Is renting really more expensive than buying?

chucky

!!!!!!_face wrote: »

OK, so the margins are higher, that's because banks are recapitalising, right? At the same time only really lending to those with large deposits, hence minimising their own exposure to nominal drops.

not what i'm saying -
50,000 mortgages at 3% margin earns you £xx profit.
80,000 mortgages at 1% margin earns you the same £xx profit

the banks make money on the volume of money not the quantity of approvals - that's why i tend to ignore the mortgage approvals numbers and look at the average lending per approval.

if there were 6 mortgage approvals in a month it would be rubbish btw.

!!!!!!_face wrote: »

Sounds like a pretty innocuous brew for stagnation...

i tend to agree but looking round 'my way' - family homes are selling very well at around peak and above, i'm not sure about other types of property. there are other areas that can't sell the large number of flats.

what i'm saying here is that it depends on the type of property to say if it's stagnating or not.

RenovationMan

Hank_Rearden wrote: »

I'm not talking about the investment side of it, but just the cashflow.
Lots of people on here seem to suggest that it's always cheaper to buy.

Last three properties I've been in:
Cottage "in the country" - £650/month. On market for £300k. At 4% that's £1000 on an interest-only mortgage.
3 Bedroom house in NE London - £1500/month. On market for £600k. At 4% that's £2000 on an interest-only mortgage.
2 Bedroom flat in W London - £1350/month. Very similar flat on market for £450k. At 4% that's £1500 on an interest-only mortgage.

Note that I've stacked the deck in favour of buying in at least a couple of ways:
low interest rate.
interest only (which isn't really the cash consideration)
ignoring the maintenance costs etc, etc.

Have I just been very lucky?

Ask yourself what your rent was 10 years ago and what the mortgage on a comparable house was to see if the figures still stack up. Extrapolate this forward 10 years from now and see if the figures stack up.

Also, for those people who are incapable of saving a deposit, it will always be more cost effective to rent.

Hank_Rearden

Loughton_Monkey wrote: »

Well OK. If that's the way you want to play it.

Let's think of everything that way. For a start, absolutely and utterly never buy shares in Tesco. Sainsburys shares are cheaper.

I shall never buy a car again. They want £55K for a new one, and I can lease for only £10K. And I tell you what. Next year they'll want £58K for a new one, and my lease will still be £10K. Boy am I in the money!

I shall never pay another £2,880 for my pension contribution. I've found another company who will do me a pension for just £100 a year! Just as good if I ignore the Investment side of things.

And as for my mortgage, I've been quoted £6,000 for an 'interest-only' mortgage, while the bank next door wants £6,050 for a 15 year repayment mortgage of the same amount. Thanks to your post, I'm thinking only of the cash flow side of it, and not the investment side. So I'm going for the £6,000 one. It's cheaper!

I'm not stupid!

Your obviously witty response served well to shift the debate from the day to day cost of housing to the more complex question as to whether investment in property would be a good idea.

I could turn your car example back on you; by comparing the purchase of a new car (high initial costs, but limited upkeep costs in the future) with the purchase of a second-hand car (lower initial monthly costs but increasing as maintenance is required). Accountants would discount the cash flow to make the comparison.

Like everyone (?) on here, I'm not so stupid not to realise that buying a house has an investment element to it. Nor that a more expensive cashflow might lead to a larger return - in fact I'd expect it!

What I was trying to address (by looking at the IO cost only) was the non-investment cost - and specifically the idea that it's always cheaper to buy.

From what's been posted, I'd reckon the following are sensible points:

• by fixing the mortgage, one enters into a rental schedule where the principal doesn't increase with inflation, unlike renting. So there is a long term discount in the buying approach.
• The idea that in cash terms buying is cheaper than renting is not always true in the immediate term - it tends to depend on location.
• renting can still be cheaper on a property while at the same time being profitable to the landlord because they have access to better rates, and also because they are focusing on the long term investment.
• it's a great time to have a BTL portfolio. So far.

It seems to me that the "now, now, now" mentality that many people talk of is probably focusing people on the immediate costs, rather than recognsing the first point above. So those that "do the maths" will see that it's more attractive to buy in the long term than it might seem immediately - even if they are neutral on property prices and so the geared investment that has been so profitable recently.

All I was trying to do was understand what was meant when people say "buying is always cheaper than renting". And it seems that we've answered that that isn't true in the immediate term, even if it might be in the longer term.

Hank_Rearden

JonnyBravo wrote: »

:rotfl:

Very, very funny.

One of the most inventive and one-eyed ways of drawing a comparision that I've ever seen.

Happy to oblige.
See my other post to explain what misinterpretation I was trying to put to rest.

Why don't we run a real world experiment?
I've already bought, you rent for the next 30 years and then we compare figures in 2040?
Oh.... I see.... not so keen now? How come?

:rotfl:

No thanks, I am already "long" property - and will probably be increasing my gearing in the next year or two. Not as an investment, as it'll be more in terms of a second home than a BTL. Money isn't everything, after all.

Hank_Rearden

phil_b wrote: »

You should have stayed there. a cottage in the country with a genuine value of £300k is a bargain at £650 a month rent.

Actually I had to leave as the landlord divorced and moved home. Which is just one of the enormous frustrations with renting. But then I moved closer to work - the real cost of living in the cottage was higher because of commuting costs - which would have been more difficult if I'd not been only renting it. As has been noted a million times, there are a number of differences between renting and buying - it's not purely financial.

