I Cannot See Value

ukcarper

carolt wrote: »

GIVE ME FIGURES.

Your assertion is just that - I can see absolutely no way that it makes any sense unless (a) it's based on HPI of 300% a decade for ever. Or (b) on the renter deliberately !!!!ing all the savings accrued through renting up the wall.

Sometimes you can be rather slooow.

If you want to include interest on the difference between rent and Mortgage costs here you are based on two very similar houses near me. 2% interest chosen as that is how much interest you can normally get above inflation

Rent a 2-bed house in my area rent £775 per month to buy similar house to buy £175k, with a 100% mortgage at 5% £1025 per month. Save £250 difference at 2% at end of 25 years you will have £100k. Therefore house prices have to drop 40% to break even.

Carry on renting invest £100k at 2% and carry on renting for next 35 years £100k increase to £200k
Buyer invests the £775 that renter is paying for the next 35 years he ends up with £470k + house.

If you increase mortgage int to 6% mortgage repayments increase by £100 so renter can save £350 per month and will have £135k at end of 25 years and £270k 35 years after that. The buyer’s figures are unchanged.

Graham_Devon

Why are people talking about starting a new mortgage at a 5% interest rate?

Where does this exist that doesn't have a low LTV ratio? Howcome therefore to get this mortgage, we do not give the renter the same amount of "starting money" as we do the home owner to lay down their deposit?

Howcome we choose 5% for the mortgage, but the "average" for the rent? Why do we not choose the average for the mortgage (based over the last 25 years) and the average for rent? Why is one "average" and one a plucked figure?

Why is HPI being used as a complete given?

Howcome to calculate HPI, we only look back to february, and then that is based over 25 years? Howcome all the falls before february are not included? Yet it's a 25 year period being discussed?

Howcome savings are based at todays rate, but mortgages are not based at todays rate?

Howcome all buying costs are disgarded, even though we are talking about the costs of buying vs renting?

So much figure massaging going on.

ukcarper

Graham_Devon wrote: »

Why are people talking about starting a new mortgage at a 5% interest rate?

Where does this exist that doesn't have a low LTV ratio? Howcome therefore to get this mortgage, we do not give the renter the same amount of "starting money" as we do the home owner to lay down their deposit?

Howcome we choose 5% for the mortgage, but the "average" for the rent? Why do we not choose the average for the mortgage (based over the last 25 years) and the average for rent? Why is one "average" and one a plucked figure?

Why is HPI being used as a complete given?

Howcome to calculate HPI, we only look back to february, and then that is based over 25 years? Howcome all the falls before february are not included? Yet it's a 25 year period being discussed?

Howcome savings are based at todays rate, but mortgages are not based at todays rate?

Howcome all buying costs are disgarded, even though we are talking about the costs of buying vs renting?

So much figure massaging going on.

Lets start with 20% deposit £175k = £35k therefore mortgage required = £140k mortgage payments at 6% = £902

Rent £775 therefore can invest £127 a month at 2% = £53k. £35k compounded at 2% for 25 years = £57.5k. Therefore Renter has £53k + £57.5k = £110.5k Buyer has house.

Next 25 years £110.5 compounded at 2% = £182k had to pay rent so Buyer can save rent £775 per month at 2% = £300k.

So at the end having used the same amount of money Renter has £182k, Buyer has £300k + house

Real present day figures no inflation of any sort

If interest rate 7% renter has another £90 a month compounded at 2% for 50 years is £93k so Renter now has £275k compared to Buyers £300k + house

HAMISH_MCTAVISH

Graham_Devon wrote: »

Why are people talking about starting a new mortgage at a 5% interest rate?

Where does this exist that doesn't have a low LTV ratio?

http://www.money.co.uk/mortgages/90-mortgages.htm

An entire page full of 90% plus LTV products, some as low as 2.99%.

I've been extremely generous to the renter's case in assuming a 5% mortgage rate, but have done so because that is the average both for the last decade, and the last 350 years.

