I'm not buying

Jonbvn

Mr.Brown wrote: »

The few years of BTL madness were one of those strange bubbles that happen every now and again. Perfectly sane normal people, without a lot of money to spare, were dazzled by HPI at 20% and the blurb from Krusty, InsidfeTrack, etc. So Mum, or Dad, says "let's get into BTL" and the partner agrees.

Imagine other scenarios.

"Let's get into classic cars"
"Let's get into fine wines"
"Ostriches"
"Tulips"
etc.

What was so extraordinary about this bubble, was the number of people who would not dream of, er, investing, in anything - and they wouldn't have the cash to do it anyway. It is bonkers to borrow to invest. Surely it is doubly bonkers to leverage borrow to invest.

We shall see.

The other thing is that it is quite simple and cheap to make property !!!!!!. Can't quite see the general interest with buying an selling some of the other items.

Although I am thankful that those annoying gits from HUTH are not currently competing with Jeremy Kyle et al.

HAMISH_MCTAVISH

Procrastinator333 wrote: »

Anyway, i'm guessing Hamish isn't done with me yet... Ready for round 2 when you are!

So, just so we're clear, you accept the average house is only 11K lower today than in January 2007.

And that the average rental costs for the average house for three years are around 28K.

And that anyone on a tracker (or even a fix reverting to SVR) would have saved money versus the average rent between then and now?

You still haven't addressed the difference in mortgage margins available for borrowers then and now.

Radiantsoul

Mr.Brown wrote: »

What was so extraordinary about this bubble, was the number of people who would not dream of, er, investing, in anything - and they wouldn't have the cash to do it anyway. It is bonkers to borrow to invest. Surely it is doubly bonkers to leverage borrow to invest.

We shall see.

Borrowing to invest is kind of how it is done.
Houses are an odd asset class as you have to live somewhere...

Procrastinator333

Halifax, £189k to £169k.

Nationwide, £173 to £162k.

I see where you got the £11k from - Nothing like picking the statistic that helps your argument

So avg drop Jan 07 to Dec 09 is £15.5k or 8.6% (different to the 12% I guessed at before, but can adjust).

Rental costs of 5.5 - 6%, guessing that is your £28k, yep.

No to anyone on the average rate or tracker would have saved between then and now. See calculation below:

Average base rate of last 3 years + 0.5% = 4.09%.

Take a £250k house. Rent costs £43k (@5.75% - (Though still, this feels high, i'm paying £1,100 on a house that was up for sale at £290k, that ain't 5.75%)

Saving on house purchase £21.5k.

So buy after 3 years and have a remaining mortgage of £228.5k

Or consider buying. You have paid interest of 30.7k. But the saving of interest over rent can be used to pay down mortgage. So you have a remaining mortgage of £237.7k.

Hence the person who rented is better off. This can be tweaked with different numbers and %'s, but to me, the numbers and %'s used are on the bullish side anyway.

Regarding the difference in rates that a person is now on if they still have their tracker from back in the day. Yes, 12 months of constant or rising house prices coupled with constant interest rates would quickly see them catch up this deficit. But that is far from a certainty, and to me is less likely than others that end badly for that person. We could debate what is going to happen going forward in a different thread, but the fact is, these bullish %'s and numbers support the fact that a renter is better off as at today compared to 3 years ago. Which part of my calculation above do you disagree with (other than the fact I have excluded the better margin a buyer would now be on)?

@Pagg, as I have said, I agree that over any long term 25 year stretch, buying is better than renting. What I disagree with is that getting on the property ladder the first possible opportunity is the best course of action. Renting to bide your time can, as shown above pay off.

@Pagg, as mentioned, these examples exclude repayment element as it is irrelevant for comparing the money saved on the assumption that if the person can afford the repayment mortgage, they can afford to save the difference between renting and the repayment mortgage and use it as a larger deposit at the point of purchase.

@ Pagg, interest rates have to rise to give the government a better return on their loans?! Do you know what the deficit is?

property.advert

As long as a house's value does not fall to zero, buying will end up with an asset whereas renting never will. The real price of your mortgage is only the amount over any rental cost for the same property. Often rents are more. It is a no brainer decision.

Procrastinator333

@ property advert, please read the thread, you have missed the point.

Even just read my post above yours. The example shows you end up owning more of the house by renting and using the cash saved for a purchase at the end. Maybe you would like to argue the numbers / %'s, but the example I have given shows that the broad statement "It is always better to buy" is simply wrong.

carolt

Good thread - just like mine, but without the flaming.

I like it.