Down my way in the West Country, £300k at £650/month is a bargain, but not especially so.

ukcarper

This got me thinking so I had a quick look on rightmove, the lowest rent for 2-bed terrace house was £750 per month, the most expensive 2-bed terrace house for sale was £200k at 4% about £666 per month.

Jim_B_3

The cost of something is not money; the cost of something is what you give up in order to have it. It happens that the cost of a house includes money, but there are other costs, and these other costs will be different for different people. To use myself as an example, the cost of buying a house would be enormous, as I change job every three years or so (I worked out in my first job that the best way to get a pay rise was to find another job) and need to remain mobile to do that; it means I can quit my job before I find another one, and then offer myself across the whole of the UK, able to start within a week. If I bought a house, I'd have lost that, and to my mind that's just too high a price.

If my circumstances were different, perhaps the cost of buying a house would be much less, but for me, the cost of renting is far, far less than the cost of buying.

I'm going to repeat the key phrase again for people who type faster than they read: the cost of something is not money; the cost of something is what you give up in order to have it.

Loughton_Monkey

Jim_B wrote: »

The cost of something is not money; the cost of something is what you give up in order to have it. It happens that the cost of a house includes money, but there are other costs, and these other costs will be different for different people. To use myself as an example, the cost of buying a house would be enormous, as I change job every three years or so (I worked out in my first job that the best way to get a pay rise was to find another job) and need to remain mobile to do that; it means I can quit my job before I find another one, and then offer myself across the whole of the UK, able to start within a week. If I bought a house, I'd have lost that, and to my mind that's just too high a price.

If my circumstances were different, perhaps the cost of buying a house would be much less, but for me, the cost of renting is far, far less than the cost of buying.

I'm going to repeat the key phrase again for people who type faster than they read: the cost of something is not money; the cost of something is what you give up in order to have it.

This is a very rational and (probably) correct analysis for a specific case. Your argument still revolves, though, around money cost, but more in terms of 'opportunity cost'. If it works for you, then that's fine.

In my own (equally unusual perhaps) case it was the other way round. My company kept moving me, and if I had rented, then they would just have paid a week or two's hotel costs while looking. But because I owned, I got full legal costs, removal costs, disturbance allowance, bridging loans, and (actually far more important with hindsight) the opportunity - at zero cost to myself - to 'upsize' based upon higher house inflation, and higher salary so that my house value inflation was 'maximised'.

But the large majority of people continue to live and work in roughly the same area. Those who could afford to, but choose not to buy exist, and are perfectly entitled to do so. Much longer term, though, the 'truth will out'. In my own case, renting for the last 40 years would have 'cost' me probably over £1 million. Who can say if this will be true for the next 40 years?

IronWolf

Batchy wrote: »

10 years...

lets look back 10 years to NOW following falls in 2009...

Still virtually double 2000 prices mate... your talking rubbish.

Long term... and I mean LONG TERM average on property is about 2.9%... which is around the long run inflation figure.

Unless your banking on deflation for the next 10 years... Have no idea, how your example would actually become reality.

With 0.5% base rates and trackers like 0.5% to 3%... what would be the comparable rent... 4%??

So you would rather pay 400 per month interest only or 850 per month rent? even if lost value... Dont sell it then! lol rent it out, cover your costs, and buy another place at a discounted value... this is what people WILL DO!

What about people that bought in 88, so for about £60k, they had to wait over 10 years just to get their house worth £60k again.

And the cost of owning a house extends far beyond the mortgage, and as the OP showed, rent is not always more expensive than the mortgage in the first place.

If you look at the last housing market bubble, the price of houses stagnated for years, those that bought during this period, were MUCH better off than those that bought during the bubble. Yes theyd been renting, but when they finally bought a house, they saw a gain of about £10k while the other group had broken even.

Another cost of owning a house which is being ignored is the opportunity cost, of buying at the wrong time and missing potential profits from buying in a stagnating market.

Batchy

IronWolf wrote: »

What about people that bought in 88, so for about £60k, they had to wait over 10 years just to get their house worth £60k again.

And the cost of owning a house extends far beyond the mortgage, and as the OP showed, rent is not always more expensive than the mortgage in the first place.

If you look at the last housing market bubble, the price of houses stagnated for years, those that bought during this period, were MUCH better off than those that bought during the bubble. Yes theyd been renting, but when they finally bought a house, they saw a gain of about £10k while the other group had broken even.

Another cost of owning a house which is being ignored is the opportunity cost, of buying at the wrong time and missing potential profits from buying in a stagnating market.

Hang on, Hang on!

Lets not go into accounting concepts and principles and management accounting drivel! Management accountants were to blame for the Mini not being a success, as they priced its costs WRONG, and throughtout most of its life they were not even breaking even on the damn model.

If you have a 60k mortgage for 10 years from 88 to 98 one your mortgage would now be down to 35k and 2 your wages would most likely have risen to double if not more during that period, and also interest rates would have dropped from 12% to more like 6%...It was hardly the worst period in the world to own as an end result. But more to the point, in 10 years, you never lost any money! And you had a roof over your head.

move onto to 2008 that 60k property from 1998 would probably now be worth best part of 200k.

The LONG RUN average of property is keeping in line with inflation 1987/88 was a bubble just like 2004/07 lets not lose track of what I am arguing.

Please show me evidence of a negative 10 year era, and ill support your argument gladly! But unfortunately, its going to be difficult, even through wars, and recessions to find that result as a trend.