Howcome therefore to get this mortgage, we do not give the renter the same amount of "starting money" as we do the home owner to lay down their deposit?

Fine. Take a 16K deposit, or even a 32K deposit, as a start point for renters savings.

It is utterly inconsequential to the end result.

5% HPI on 160K is £8000.

5% interest on 16K is £800.

The saver can never win.

Howcome we choose 5% for the mortgage, but the "average" for the rent? Why do we not choose the average for the mortgage (based over the last 25 years) and the average for rent? Why is one "average" and one a plucked figure?

Because 5% is average. See first response.

Why is HPI being used as a complete given?

Because we live in an inflationary world, with a FIAT monetary system predicated on inflation.

Howcome to calculate HPI, we only look back to february, and then that is based over 25 years? Howcome all the falls before february are not included? Yet it's a 25 year period being discussed?

I used the example of the last year, because its a nice easy number for example purposes.

Obviously you will not get precisely 10% returns per year for 25 or 60 years. Some years will go up, some will go down. Overall though, it will be up, greatly up, over any 25 or 60 year term.

Howcome savings are based at todays rate, but mortgages are not based at todays rate?

You're right. I was far too generous to the saver. I should have done it at the best available rate for the buyer.

Howcome all buying costs are disgarded, even though we are talking about the costs of buying vs renting?

Throw in 10K or 20K for the renter then. It makes little difference.

So much figure massaging going on.

Indeed.

I was far too generous to the saver/renter in my assumptions.

I was hoping that by doing so, it would save answering a load of pedantic nonsense from someone like you, but clearly that was a bit optimistic.

Graham_Devon

ukcarper wrote: »

Lets start with 20% deposit £175k = £35k therefore mortgage required = £140k mortgage payments at 6% = £902

Rent £775 therefore can invest £127 a month at 2% = £53k. £35k compounded at 2% for 25 years = £57.5k. Therefore Renter has £53k + £57.5k = £110.5k Buyer has house.

Next 25 years £110.5 compounded at 2% = £182k had to pay rent so Buyer can save rent £775 per month at 2% = £300k.

So at the end having used the same amount of money Renter has £182k, Buyer has £300k + house

Real present day figures no inflation of any sort

If interest rate 7% renter has another £90 a month compounded at 2% for 50 years is £93k so Renter now has £275k compared to Buyers £300k + house

Now this is more like it.

None of that 30% rubbish.

What HAS been missed, however, is the average cost of moving, at the average moves per homeowner.

That, was something like 54k wasn't it?

Also what has been missed, is insurance for the person who has bought their home. Now, thats say £120 per year, without any inflation, just buildings insurance.

We won't go down the road of mortgage protection insurance, income insurance, life insurance etc, as this is all optional, but something many a mortgaged person will have for security.

We have also missed out maintenance of the property, of which is difficult to assume over 60 years, but nevertheless, even at minimum maintanance, it's doubtful the boiler, roof, brickwork, heating, water, electrics, windows and interior etc will not need some kind of maintance over 60 years. And I haven't even suggested a new kitchen over 60 years.

So, lets add just the first two up.

Buildings insurance, £120 per year x 60 years = £7200
Average cost for the average amount of moves, as research by Abbey = £54,000.

Take those costs OFF the buyers 300k = buyer has £238,000

So, renter has 275k, buyer has 238k + house. Based on your last sentence, which I think is slightly more realistic.

Shall we take 30k out for maintanance over 60 years? Thats £500 per year? Not too far out considering a new boiler could cost £2000 in itself pretty easily. Windows 4k pretty easily.

So, 275k pot for the renter
£208k pot for the buyer, plus asset wealth of £160k.

It has therefore cost the buyer 26% less, INCLUDING asset wealth. (excluding any type of new kitchen / bathroom and any type of optional, but normal, mortgage / life insurance).

No where near 30% of the cost for the buyer compared to the renter.

