Buy or rent (cost comparison)

milan_ns

pinkshoes wrote: »

Just to confuse matters further, what about a 2 bedroom flat, and a having a lodger? (as 2 bedroom flats are generally easier to sell over 1 bed flats when the time comes to move on).

Actually, this is also an option . With a lodger, owning clearly makes sense. Though, it would be a bit of a stretch to buy a nice 2-bed (when deposit & salary are taken into account).

pinkshoes wrote: »

If you rent, then the extra money could potentially get frittered rather than put in savings!!

Yeah, this also makes sense.

pinkshoes wrote: »

Personally I would buy, as it's so nice to own your own home!

I too am tempted by the warm and fuzzy feeling of owning a property

nembot

Another thread about "renting is dead money" when interest only mortgages essentially means you're renting from the bank, with the bum twitching at the end when you realise you haven't paid anywhere near the balance.

Good Grief!

sinbad182

nembot wrote: »

Another thread about "renting is dead money" when interest only mortgages essentially means you're renting from the bank, with the bum twitching at the end when you realise you haven't paid anywhere near the balance.

Good Grief!

Not really. Worst case scenario, inflation will mean you will have at least something towards the balance. May not be anywhere near what you need, but still a lot more than you'd have if you were renting your whole life.

Lemoncurd

Our example a few years ago was
Rent £950pcm
Mortgage on the same property would have been approx £1774 repayment or £1250 interest only (assuming 300k at 5%), no idea about service charges on top of that but considering there was a 24hr concierge and gym etc I expect they were high.

It wasn't a hard decision to make! after a couple of years we'd been able to save up enough for a sizeable deposit and chose to buy a property where the mortgage was considerably lower than the amount it could be let out for.
I think you need to look at each property individually and do your sums to help weigh up which option is best for you.

missile

milan_ns wrote: »

Particular property (1 bed flat) can be rented for £800 pcm.

Mortgage interest + service charge, for the same property, work out the same as rent (so £800 pcm).

Considering the initial cost of purchasing a property, maintenance costs, risk (house price slump, interest rate hike) & lack of flexibility (more difficult to downsize or move), renting is the optimal choice.

Would you agree?

No, I consider it important to own my home.

You have conveniently ignored the risks of rent rising, lack of security, freedom in a rented property etc.

It is your choice, home ownership may not suit everyone. If you are happy renting that's cool with me.:cool:

PasturesNew

When you own -v- renting, you do stuff to a house that you wouldn't/can't do when renting. You make changes, improvements, etc. Spend more, buy more, because it's yours. When you rent you make do. Your 'improvements' might not make the house worth any more, it's just doing stuff because you want it different, so a spend, not necessarily any form of investment.

On the other hand, with renting, you're not there for as long as you want and it can cost you £1000/move, so if you move every 2-3 years then that can add up too.

property.advert

Renting only works if you have a specific short term need. Arguments to the contrary are largely spurious.

My case is not unique. My tenancy went to a periodic a few months ago and the landlord, who is a 50% accidental landlord, preferred to have it as a periodic tenancy. That gives me the overwhelming security of two month's tenure, should he decide to sell or decide to increase the rent to a level which I cannot justify or indeed pay. My deposit is stuck until after I move out, or should I say am forced to move out. I can be forced to find another deposit, to find another place to live, which may be unsuitable but which just happens to be the only thing available at the time. My kids could be forced to move miles away from their schools and family and friends and I could have to commute further to work. All these hassles are at the whim of the landlord.

I have to spend hours a day looking for somewhere else to live and even if I find somewhere, I will probably end up paying for two places at the same time, simply because I risk losing the new place if I do not sign up for it when they, not I, want. Add in the costs of moving, loss of income due to time off work and a myriad of other things and you seriously consider that renting is a viable long term alternative in the UK without security of tenure ?

And to cap it all off, you have to perhaps repeat this every 12 month, forever !

