I DO enjoy having holidays which I would certainly NOT be able to afford if I was spending £700pm [or more] on a mortgage and associated home-ownership costs but that's not to say I don't have any other savings...
The problem is when retirement arrives and your income is less ,and your friends have paid off their 25yrs mortgage and you are still forking out for rent.Also nothing to leave to your kid's,unless you wish to adopt the philosophy of spending your children's inheritance
I've attempted to answer this particular question for the shortish-term for us under various scenarios. e.g.
Annual HPI 1% Nominal HPI
House cost 127000
Deposit/current savings 22000
Mortgage 105000buying figures
mortgage repayment £625 25 year repayment @ 5.18%
insurance £20 estimate may be more?
repair costs £88 based on 1% house price p/a
Total monthly outgoings £732
# months in house 36
Total outgoings over period £26,366
house cost at end of period £130,866
total HPI over period £3,866
total repaid on mortgage £6,470
buying fees £2,500 guestimate I've never done this before!
selling costs £2,617 2% of house at end of period
new deposit £27,218renting figures
total rent £21,600
savings from outgoings difference £4,766I'm assuming that we'd save the money we would have spent extra a month by buying.
interest from current savings £3,552
NB This estimate will get worse over time as I'm not increasing the rent by inflation, neither am I adding interest on to the extra money saved per month by the rent being less than the mortgage costs.
In this case, we'd be better off renting after 3 years by £3000. I can change the timescales involved, different HPI predictions etc. in my spreadsheet and see what happens. I'm not really any closer to deciding what is financially best though. If I keep everything else the same as in the above example and only change the mean annual HPI over the period then I would be better off buying by:
Since I don't know what prices will do, I don't know what would be best financially. But looking at the figures does help. For example I think nominal falls of 10% a year for 3 years is pretty unlikely, whereas 1% nominal falls (more in real terms of course) is more likely. If I bought and prices did decrease 1% a year I'm worse off buying than if I had continued renting, but it would still be easier to trade up. And so on.
It makes me come to the conclusion that non-financial reasons are a much more sensible way of deciding what to do!
How do you arrive at this conclusion? This is a classic case of assuming that buying is better than renting as a rule without ever doing the maths to support your argument.
Or are you saying that after 25 years, having a £400K home is of more value than £400K in cash?
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