Carry on the good work!

Radiantsoul

property.advert wrote: »

As long as a house's value does not fall to zero, buying will end up with an asset whereas renting never will. The real price of your mortgage is only the amount over any rental cost for the same property. Often rents are more. It is a no brainer decision.

Not really.
You need to apply the rate of interest on savings to the difference between mortgage rates and rental rates.
Renters don't pay maintenace and can move for virtually zero cost. Buyers can use the advantage of leverage to boost their investment in assets.
Which is best depends on many factors, some of which are personal.

property.advert

The arguments against buying fail to take into account the cost of entry and exit to the property market. These costs help the "don't buy" argument but no account is taken for the don't buyers ever entering the market. If stamp duty rose to 10% for instance, improbable I know but theoretically possible, then where is that cost included and more importantly, where is that cost matched with the current entry cost in terms of stamp duty, say at 1% ?

Also, over any medium term, a renter is going to have to move statistically as their landlord will sell their property. Where is the cost of overlapping property rentals taken ?, removals ?, time (internal charge) taken to find a new property ?, any cost associated with having to pay higher rent due to market forces at the time they are forced to move house ? etc.

Renters cannot invest their time to improve their property and thus add value. Picking an area which takes a surge in prices is also ignored, as are other positive variables. The negatives seem to be included.

Mortgage rates, fixed rates in particular may be available at times but not when the current renter looks to enter the property market. Many other variables and unknowns, which do come into the argument and should be weighted and included.

I completely agree with the simplistic mathematics of the here and now and historic periods whilst prices are falling. However, I view that as a vastly overly simplified argument. It is likely that someone who chose to rent for the last two years is ahead financially at the purest level but there are other intangible costs of owning a property you live in. Peace of mind, security, opportunity cost, perhaps if the renter lost their job and could no longer secure financing at the time they wanted to switch into property as an example.

I feel that unless you wish to move within quite a short timeframe then the balance favours purchase and purchase should not really be considered if the intention is to move in such a short time anyway and thus that renders the argument rather weak.

I suppose the old saying that you should not really look to your residence as an investment but as your home is one which you cannot put a price on, though some people will sacrifice even a home life for moderate financial gain. I guess the same people rent the smallest apartment and live the most frugal life. Life is for living. They may be better suited to improving their income rather than living out of boxes and not relaxing in their home.

Procrastinator333

Yes the eample I have given is a simple one, but getting agreement on this is at a post count of 49 and I somewhat doubt Hamish is on board yet (or I haven't been shown the light). So factoring in the other reams numerous variables seems a bit optimistic, lol.

Long term, you can't beat buying, don't doubt it. But the point at which you get on the housing market can have a big difference on either the size of property you own or the cost to you over the long term.

I don't have time to invest in doing a property up. So that ain't much good to me. Plus I'm not sure this has ever been shown to actually add much value. The last 10 years, you sould have bought a place, painted it all lime green and still made a profit of the HPI. Maybe I'm wrong and would be keen to see some empirical evidence, but hey ho.

I think the buyer has higher moving costs, even if they move less often. I have lived in 2 properties. The first for 3 years - they begged us to stay. The second we have now been in over a year and the LL has told us he has no intention of selling anytime soon. That is just me, but again, what evidence do you have to show that renters ahve to move all the time?

The costs of moving for a rental are not high. £300 agency fees. £200 to hire a van. Job done.

Flip side you have all the usual associated with buying. 10-20 times as high, so you could move 10 times while renting and all the moves will have cost you less than buying once.

Other factors in home ownership, yes agree, very valid point. As I noted a bit further back in the post, at some point in a few years when we have had kids, they will become even more pressing, but at present renting is great.

Why do people think that if you rent you are a social misfit? (although I am on here at midnight posting to people I don't know for no apparent reason :rotfl:). We got on very well with our neighbours at the last place and again here.

Your last paragraph seems like a dig at me, suggesting i'm counting the pennies, only fair I suppose, I did call myself a bean counter.

But no, I wouldn't say we live frugally. We are a newly married couple living in a 3 bed semi detached house. We could save even more by renting a one bed, but as you say, life is for living.

I'm happy to spend money, happy to spend lots of money, but what I'm not happy to do is waste money. We will spend £3k on a 1 week holiday later in the year. That is a lot of money for a holiday. But when we do spend that money I will know that we couldn't have got that same holiday for a penny cheaper.

Houses- In the end we are going to blow a fortune on housing, but when we do, I want to get the most out of every penny we spend. Hence renting for these few years has been a good idea.