FATBALLZ

Despite what misguided and innumerate individuals like MostlyCheerful might tell you, buying does not always make the best financial sense. Yes if you plan never to move from a house, and you live 50 years longer, you probably will be better off buying. Conversely your circumstances may mean being able to move easily is required and with renting you can do this with a months notice for a few hundred quid, not wait for your house to sell for 18 months and pay £5000 in fees. If you buy you have to pay services changes and maintenance. If you rent you know your home will cost you £x per month regardless if the boiler breaks down.

For me, short term renting (5 years) before I buy has worked out quite well, if I'd bought straight away I'd have paid a similar amount of money in interest (and yes INTEREST paid to the BANK is every bit as much 'dead money' as RENT paid to a LANDLORD is) but I've spent far less in moving fees, maintenance costs, and best of all I'm not in a large amount of negative equity like some people I know who bought a few years ago. It depends on your circumstances but I think the concept of FTB homes is optional these days, why buy a poxy flat when you can rent for a while, have more flexibility, take less risk, be no worse off financially and save for somewhere more permanent? When I buy I don't want to play at 'moving up the ladder', I want to buy a nice home big enough for the family I plan, and be done with the 'property game' for a good few decades.

To my mind, the main advantages to buying are non-financial - security of tenure, being able to decorate as you see fit, and not having to play landlord roulette hoping you don't get a !!!!!! one who doesn't do the maintenance or know his responsibilities. If the government really did care about what's best for this country and not just the interests of a few individuals who want to speculate on property, it would move the country to a model where renting is cheaper, more secure and tenants have more rights.

Pimperne1

What Fatballz says is correct for the past five or so years (although he omits to mention that he would be 5 years down his 25 year mortgage, was lucky to stay in the same property for 5 years and that his story only works over this short period of house price deflation). In general terms if you stay out of the market for 5 years you will be waving goodbye to a more substantial property than you could otherwise have afforded as House Price Inflation will take the property of your choice beyond your means). Oh yes, the old "boiler breaks down" argument. That might happen once every 10 years but if you are so worried about it then take out insurance. He cannot know too many people who are in negative equity unless they bought in the past three years and I hope he knows more people than that. He may indeed know some people who are in negative equity who released capital from their home to allow a better lifestyle - I don't think anyone on here will be recommending that course of action. Should you eventually have to pay £5k in moving fees then that is the amount the average house has increased in value (according to Nationwide) this year alone - and to be honest the increase this year has been pretty dismal compared to other years. One thing he does say I will agreed with - buying vs renting doesn't always make the best financial sense, only about 99% of the time. Incidentally, just because MostlyCheerful disagrees with him it doesn't make him innumerate or misguided.

FATBALLZ

Pimperne1 wrote: »

What Fatballz says is correct for the past five or so years (although he omits to mention that he would be 5 years down his 25 year mortgage, was lucky to stay in the same property for 5 years and that his story only works over this short period of house price deflation).

After 5 years of an average 25 year mortgage, 90% or so all the money paid in will have been 'dead' mortgage interest.

I've rented properties worth around £120k for the last 5 years, for typically £500 a month. A mortgage would be around £800 a month. After 5 years, assuming the value stayed the same (which in my area it's roughly the same as 5 years ago), you'd have £12000 of equity. Instead, I've been able to save £300 a month extra, which over 5 years is £18000. Plus I've earned interest on that money. I've also not had to pay for any maintenance or service charges.

I've moved twice in that time (my decision, I wasn't asked to leave), which cost around £500 in total as opposed to the £6000 or so if I'd bought the properties.

It's only towards the end of a mortgage that you are seriously building up equity, so obviously renting eventually loses out, however nowhere near as quickly as some people make out. However if I take my extra £18000+ now and put it down as a deposit, I'll be better off than if I'd bought in the first place 5 years ago.

What is always true is that long term, financially, buying is better. However renting short term (<10 years) can often work out better. But you need to do the figures.

Pimperne1 wrote: »

MostlyCheerful disagrees with him it doesn't make him innumerate or misguided.

No but what does make him misguided and innumerate is his belief that paying money to the bank in interest that he will never see again is somehow an investment.