Debate House Prices
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Renting is NOT Dead Money

Procrastinator333
Posts: 1,694 Forumite
Rent / Interest. They are both something for which you get nothing back.
If rent < mortage interest it is cheaper to rent.
You save up the difference and then buy at a later date. You will own the same home outright in a shorter period of time having paid far less interest.
Sometimes rents will be > interest and it is reversed. Have a look at your own area, it is the only way. Just don't believe chumps with a stupid catchphrase.
EDIT:
Just adding that this thread was put up to counter the following thread as at the time Ghouly was spamming this board.
https://forums.moneysavingexpert.com/discussion/2781910
If rent < mortage interest it is cheaper to rent.
You save up the difference and then buy at a later date. You will own the same home outright in a shorter period of time having paid far less interest.
Sometimes rents will be > interest and it is reversed. Have a look at your own area, it is the only way. Just don't believe chumps with a stupid catchphrase.
EDIT:
Just adding that this thread was put up to counter the following thread as at the time Ghouly was spamming this board.
https://forums.moneysavingexpert.com/discussion/2781910
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Comments
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And, when you're renting, property depending, you're not having to pay for buildings insurance (£15-20/month) or general and ongoing maintenance (£100/month).0
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Also if you are renting in a market where property values are declining then renting for a year at £1000 per month say may prove better then buying a house that is 10% too high at the beginning of that same year.
I'm looking at our area where prices on average are £280k for a 3 bed house. If prices go down by 10% that's £28k knocked off the value..rent comes at £12k per year. Making purchasing more costly in absolute terms by £16k.0 -
Also if you are renting in a market where property values are declining then renting for a year at £1000 per month say may prove better then buying a house that is 10% too high at the beginning of that same year.
I'm looking at our area where prices on average are £280k for a 3 bed house. If prices go down by 10% that's £28k knocked off the value..rent comes at £12k per year. Making purchasing more costly in absolute terms by £16k.
In such a scenario the saving would be even more as you would have been paying interest on the mortgage of the purchase. Interest is typically more expensive for the FTB. So interest would probably have been £14k.
So it is actually a £30k saving. But that does of course rely on a 10% drop in the year, something I don't quite think we will see.0 -
Every day I look at RM and see houses that've caught my eye .... dropping by £20k. And every day I think "ooohhhhh"0
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Procrastinator333 wrote: »Rent / Interest. They are both something for which you get nothing back.
If rent < mortage interest it is cheaper to rent.
And rent is more than mortgage interest in 75% of the country now.You save up the difference and then buy at a later date. You will own the same home outright in a shorter period of time having paid far less interest.
Only IF prices don't rise. If prices do rise, every penny of that rent is a waste.
And from 1996 until today, AFAIK there has only been one year (2008) where house prices ended the year lower than they started it. From the 1970's until today there have only been four years where prices ended the year lower than they started it.
The odds are very much against such a gamble paying off in any given year.Sometimes rents will be > interest and it is reversed.
In most areas, rents are now higher than mortgage interest. And rents are rising very quickly at the moment as well.Have a look at your own area, it is the only way. Just don't believe chumps with a stupid catchphrase.
Indeed.
On either side of the argument.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
HAMISH_MCTAVISH wrote: »Only IF prices don't rise.
....and if you live in a country which tends to have some level of inflation, the chances are that nominal prices will rise.0 -
Procrastinator333 wrote: »Rent / Interest. They are both something for which you get nothing back.
If rent < mortage interest it is cheaper to rent.
But as we've just discussed on the other thread, this is too simplistic a measure to say, overall, that renting is cheaper than owning.
Bascially, paying your monthly rent might be cheaper than paying your mortgage interest, but that doesn't mean that over a given timeframe renting is cheaper than owning.
As simplistic example:
Laptop number one is £300.
Laptop number two is £500.
Which is the cheapest laptop? Well, laptop one, obviously.
Which is the best value? Over the short term, still laptop one.
You need a laptop for ten years, which will provide the best value? That's where it gets complicated, like rent vs mortgage. There's no way of telling as a number of scenarios could play out.0 -
but (generally) the interest rate will reflect the inflation rate hence for the rent/interest comparison the interest will factor in the real reduction in the value of the mortgage. (although of course this assumes that house and general prices move together)
I have to agree with Hamish that including any potential capital losses (or gains) is unfair as this is in effect speculating on house prices and if you are able to out guess the market then obviously you should be having a leveraged bet on the outcome rather than just mucking about with property transactions and then retiring to your own island to count your winnings.....and if you live in a country which tends to have some level of inflation, the chances are that nominal prices will rise.I think....0 -
HAMISH_MCTAVISH wrote: »And rent is more than mortgage interest in 75% of the country now.
Tha Zoopla survey from a while back was a pile of tripe at the time and is now a pile of out of date tripe. We are never going to agree on the exact % because nobody knows. So might as well just agree that it varies from location to location and each person shuld look at their own location.HAMISH_MCTAVISH wrote: »Only IF prices don't rise. If prices do rise, every penny of that rent is a waste.
If they are stagnant, it works too. And if they do rise, people should still not go down the route of saying well prices rose £5k and I spent £10k on rent therefore I lost £15k. If rent = interest rate, the loss is such a sitution is £5k.HAMISH_MCTAVISH wrote: »And from 1996 until today, AFAIK there has only been one year (2008) where house prices ended the year lower than they started it. From the 1970's until today there have only been four years where prices ended the year lower than they started it.
True, but it looks like this year will be the second.
And the 3 month average is now pointing down with more downward pressure to come. I agree with you that a lot of sellers may then pull out of the market and there wil not be the forced sellers for a crash, but equally, I just don't see where any real upward pressure comes from in the near term.HAMISH_MCTAVISH wrote: »The odds are very much against such a gamble paying off in any given year.
Both buying and not buying are gambles. You pays your money, you takes your choice. I see stagnation or falls in the near future, so happy to take that gamble of not buying for another 6-12 months at the moment.HAMISH_MCTAVISH wrote: »In most areas, rents are now higher than mortgage interest. And rents are rising very quickly at the moment as well.
For people with high LTV's yes. Not for the FTB with a low LTV. Again, every person should look at their own situation.0 -
Or to put it another way, Procrastinator333 has been saying exactly the same thing on here since early 2009.
And as we all know, prices now are around £20,000 higher since then.
The thing is, there is a risk involved in purchase, and indeed in not purchasing, at any given time. But that risk can be measured.
When measuring risk, you need to quantify both the probablility of something happening, and the impact it has on you if it does.
For example, if prices fall, the impact of them falling is likely no more than you'll be mildly annoyed that you could have bought something cheaper if you delayed purchase. An annoyance isn't, objectively speaking, a significant impact so perhaps scores 2/10. However if prices rise, you could be priced out completely or be forced to buy something smaller. By anyones standards, this is a huge impact, so scores 8/10.
If the chances of prices rising or falling are 50/50, and the impact of falling prices is 2, and of rising prices is 8, then your risk score for falling prices is 100 (2*50) and for rising prices is 400 (8*50). In this example the risk of rising prices is far worse for you, and you should buy, even though the probablility of prices rising or falling is the same. You can add as many factors as you like to the equation, and it's a good objective way to measure the risk of action or inaction on any particular decision.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0
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