Rent is the real Financial Millstone.....

leveller2911

THE_GHOULISH_CODPIECE wrote: »

No idea what you're talking about but I'll wager that the only thing you own is a rent book and a shorthold tenancy agreement.

Jeez your a nice chap, do you whack off whilst trolling? I bet you do........:D

If so you can get treatment you know.....:beer:

N1AK

DaddyBear wrote: »

Why does some chump always roll out this argument? IF you are on a REPAYMENT mortgage, the interest is NOT dead money. It is a means to owning your property outright and having no housing costs at the end of it.

Because it appears other 'chumps' are still having trouble understanding the concept. Paying rent is as much a means to owning as paying the interest on a property. Both are separate to actually buying equity, a renter who is saving money is also getting closer to buying and have no costs in the end.

That said. If you got a house and just paid the interest for 20 years you would then be able to buy the house at the price it was 20 years ago, whereas the house's value would have increased to perhaps 250% of that.

I think almost all bears are well aware that buying is normally the most cost effective option. Where they differ from bulls is their view on whether this is the case, at the current time.

PasturesNew

If you're single it's harder to save anything after you've paid the rent though. If you can somehow buy something at least you've locked the price in... then all you need do is hang on for grim death and keep up the payments, usually by staying in for the first 3-4 years and eating beans.

chucky

N1AK wrote: »

Because it appears other 'chumps' are still having trouble understanding the concept. Paying rent is as much a means to owning as paying the interest on a property. Both are separate to actually buying equity, a renter who is saving money is also getting closer to buying and have no costs in the end.

That said. If you got a house and just paid the interest for 20 years you would then be able to buy the house at the price it was 20 years ago, whereas the house's value would have increased to perhaps 250% of that.

I think almost all bears are well aware that buying is normally the most cost effective option. Where they differ from bulls is their view on whether this is the case, at the current time.

with real house price drops you'd rather be a house owner than a potential house owner or FTB.

the majority of the negative types on this board don't understand the concepts of inflation, capital repayment or that the buying price of the property isn't the ticket price of the property.

Batchy

Procrastinator333 wrote: »

The other factor that makes home ownership pay over the long term is taxation. If you had £200k in the bank and were debating between buying and renting. You pay tax on your interest income, but get no tax relief on your mortgage interest. That makes a big difference.

Appreciate your posts as generally they make sense

MIRAS stopped a long time ago! What are you comparing too, Holland?

There is only Interest tax relief on BTLs? I assume you mean your better off putting 200k into BTL? but then there is no interest chg anyway?

Batchy

Procrastinator333 wrote: »

No.

Just because a part of your payment is a repayment on capital, doesn't magically make the interest element more valuable.

E.g. Mortgage £1,000 (Interest £900, Capital £100).

Rent £900 and saves £100 in deposit fund.

Renter buys 12 months later with the £1,200 deposit and has exactly the same equity as the early purchaser.

Of course rent doesn't always equal interest cost and of course house prices move, but they are seperate reasons for owning / not owning. This notion that interest itself is somehow money better spent than rent is nothing short of stupid.

its all very well comparing repayment and interest element
but why dont you compare over the life of the mortgage.
Ie at the end of the mortgage it will be repayment 990 and interest 100
A the start of a 25 year mortgage your looking at 1/3 being capital. SO would be more like 666 interest and 334 capital and an end split of 10 so the average of the two would be around 330.

so really its a comparison of 330 to 900 rent... in the short term your calc is fine as your comparing to initial mortgage payments, but still flawed, your 100 per month saving will be wiped out by the fact the stamp duty holiday will end in 12 months time... when you have saved your 1200 quid by your calculations, your stamp duty on a 250k property will save you 2500... Post office mortgages (bank of ireland) also did cheap rate mortgages, and quickly increased it a few months later, probably because of expectations of long term low rates! another increase of £100 per month potentially.

If it takes 2 years to save yourself 10k, the comparison you need to make as the end of year 2 is to a 23 year mortgage. not a 25 year mortgage... I think this is where people go wrong!

Dell

dkmax wrote: »

Mortgage interest is also dead money so that argument doesn't get anyone very far.

If you can time it properly, there is no reason why you cannot minimise your total outlay with a combination of a rental period with a mortgage period. The bears just think that they need to wait a little longer but they do carry risk. Likewise the bullish owners carry a risk of negative equity if they need to move. Each circumstance needs analysis and perhaps the benefit of hindsight.

In a falling market like the one we are in you are better off renting and saving a bigger deposit.

I know every circumstance is different but for my family renting is the best option for now and think about buying near the bottom whenever that may be.

Procrastinator333

Batchy wrote: »

Appreciate your posts as generally they make sense

Please point out when they don't make sense! :eek: Readin back, I can see why that makes no sense!

