I Cannot See Value

Mr_Matey

HAMISH_MCTAVISH wrote: »

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

I've bolded where your maths fails. The "principal repayments" or "cash" would be earning you a return in the rent scenario. Whether you can get 5% after tax and HPI / rent changes are different matters.

I agree that if you buy at a reasonable price, over the long term buying can be better than renting. Just don't fudge the figures, it weakens your argument.

nollag2006

I cannot see the wind - but it doesn't mean its not there. Still plenty of time to buy before the next crash (due in about 12 -15 years time)

[Deleted User]

Mr_Matey wrote: »

I've bolded where your maths fails. The "principal repayments" or "cash" would be earning you a return in the rent scenario. Whether you can get 5% after tax and HPI / rent changes are different matters.

I agree that if you buy at a reasonable price, over the long term buying can be better than renting. Just don't fudge the figures, it weakens your argument.

OK, take my example. Mortgage repayments at the outset were about £600. Pretty much the same as it would cost to rent. So say for example my next door neighbour rented their house.

We both start out paying £600 per month. It's all we can afford. Neither renter or buyer has cash to invest.

My payments will fluctuate a little as interest rates change. My neighbours rent will steadily climb in line with inflation. If house prices rise dramatically that will probably push rents up HIGHER than inflation rate as landlords need rent to cover mortgage costs.

In actual fact I paid my morgage off early. But lets assume I continued for the full 25 year term.

Today my neighbour would have to pay £750 rent. £150 more than 10 years ago. My payments would be MUCH less than £600 at the moment. So already I'm saving much more than my neighbour. My payments will fluctuate around the £600 mark - never much higher. My neighbour can expect his payments to increase each year.

At the end of 25 years I stop paying.

My neighbour is still making ever increasing payments.

It matters very little whether I bought my house for a good price or not. If I got it at a bargain price my monthly payments would have been significantly less than my renting neighbours. If I'd paid over the odds my monthly payments would have started out higher than my renting neighbours but within a few years they would have dropped below his. And no matter how much over the odds I paid I'd still stop paying after 25 years whereas he has perhaps another 40 years of payments to make!

What Hamish is saying is that the actual value of the house is a bonus. You make a killing even if you disregard that. Any value the house gains is a bonus.

nollag2006

Hi scarter - there is no point in explaining this logic to bears. It is beyond their comprehension.

LydiaJ

nollag2006 wrote: »

Hi scarter - there is no point in explaining this logic to bears. It is beyond their comprehension.

You make it sound as though you thought all the bears were advocating life-time renting, but none of them is saying anything like that. Typical bear posts generally concern two issues..

A) Large swathes of the population would like to buy but are currently unable to do so, and see no chance of being able to do so any time soon. This is considered undesirable.

If HP are considered likely to fall in the short term, then it becomes worth renting for a short time so as to be able to get more house for one's money when one comes to buy.

I don't see that your "buying is cheaper than renting over a whole lifetime" argument is relevant to either of these points.

HAMISH_MCTAVISH

Mr_Matey wrote: »

I've bolded where your maths fails. The "principal repayments" or "cash" would be earning you a return in the rent scenario. Whether you can get 5% after tax and HPI / rent changes are different matters.

The discussion is not over whether you can get a different return on another transaction with money you may or may not save on short term rent vs mortgage payments. You may get interest from savings. You may also put a big chunk of it into a nice blue chip like Enron and lose the lot.;) Or chase a higher return in the next Icesave that doesn't end up getting bailed out. But all of that is a different discussion altogether.

This discussion is merely stating the fact that buying is roughly 30% of the cost of renting for a lifetime.

Therefore my math is just fine, thanks.

I agree that if you buy at a reasonable price, over the long term buying can be better than renting. Just don't fudge the figures, it weakens your argument.

No fudging involved. The argument holds up just fine without it.

