I'm better off renting - or am I?

keeko

Hello everyone,

I'd really appreciate some advice on my current situation. I think I'm currently better off renting but you may disagree.

The positives:

I'm a First Time Buyer.
I earn nearly £30K per year.
I am debt free.
My rent is £290 per month (less than £3500 per year).
I don't live very extravagantly and so I've been saving for the 3 years I've been in my current job (I earnt much less before and have been disciplined enough to save much of my excess income). I have approx £25K saved plus around £10K in shares (mainly Building Soc "windfalls")
My monthly outgoings mean I have around £800 left to save each month.
I live in a nice flat (I share with 3 nice people)

But (the less positives)

I'm nearly 33 years old, perhaps it's time to get a place of my own.
I live in South East England and the property prices are very high.
£150K for a 1 bed flat - which wouldn't be as nice as the flat I'm living in now.
A £160k mortgage (less a £25K deposit) would cost me about £860 per month.

And (this is the big one)

I'm sure property prices are going up faster than my savings despite my best efforts!

I'm considering contacting a Financial Advisor - though I'm not sure whether their advice would be completely unbiased eg a mortgage advisor would advise me to buy, an investment company would advise me to save more.

I'd be interested in hearing views from those posting here.

Finally, best wishes to all you moneysavers out there and thank you to all those who respond.

F_T_Buyer

Hello Keeko,

I think you're in a very enviable position, mega cheap rent, and you live with nice house mates!

But what are the real reasons you would consider buying? Because you 'should'? Are you not happy where you live now - you just said you are. Is this the case of being consumer led, ignoring what you need and want, to what you think you want. This is the question you can only answer.

Looking at the finances, you state prices are rising faster than your savings. But by your own amounts above, property would need to rise by around 6.4% is you're just looking at your deposit. Take into account the interest on your deposit (£25k) and property would need to rise by over 7% per year. Also, if you add on wage increases you will get, you will be even better off.

If you look at the stats, property has risen by around 5% on average. But this is highly skewed because of London, Scotland and Northern Ireland. I'm sure there's plenty of areas which have gone up, and some which have fallen.

Personally I think prices will fall over the next five years, hence the reason i'm not buying (i'm in a similar situation to you). Property is by any measure overvalued, and I think a trigger could bring it all down - such as the expected interest rates rises in the future.

If you do go to an IFA (as you say), they will advise you on what mortgage is best. They will not advise you wether to buy or not. A family member is a IFA, and she couldn't explain why interest rates fluctuate, what inflation is etc... Someone I definately don't want advising on my own finances.

Edit:
On re-looking at your figures, what value would the flat you're living in be worth? Assuming you all (4 people) pay the same rent would the value be greater or less than £250k - which would represent a 5.5% gross yield?

MiserlyMartin

F_T_Buyer wrote:

A family member is a IFA, and she couldn't explain why interest rates fluctuate, what inflation is etc... Someone I definately don't want advising on my own finances.

Gosh thats terrible. I thought IFAs were supposed to pass exams. She sounds like a glorified saleswoman.

Keeko, I am in a similar position too. My rent is only £100 PCM plus bills. I am saving hard for a house. One day when the prices are reasonable, I will get one, theres no rush. Its cheaper to rent anyway. Property keeps hitting the headlines everytime there is a 2% monthly rise and you can be forgiven for the panic about not ever being able to get on the ladder. Yet if you look at the year on year inflation its still about 5.4% according to nationwide. As the last poster said, this figure is distorted due to regional variations. It depends which area you are in.

Affordability has never been worse. I think with rising unemployment there is no way it can keep rising like it is. Unless the housing stock is all bought by buy to let parasites who then rent them out to all the immigrants who are flooding in. Thats my worry. But the average first time buyer is priced well out. Hold on. Interest rates will rise soon, the massive debt will come back to haunt the UK and Gordon Browns 'miracle economy' will be shown to be the con-trick that it is. Then panic will set in and prices will fall. Then more panic because everybodys precious houses have fallen in value to sensible levels.

Even taking a less pessimistic view, prices are so high now that even if they do not fall they would need to stagnate for 10 years to return to normal levels. Just hold on, if you don't need to buy, don't buy!

clipboard2

Hi there keeko! Your instincts are right.

At this stage of the housing cycle it is definitely cheaper to pay someone else to be your landlord (you pay rent) than to pay to be your own landlord (you pay interest on a mortgage). And, you are in control of your capital, not the the markets when you rent. The housing market will turn again in your favour - as it did 1989-97 when property prices were low relative to rents. The secret of winning the housing market game is to buy when no-one else wants to!!
I also live in the south east, and I can tell you (having done the surveys!)that our region is going to be swamped with flats, thanks to Mr Prescott and the South East England Regional Assembly's 20 year Plan (2006-2020) for 1.4 million new homes here - to be high density on brownfield sites which is legally binding on councils.
If I was in your position, I would not buy a flat (future oversupply will force down flat prices). Instead I would save up even harder and buy a nice little house in a quality location - when the time is right. But beware of housing estate newbuilds - I survey people who buy these new homes, and most are not happy with all the faults/shoddy workmanship!

Good luck and congratulations on staying debt free as a young person!

lynzpower

I completely agree with other posters.

I bought a flat becuase I "should" and now I realise its not all its cracked up to be and selling it. It is cheaper to rent, and I like you will have a good amount of cash in the bank.

Incidentally the Alliance & Leicester regular saver account gives 10%

zag2me

I'm with the "buying" brigade on this one. I was in exactly the same position as you but living with my parents and paying no rent.

I bought last year after 3 years of house prices going up faster than I was saving(£1000 a month!!). Eventually I just went out and bought a small place and it seriously is one of the best things I have ever done, I wish I had done it sooner.

Since then my friends have been renting in a shared house, they have been moved on by the landlord twice and spent nearly £5000 each in rent.

lynzpower

Zag4me

Have you worked out how much interest you have paid to the bank while you have been living there.

I have paid 8925 since October 2004

lowis

Miserly Martin - £100 a MONTH for rent? is that all - where on earth do you live? i thought my rent was stupidly cheap at £320 per month in EC1 for a 1 bed flat!

keeko

Thanks to everyone who has taken the trouble to reply so far, I really do appreciate your efforts.

It seems that most people agree that I'm better of renting at the moment (4:1 of posts so far) - I'm surprised that not more people have expressed a contrary view. But it's certainly reassuring to hear others agree with my current thinking.

Anyone got any other views on this?

Jim_B_3

Is the correction coming? The Beeb never used to say things like this. http://news.bbc.co.uk/1/hi/business/5153140.stm

lowis

i guess alot of it depends on what your long term goals are. only you can decide what is best for you, your circumstances and your hopes.

some people may think i'm mad buying my council flat (i pay 320 a month rent, the IO mortgage will be 380) but when i consider what i want for myself and my long term goals then i know it is hopefully the best move I can make at this current time. if i end up regretting it i can always say i tried.