Rent is the real Financial Millstone.....

Orpheo

molerat wrote: »

So where will you be living if not renting ?

In a house that I either own outright or that I have a mortgage on. Probably the latter, while I have the savings to do the former, it would involve compromising on the quality of the house. When I stop renting in order to "buy" a house then I won't be renting anymore, except from the bank.

chucknorris

Procrastinator333 wrote: »

You have gone off on a tangent, that is not the point I was commenting on.

The point is whether mortgage interest is better than paying rent, that is the point I am addressing

To say that mortgage interest is better because it is a means of owning your property outright compared to renting wrong. Delaying the purchase can mean the home is owned in full at an earlier date than by buying at the first possible moment. E.g. If prices are flat or falling (as they are now) and the rent is cheaper than the mortgage interest (as it is for me now) then I will own a home outright more quickly by delaying the purchase.

I never mentioned owning the property outright, that was someone else, although I do actually own my house outright I did not mention this, but the flat I was referring to is still mortgaged.

To answer your point, yes if prices rise like that again, of course buying wins hands down. I think we still have a gradual grind down over the next 6-24 months before they start the upward trend again. And I will make the most of this stagnation / falls to build a deposit, access higher ltv rates and skip several rungs on the ladder.

I am talking generally not specifically about the next 6-24 months, what happens in that time period is speculation (although I too think prices will fall slightly next year, then stagnate so opinions are the same there)

Orpheo

chucknorris wrote: »

If we applied this to an owner occupied property the owner would be paying mortgage interest on around 100k (I have spent a fair bit on refurbishment) so at say 6% that would be £500/month compared to the rent of £1,600/month. That is why over time paying mortgage interest is better than paying rent.

Your costs are based on a 100k debt. If someone were to buy your HPI inflated house for £350k with a £90K deposit giving them a debt of £260K at "say 6%" then their monthly repayment would be £1700 PCM.

chucknorris

Orpheo wrote: »

Your costs are based on a 100k debt. If someone were to buy your house for £350k with a £90K deposit giving them a debt of £260K at "say 6%" then their monthly repayment would be £1700 PCM.

Exactly! you are reinforcing my point that OVER TIME mortgage rates are better than paying rent.

It never looks that good in year one! The point is it looks far better over the long period. The thrust of my is assertion is that OVER TIME mortgage rates are better than paying rent. When I bought that flat the rent profit was minimal, look at it now.

Whenever I do an investment appriasal I always do it over the long run not just in year one.

Orpheo

chucknorris wrote: »

You are reinforcing my point that OVER TIME mortgage rates are better than paying rent.

It never looks that good in year one! The point is it looks far better over the long period.

Yes, but again there is the assumption of a lifetime of renting. Most people do not aspire to a lifetime of renting. For many, like myself, renting is a short-term solution. Sadly, for many others, a lifetime of renting is what they are facing thanks to ludicrous HPI, not through choice. To believe that such ludicrous HPI can continue forever and thereby continue to support your point is, frankly, insane. I have been generous and given your buyer a 90K deposit; what if your buyer didn't have a 90K deposit? What if they only had 30K?

New graduates, 25K salary, 50K student debt, £300,000 studio flats.

chucknorris

Orpheo wrote: »

Yes, but again there is the assumption of a lifetime of renting. Most people do not aspire to a lifetime of renting. For many, like myself, renting is a short-term solution. Sadly, for many others, a lifetime of renting is what they are facing thanks to ludicrous HPI, not through choice. To believe that such ludicrous HPI can continue forever and thereby continue to support your point is, frankly, insane.

New graduates, 25K salary, 50K student debt, £300,000 studio flats.

I never made an assumption of lifetime renting, I am merely stating that OVER TIME mortage interest is better than paying rent.
This is the point I am responding to:

This notion that interest itself is somehow money better spent than rent is nothing short of stupid.

I personally only belive house prices will inflate up to (or perhaps under) 2007 levels in real terms then crash cyclically, I have never said that they would increase dramtically please stop inferring that I did. I only used that 19 year example because that fitted when I bought my first flat in London and was a real life case example, what I said was that buyers would benifit from not having 'inflation' (I did not say 'super inflation as we have previously experinced')

Orpheo

chucknorris wrote: »

I never made an assumption of lifetime renting, I am merely stating that OVER TIME mortage interest is better than paying rent. I only used that 19 year example because that fitted when I bought my first flat in London.

I gave the £260K mortgage 25 years, at 19 years it would be £1940 per month. A £290K mortgage would be £2165 per month. I think I'll keep my deposit, rent your house and save the excess. I've just calculated that at "say 5%" I'll manage to save £422,000.

Procrastinator333

chucknorris wrote: »

I am talking generally not specifically about the next 6-24 months, what happens in that time period is speculation (although I too think prices will fall slightly next year, then stagnate so opinions are the same there)

Long term I have never seen an argument for renting being financially better than purchasing. For the reasons you note and many others.

But delaying purchase can bring the point of ownership around much more quickly under certain conditions. And for me those conditions are present at the moment. We ahve already saved a fortune by delaying and I think there is probably another 12 months to run on that particular gravy train. But time will tell.

Orpheo

chucknorris wrote: »

I personally only belive house prices will inflate up to (or perhaps under) 2007 levels in real terms then crash cyclically, I have never said that they would increase dramtically please stop inferring that I did. I only used that 19 year example because that fitted when I bought my first flat in London and was a real life case example, what I said was that buyers would benifit from not having 'inflation' (I did not say 'super inflation as we have previously experinced')

I didn't mean to imply that you believed in rampant HPI, neither did I infer it from your posts. My apologies for the misunderstanding, I was merely referring to the HPI situation that has existed in the UK.

chucknorris

Orpheo wrote: »

I gave the £260K mortgage 25 years, at 19 years it would be £1940 per month. A £290K mortgage would be £2165 per month. I think I'll keep my deposit, rent your house and save the excess.

What you said does not make sense! Because you are including a capital repayment element within that £1,940 which you should not, because the capital repayment is an investment (ie paying off the house) not a cost.

If you are not including a capital repayment then you are assuming a mortgage rate of 8.95%! (£1,940 x 12/£260k). You are also concentrating on year one, my point is that over time paying mortage interest is better than paying rent, not in year one. Or if you are not then you need to inflate the rents by say 2.75% annual inflation, so the comparative rent would be:

1.0275^19 x £1,600 = £2,679/month