Buying at todays prices is around the third of the cost of renting for an adult lifetime. That is fact, not speculation. Buying at significantly higher prices than today is also better than renting for the long term. In fact, buying at pretty much any price less than 300% of todays prices is better than renting for the long term.

Graham_Devon

Just gonna throw this one in for you Hamish.

And please take note, this only takes into account 3.4 moves.

New research from Abbey reveals that we spend on average £54,400 moving homes in our lifetime, and moving home costs us around £16,000 each time we do it. Over our lifetime, more than 2 years worth of our salary will be spent on moving home...
The average Briton moves home between 3 or 4 times in a lifetime (the average is 3.4 times) latest research from Abbey Mortgages shows. And it's a costly business. Abbey has calculated that - excluding property prices - Britons looking to get on the property ladder could spend the equivalent to £54,400 in today's money moving home during their lifetime. That's 2.3 years worth of annual salary based on the current average UK wage - enough to buy a two bedroom Finca in the Costa del Sol or a brand new one bedroom apartment in the centre of Bordeaux.

That's 9 years rent at £600 a month, just in moving fee's. Based on only 3.4 moves.

Please take into account other issues.

[Deleted User]

Some of them do actually say that it's cheaper to rent - permenantly.

But you are correct, very many just plan to rent until house prices drop. It's hard to say for sure, but in their position I think I'd just buy when I needed to buy (if I was in any way able to).

If I were starting out I guess I'd be looking for a house around the £100k mark with a £20k deposit.

I *could* just rent for now in the hope that 20% will be slashed off of house prices. This would mean a mortgage of £60k instead of £80k. But with interest rates being so low just now it wouldn't reduce my payments by much (One hundred pounds per month perhaps?).

Lets assume that in fact house prices do drop by 20% and I manage to buy a house for 20k less a year down the line. During that year we've perhaps paid £500 per month in rent. A total cost of £6,000. So in actual fact we've only saved £14,000 and not £20,000.

Now lets assume that house prices stagnate. Your delay in buying costs you £6,000.

Now lets assume prices rise rather than fall. Your £100k house now costs £120k. Your one year delay costs you £26k.

Unless you're very certain that house prices will fall I think you stand to loose more than you gain by waiting.

If you just settle into your new house from day one it might cost you a little more over your lifetime, but in the big scheme of things the amount is trivial. Delaying could cost you an awful lot in rent with no guarantee that house prices might rise in the meantime. Is it really worth all the hassle and upset of living in rented accomodation then moving later?

And consider the risk. What if house prices shoot up to the point where you can't afford to buy for say, 5 years? That would cost you £30k in rent plus whatever value the house has risen to in that time.

Quite a big risk for a pretty small 'possible' gain.

As for your first point - that large swaithes of people can't afford to buy. Well, given that buying (over a lifetime) costs less (1/3 according to Hamish which sounds about right to me) than renting, you have to wonder how anyone can afford NOT to buy!

Many people say that part of the problem is that lenders lent too much money. But how can it be wrong to give someone a loan that could save them hundreds of thousands over their lifetime?

SmartPricePrincess

Graham_Devon wrote: »

Just gonna throw this one in for you Hamish.

And please take note, this only takes into account 3.4 moves.


That's 9 years rent at £600 a month, just in moving fee's. Based on only 3.4 moves.

Please take into account other issues.

Why on earth would it cost that much to move house? what fees?:eek:

tomstickland

badrobot76 wrote: »

I simply cannot see the value in some of the houses we see on rightmove etc? Is this unusual?

I've been looking on Rightmove in a lower price bracket and my conclusion after a few months of looking is that most of the stuff offers nothing significant over what I already have.
I pay around £450 per month on my mortgage and if I could find something for £650 that was a lot better then I'd buy it. However, if it costs me £900 per month it'll curtail other activities.

I just want to know where the money comes from for people to buy £300K houses. I suppose some of it is due to buying early enough, but also 2 incomes and all that.

The really annoying thing for me is that I don't actually want a large or flash house. I just want to be able to afford somewhere quiet.