Is Renting Really Dead Money?

edited 30 November -1 at 1:00AM in House Buying, Renting & Selling
87 replies 13.2K views
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  • Dan29Dan29 Forumite
    4.7K Posts
    Part of the Furniture 1,000 Posts Name Dropper
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    briona wrote:
    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...

    You've made some very interesting points; I'm guessing you're living in Roath or Cathays in a house worth £200,000 which obviously is a lot of money for most first-time buyers to find. However, while your figures make a lot of sense now, when you started renting that house was worth £40,000 to £50,000, so your mortgage payments would have been more like £250 a month and you'd now only owe £20,000 or so - meaning you'd have roughly £180,000 equity. Obviously these are rough figures but I bought a house in Cathays a couple of years ago and have the documents from when it was last sold in 1996 so I'm using those figures as a guide.

    Interestingly you and I both started renting in about 1995 (when I was 21). As I was in London the rent was higher - £700pm for a two-bedroom flat - and at that time I really did consider it dead money, so bought a flat in a nicer area; the mortgage was £400pm, although the service charge was another £100pm. In ten years the value went up from £93,000 to £325,000.

    So renting would have been 'dead money' to me, as I'd have been paying out more, and missing out on the financial gains that can be experienced as a result of a rising property market. However, looking at the situation now, it seems unlikely that we will see much of a rise in prices over the next few years, so renting makes more sense in many areas of the country than it ever has in my adult lifetime.
    .
  • ClaireabellClaireabell Forumite
    125 Posts
    Part of the Furniture Combo Breaker
    Def not dead money for me!
    I dont work- health reasons plus looking after my little girl so I get some of my rent paid. So morgage or my contributions is no contest!
    However it does not mean i wouldnt like my own home, but due not working I hqave no way to get a morgage.
    My rent is £365 for a 2 up 2 down terrace. Landlord aslo good cos he put new carpet in (that I got to pick!) downstairs, plus he aid for paint if I painted it- which yes i know is me doing labour, but meant i got to pick the colour schemes throught at his cost!
    He has builing to upkeep not me.
    Me and little one very happy here
  • I rent and if I was rich,I would buy.However,renting is stressfree,if you fall on hard times you are helped,whereas having a mortgage and having to continually spend money on your property to keep up with the market place is tiring!Sometimes I think that if you are buying your home,all you do is worry about it,wheras I can worry about the important things in life,people and my family,not property and money.:D
  • zarzar Forumite
    284 Posts
    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 105000

    buying 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

    Equity £32,336

    buying fees £2,500 guestimate I've never done this before!
    selling costs £2,617 2% of house at end of period

    new deposit £27,218


    renting figures

    rent £600

    total rent £21,600

    savings from outgoings difference £4,766
    I'm assuming that we'd save the money we would have spent extra a month by buying.

    interest from current savings £3,552
    deposit £30,318

    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:

    HPI
    -10% -£39,262
    -5% -£24,258
    -3% -£17,613
    -1% -£10,568
    0% -£6,889
    1% -£3,100
    1.80% £12
    3% £4,817
    5% £13,208
    10% £36,446

    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!
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  • wolvomanwolvoman Forumite
    1.1K Posts
    Part of the Furniture 1,000 Posts Combo Breaker
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    kenshaz wrote:
    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

    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?
  • zar wrote:
    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 105000

    buying 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

    Equity £32,336

    buying fees £2,500 guestimate I've never done this before!
    selling costs £2,617 2% of house at end of period

    new deposit £27,218


    renting figures

    rent £600

    total rent £21,600

    savings from outgoings difference £4,766
    I'm assuming that we'd save the money we would have spent extra a month by buying.

    interest from current savings £3,552
    deposit £30,318

    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:

    HPI
    -10% -£39,262
    -5% -£24,258
    -3% -£17,613
    -1% -£10,568
    0% -£6,889
    1% -£3,100
    1.80% £12
    3% £4,817
    5% £13,208
    10% £36,446

    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!


    i like the way you've calculated that

    and i agree that the non-financial reasons are very (if not more, depending on youelife stage and priorities) important.
  • Scooby_ManScooby_Man Forumite
    131 Posts
    wolvoman wrote:
    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?

    I guess the question is how much you save whilst renting. And anything you do save you'd have to chip in to to pay the rent when you're retired.

    Trust me, renting all your life without saving is financial suicide when it comes to retirement - you'd better hope your family supports you. Bear in mind we're living longer as well so you may well have to plan for over 20 years after retiring...which could obviously mean working past the retirement age.

    Paying a mortgage and not saving is not too bad (not ideal) and provided you can pay your mortgage off (by either selling and down sizing or reaching end of term), you're on to a winner.

    I appreciate and respect the fact that some people can't afford a house - i was in that position at one stage in my life too.
    Smile and be happy, things can usually get worse!
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