Mortgage Interest is DEAD MONEY

JimmyTheWig

Loughton_Monkey wrote: »

I would just love to see the assumptions they are making in the calculations.

The only way you could get the figures to show renting was less dead money would be to assume no or little house price inflation over the long term. Such as in the post that follows yours...

abinanthanb wrote: »

... you will still have £674538.9 in hand.

I haven't checked any of these figures, and I'm not going to argue against the stated assumptions, but the one thing that isn't taken into account is the increase in the value of the house. A house worth £246,387 25 years ago would be worth £1,188,287 today (according to Nationwide). That's an increase of £941,900 - which beats the interest accrued by the renter.

Linton

abinanthanb wrote: »

For a £246387 (UK avg house price) mortgage, one will pay £420,246 towards interest alone (9.77%, avg BoE rate in past 25 years) over 25 years.

Invest £9855.48 per year for 25 years (246387/25), one will receive compound interest to the value of £1,129,173 (9.77%, avg BoE rate in past 25 years).

Even if you substract £454634towards rent (7188, avg UK rent index per annum) for 25 years including 7% inflation added, you will still have £674538.9 in hand.

Rent money can be dead, but the money saved from not paying back any mortgage will be very much alive and kicking!!

Where do you get your 9.77% average BOE rate from???? A quick calculation suggests to me its nearer 6%. Also the mortgage rate is going to be significantly higher than the interest rate you can get on your savings.

Then there's the little matter of tax.

It seems to be that there are several other errors in your calculation, so I suggest you start again.

ukcarper

Lets assume hpi keeps up with inflation and inflation is 2%.

Take a 100% mortgage at 5% on £200k house £10,000 a year interest. At the end of 25 years your house will be worth £328k.

Let’s say your rent is £800 a month, but if rents keep up with inflation after 12years you will be paying £1000 a month rent and at the end of the 25 years you will be paying £1300.

Linton

Taking UKcarper's figures which give a mortgage payment of 1169/month and assuming

1) an investment return of 5% after tax
2) the renter invests the difference between the rent and the mortgage (or deducts it where negative)

a bit of Excel shows that after 25 years the buyer owns a house worth £328K and the renter owns a £115K lump sum. For the renter to be better off requires an investment return (after tax) > 10%.

Why does this happen? Simply because the buyer gains the inflation increase annually on the whole of the £200K whereas the renter only gains the investment return on the currently accumulated savings.

Loughton_Monkey

Loughton_Monkey wrote: »

.....If they didn't, then I would just love to see the assumptions they are making in the calculations. Any such set of assumptions, published on these boards, would give as all a good laugh.

Ha!

See what I mean?

What have we got? A ridiculous calculation using 9.77% and adding up cash without in any way taking into account the timing, or indeed the possibly relevant value of the £250K house after 25 years at a similar 9% house inflation.

Generali

Neither rent nor mortgage interest are dead money, both allow those without the cash or inclination to buy outright to have access to housing.

It's like saying, 'buying food is dead money', daft really.

The Drachma is dead money although it might be about to do a Lazarus.