I Cannot See Value

[Deleted User]

If you discount the value of the property then buying has cost (according to my very inaccurate figures) only £150k vs £350k for renting.

But you can't ignore the asset currently worth 200k. There are lots of ways that you can release equity from that asset. Not least if you die someone inherits it. You can downsize, sell up and move in with someone else, sell up - take out an annuity to pay rent, or even get someone to give you an income for life in exchange for the property when you die. The more that house is worth the greater your options and the greater the potential benefits. For example, downsize to something half the value and you get £100k cash in hand. If the property doubles in value you get £200 cash in hand.

But I take on board what you say. According to my very sketchy calculations buying cost £150k (plus anything spent on improvements/moving costs) and renting cost £360k. The buyer has the added bonus of owning a valuable asset that *could* be worth a small fortune in the future. But even if it's value drops to £100 you're still quids in. You don't have the asset (which you don't value much anyway) but you've still saved a small fortune.

But my calculations are based on today's prices. If house prices continue to rise then rents will no doubt rise too. Inflation will lead to rent rises. So in practice rental is likely to cost significantly more than I have calculated.

Graham_Devon

Buying will always cost less in the long term, thats a given.

My initial response was to Hamish though with his 30% thing, as we been there before, and it didn't include so much stuff!

Charterhouse

A mortgage is 25 years. Renting for life is for life. It seems fairly obvious that those are going to give unequal amounts. However what you have to do is discount back the cashflows using an appropriate interest rate. What that will do is hugely reduce the present value of the cashflows at the back end which will make renting look more attractive relative to buying.

Not disagreeing with the line of argument just stating a technicality.

chucky

buying a hosue at today's mortgage amount is inflation proof - as inflation goes up the mortgage debt amount is reduced in real terms.

rent is driven by inflation and more often than not will increase

carolt

I think those who assume that because house prices have shot up over the last 30 years, thus making it cheaper to buy than to rent over that period, it follows that it will ALWAYS be cheaper to buy than to rent, are making very dangerous and highly unlikely predictions about future house price/rental cost trends.

There's certainly nowhere I know of where Hamish's 30% assertion would work in practice now.

Obviously, if we had a time machine, it might be very handy.

Charterhouse

chucky wrote: »

buying a hosue at today's mortgage amount is inflation proof - as inflation goes up the mortgage debt amount is reduced in real terms.

rent is driven by inflation and more often than not will increase

WAGE inflation is what you need though. Inflation doesn't help you. Wage inflation right now is pretty much non-existent.

Graham_Devon

chucky wrote: »

buying a hosue at today's mortgage amount is inflation proof - as inflation goes up the mortgage debt amount is reduced in real terms.

rent is driven by inflation and more often than not will increase

And with inflation, based on history, interest rates go up. So your payments will go up.

HAMISH_MCTAVISH

carolt wrote: »

That's certainly nonsense where I live.

Well that may be true...... But only because you live in LaLa Land.

Is there anywhere where that really applies?

I find it very hard to believe.

Please prove this assrtion with figures.

Thanks.

I'll take an example based on national averages, but the same holds true to a greater or lesser extent in all markets.

The average house price is around 160K.

The average mortgage interest is around 5%.

The average rent is around 5% yield.

The average person has around 60 years to house themselves after they turn 18.

So......

A 160K house will cost you £120,614 in interest over a 25 year term with a full repayment mortgage at 5%. Plus the principal, but of course you still own the house which is likely worth far more by then, but I've excluded HPI to simplify things.

Rent for a 25 year period, at 5% yield, and completely excluding any inflation at all, is £199,800. So you are already ahead through buying at 25 years, even with no inflation in rental costs. (which is impossible)

But rent for a 60 year period, before allowing for inflation, is £479,520. I do not have access to an inflation calculator, but if anyone wants to figure it out, feel free. My guess is rent for a lifetime will cost well over one million.

Versus the cost of £120,614 for buying.

Now, I have not included the principal, because you are merely converting one asset (cash) into another asset (property) which you still own.

But even if you do include it, and allow for inflation in rent, the costs of buying are still a tiny fraction of renting for a lifetime.

HAMISH_MCTAVISH

carolt wrote: »

I think those who assume that because house prices have shot up over the last 30 years, thus making it cheaper to buy than to rent over that period, it follows that it will ALWAYS be cheaper to buy than to rent, are making very dangerous and highly unlikely predictions about future house price/rental cost trends.

There's certainly nowhere I know of where Hamish's 30% assertion would work in practice now.

Obviously, if we had a time machine, it might be very handy.

You seem to miss the point.

Buying is cheaper, even if you completely exclude HPI.

chucky

Graham_Devon wrote: »

And with inflation, based on history, interest rates go up. So your payments will go up.

the amount you doesn't - it probably goes down too.

i should have said that a large number of sensible people fix their mortgages and make it inflation proof for the longest period possible.

for example now many people expect that rates will go up now if inflation shoots further - don't bank on it, it's not a given.
they probably try to manipulate the money supply from the QE money to put the brakes on inflation. it's been done before.