower could pay base plus 5% for a similar product.

How many years does it take for the 2007 borrower to gain against the 2010 borrower, even with a 10% fall in prices.....;)

HAMISH_MCTAVISH

Radiantsoul wrote: »

But assume a non inflationary world(ie0% HPI, 0% rent increases). Rent £900/month versus £175k interest rates of 4% on savings and mortgage rates of 5%. Stampt duty of 1% and costs of £600.

The result then is that renting beats buying.

But we don't live in a non-inflationary world. Our entire monetary system is based on the concept of inflation.

You are assuming that house price inflation will continue faster than rent does which has a large effect as a result of compounding.

Put another way you are assuming the rental yield falls from 6.17% to 4.8% - a fall of 22%.

Fine. Increase rental inflation to 2% to match house price inflation.

Then the buyer gains by £220,000 instead of £180,000.

sss555s

On the value front then when i purchased 20 years ago my repayment mortgage was similar to what renting the same property would be even if i did pay a deposit on the property. Now 20 years later it would cost 3-4 times what my mortgage is to rent.

Also at the end of it your 250k house will be worth 500-750k going by history and the tenant will have zilch and still have to cough up ever increasing rent.

exil

Buying a house is a long term decision and should not be based on predictions of what is going to happen in the next year or two. However it should also be based on what you can afford now. Generally speaking renting is cheaper than buying for the same type of house - IN THE SHORT TERM. After 20 or 30 years you save hand over fist by buying.

If over the next 20 to 30 years house prices actually fall, then renting is a good idea long term as well. Not very likely given all governments are likely to aim monetary policy at an inflation rate of around 2% which is bound to be reflected in house prices and rentals.

foreversummer

To the OP. As I see it, the sooner you buy a house the sooner you own it. If we'd dithered around 25 years ago wondering what was going to happen to house prices and wasting years, we would not be in the position we are in today (nice four bedroomed detached with a very low loan to valuation).

Get out there now, find somewhere you can afford and go live!

Foreversummer

Radiantsoul

HAMISH_MCTAVISH wrote: »

But we don't live in a non-inflationary world. Our entire monetary system is based on the concept of inflation.



Fine. Increase rental inflation to 2% to match house price inflation.

Then the buyer gains by £220,000 instead of £180,000.

I am not sure our system is based on inflation. The experience since World War 2 has been quite inflationary. But prior to that the price level did not really change much. Who is to say the next 25 years will be more like the last 50 than the preceeding two hundred.

The point I was aiming at with regard to increases though is the calculations have quite high sensitivities that no-one can really calculate. It would be interesting to look at historic comparisons between renting and buying, but my feeling is that there are relatively few independent 25 year samples to compare(say 1985-2010, 1960-1985, 1935-1960). I suspect that buying would be better in the most recent period, perhaps the second and probably renting would win in the oldest period. But it is probably difficult to calculate.

Radiantsoul

sss555s wrote: »

Also at the end of it your 250k house will be worth 500-750k going by history and the tenant will have zilch and still have to cough up ever increasing rent.

Perhaps prices will increase so dramatically over the next 25 years, but I don't quite see that it is certain. It seems to be a weird assumption[to me] that because prices have risen over the last 30-40 years they will necessarily continue to do so over the next 25 years.

I am not suggesting prices will crash by 75% as that seems ridiculous. Or even that they will fall at all. But it seems that the a probability distribution of average houseprices 25 years hence is likely to have a far wider spread than people imagine.