Now, I realise HPI is the clear forerunner here when it comes to the asset wealth for the buyer. BUT, HPI can also work in the favour of the renter, due to interest rates on their savings. It's the only thing we cannot really work out without taking the average savings vs average HPI rate over the last 60 years.

Mr.Brown_4

I think everyone agrees that over a length of time the price of stuff will go up. However I believe there were people in the 90's who were still in negative equity after ten years. Now OK, they are probably well out of NE by now. But ten years is a long time in your life. Chances are you want to get on and move before then - up the ladder and all that.

Assuming we all agree an apocalyptic crash is coming in house prices, the worst for a generation, it might make sense (for potential buyers) to wait a few years. If your house has just dropped 30% not much comfort in working out a spreadsheet for the next thirty years.

If you are already in a house then I guess it's just best to keep talking it up. Won't work though.

Graham_Devon

HAMISH_MCTAVISH wrote: »

I used the example of the last year, because its a nice easy number for example purposes.

Obviously you will not get precisely 10% returns per year for 25 or 60 years. Some years will go up, some will go down. Overall though, it will be up, greatly up, over any 25 or 60 year term.

Do you mean easy number?

Or do you mean it was the bottom, therefore the number looks quite good to you.

You do realise that 10% HPI each year is in no way possible? Even average out?

You are all assumptions Hamish. There is nothing mathmatically sound in your figures. Mere assumptions, using the very best figures you can produce for yourself.

I could do the same. I could simply take Feb 08 to Feb 09, and state that the house will lost 10% of its value year on year.

We all know thats not realistic, but it's the opposite of exactly what you are doing.

HAMISH_MCTAVISH

Mr.Brown wrote: »

Assuming we all agree an apocalyptic crash is coming in house prices, the worst for a generation,

You've already had that.

it might make sense (for potential buyers) to wait a few years.

It did. But that time ended at the bottom of the cycle. 12 months ago.;)

Most bears on here will continue believing another apocalyptic crash is coming right up until prices cross previous peak and they have lost all the potential benefits of buying cheap.

Then they'll continue believing another apocalyptic crash is coming as prices rise still further beyond their reach for the next 10 or 15 years.

And one day, they'll be right.

Of course it will be too late for them, no matter how much talking up of it they do in the meantime....

Graham_Devon

HAMISH_MCTAVISH wrote: »

You've already had that.



It did. But that time ended at the bottom of the cycle. 12 months ago.;)

Most bears on here will continue believing another apocalyptic crash is coming right up until prices cross previous peak and they have lost all the potential benefits of buying cheap.

Then they'll continue believing another apocalyptic crash is coming as prices rise still further beyond their reach for the next 10 or 15 years.

And one day, they'll be right.

Of course it will be too late for them, no matter how much talking up of it they do in the meantime....

So let me get this straight Hamish.

You want to TELL us it's 30% cheaper to buy.

You then want to TELL us your assumptions are correct. And anyone elses assumptions are wrong?

Therefore, you are right?

Can I ask you a question then? Why are you not buying more houses? If your assumptions are correct, you will make an absolute fortune. You obviously have the means to do so, you have told us so many times. So why not buying?

Or would you rather sit there telling someone else they have missed the boat, while you miss the boat yourself, just the boat going in the other direction?

Or, let me guess, you are going to say you have no interest in buying more houses. You just spend all day telling the rest of us how good an investment it is?

HAMISH_MCTAVISH

Graham_Devon wrote: »

Oh look, a shiny thing.

Graham, even when a previous poster took the exceptionally high 7% mortgage interest rate, the buyer still ended up 25% ahead.

And that was excluding HPI, and the 25 or 30 years of saving the buyer could do once the mortgage ended. WHen you include those, its back up around 70%.

If you want to look at purely costs, without incorporating asset value or HPI, and returns on savings for the buyer for 25 years when the mortgage has ended, then you also have to exclude returns on savings for the renter for a fair comparison.

And in that case, the numbers are clear and indisputable.

Buying is less than one third the cost of renting for life.