Batchy wrote: »

MIRAS stopped a long time ago! What are you comparing too, Holland?

There is only Interest tax relief on BTLs? I assume you mean your better off putting 200k into BTL? but then there is no interest chg anyway?

The comparison I was trying to make is that if you are sitting there with £200k in the bank. You can either buy a £200k house or invest the £200k to generate an income to pay rent or a mortgage. But if you look to generate an income from your £200k there is a fair chance you will be taxed on that income (unless you have built it up via ISA's I suppose).

So a person with £200k in the bank who has a mortgage will pay tax on their income, but when it comes to paying their mortgage will get no tax relief. Hence why offset accounts work so well.

This combined with the fact that saving rates are generally lower than borrowing rates means that short of some good timing, you will almost always pay more to borrow than you can make in income. The difference increases with the more capital you have. E.g. The net cost of renting over buying is greater the more capital you have available.

Having a £20k deposit on a £200k property. You might be making 3% after tax on your income and you might be paying a 4/5/6% yield on rent. But a mortgage with a 10% deposit would be paying 4/5/6%. So not a lot in it. The net monthly cost of renting vs buying is negligible.

Move on to say £100k deposit and the interest is down to 2% ish on the mortgage. On £100k you could earn £3k of interest after tax. But if you kept that £200k mortage it would cost £9k (say 4.5% interest). So net cost £6k. However if you just bought, the lower mortgage rate and the fact the taxman doesn't take a slice of the income and you only have a net cost of £2k.

Not sure if this makes any more sense or not. And of course all these numbers are variable, but the trend is there. The net cost of a mortage per annum is less than renting once you break out of the lower ltv bands and the effect grows with the size of the deposit and a part of the cause of this is that any income would be taxed (unless in an ISA).

Procrastinator333

Batchy wrote: »

its all very well comparing repayment and interest element
but why dont you compare over the life of the mortgage.
Ie at the end of the mortgage it will be repayment 990 and interest 100
A the start of a 25 year mortgage your looking at 1/3 being capital. SO would be more like 666 interest and 334 capital and an end split of 10 so the average of the two would be around 330.

I don't pay too much attention to the long term because it doesn't really matter to me. I personally don't doubt that buying is the long term decision to make. I just think that at times like the present, a delayed purchase can have a very large impact on the amount you end up spending on housing. But once you are over the 20% ish ltv band, you need house price falls of several % just to break even.

Batchy wrote: »

but still flawed, your 100 per month saving will be wiped out by the fact the stamp duty holiday will end in 12 months time... when you have saved your 1200 quid by your calculations, your stamp duty on a 250k property will save you 2500...

Very valid point - for those buying under the £250k mark. And for those under 250k, nothing to stop them getting in another 6 months of savings. After that they need to do the calc for themselves. Some save £100, some £300, some lose £50. Eeach set of circumstances is unique.

Batchy wrote: »

Post office mortgages (bank of ireland) also did cheap rate mortgages, and quickly increased it a few months later, probably because of expectations of long term low rates! another increase of £100 per month potentially.

If it takes 2 years to save yourself 10k, the comparison you need to make as the end of year 2 is to a 23 year mortgage. not a 25 year mortgage... I think this is where people go wrong!

I plucked numbers out of the air, but if the renter saves the exact amount of the repayment, it makes no difference. E.g. Using the MSE mortgage calculator.

A 25 year mortgage on £200k at 6%. In first 2 years you repay £7,340 with monthly payments of £1,289.

If the renter then took out a 23 year mortgage for £192,660 they have the same £1,289 monthly payment.

Batchy

Procrastinator333 wrote: »

I don't pay too much attention to the long term because it doesn't really matter to me. I personally don't doubt that buying is the long term decision to make. I just think that at times like the present, a delayed purchase can have a very large impact on the amount you end up spending on housing. But once you are over the 20% ish ltv band, you need house price falls of several % just to break even.




Very valid point - for those buying under the £250k mark. And for those under 250k, nothing to stop them getting in another 6 months of savings. After that they need to do the calc for themselves. Some save £100, some £300, some lose £50. Eeach set of circumstances is unique.





I plucked numbers out of the air, but if the renter saves the exact amount of the repayment, it makes no difference. E.g. Using the MSE mortgage calculator.

A 25 year mortgage on £200k at 6%. In first 2 years you repay £7,340 with monthly payments of £1,289.

If the renter then took out a 23 year mortgage for £192,660 they have the same £1,289 monthly payment.

I agree with all you said.

No complaints here.

However, the only hope is the value of the house has decreased sufficiently for the renter, so he can buy and mortgage at the 192k level in two years for 23 years. I see its all down to opinion here, and I have no idea where its all going, but i do feel there is a round two of pent up demand of potential FTBs who think its now or never, 2011 could well be a turning point where they all do something to make it happen.