Buy or Rent - Thinking Long Term...

billymadbiker

Just done some sums as we (2 adults,no kids) have been renting for the last 8 years, we are both just past 30.

Landlord has said he wants to sell the house at some time in the future but does have another property much the same that we can have for the same price. He has indicated that this could be a long-term rental and he would sign a contracted for however long we wanted (up to 99yrs)

He is asking £250k for the place we rent at the moment and we pay £600 P/M

Talked to the bank yesterday and, if we put up £25k, repayments on £225k (5yr fixed rate) would be £1448.30 p/m over 25yrs.

So, to work it out,
The total repayments (not allowing for rate changes) would be £434,500. So £209,500 in intrest.

If we kept renting (not allowing for rent rises) we would pay £180,000 in rent over the next 25yrs.
If we took the diffrence between rent and mortgage repayments we would have £848.30 p/m which we could save giving a total of £254,500 after 25yrs (not allowing for intrest on the savings)

We both do phsycal jobs so are not going to be working much in 25yrs time so really need to sort something out this year.

Any advice / comments on the above?

beecher2

I think you need to focus on more than just trajectories of how much it'll cost you over 25 years. Although that is important, you also have to factor in the affordability of adding £800 a month to your outgoings. You'd also be responsible for maintenance costs. I take it you have 25k saved up? How does your salary multiple stack up? And how's your credit file? Any debts? If kids are a possibility, could you cope with the additional costs, and potential changes to income?

CloudCuckooLand

Inflation over 25 years could see your more than rent double. Having £254k in the bank in 25 years could be worth significantly less in real terms due to inflation.

The interest rate you have used for the mortgage, seems to be around 5.75-ish? Which is a decent estimation of the long term rate. That should not double, like the rent will.

Do you wish to pay rent through retirement, or be moved around should landlords wish..?

I'd suspect a long-term rental, even for 99 years, would not be totally risk-free - there'd likely be a break clause.

Check prices around the area. If you can justify offering less, the maths swings more in favour of buying.

Assuming you have no plans to move far...

Gorgeous_George

Renting a £250K house for £600 per month is a bargain. Why your LL wants to do so is beyond me.

There are serious considerations with a 99 year tenancy. It's neither a shorthold nor assured shorthold tenancy and Stamp Duty could be a problem. Besides, it is unlikely that he can guarantee you a 99 year tenancy.

If you fancy being a landlord, you could consider continuing to rent and buying another property as a BTL. When you retire, you could move into the BTL property.

GG

Thrugelmir

Gorgeous_George wrote: »

Renting a £250K house for £600 per month is a bargain. Why your LL wants to do so is beyond me.

From what the OP is suggesting. LL appears to want to sell. That makes sense.

billymadbiker

No, I do not want to be renting when retired.
That was kind of the point,
Should we buy now with view to having the mortgage paid off by the time we retire or is it worth thinking about renting until retirment and investing in the mean time and buying outright before retirement?

I know a lot of the time renting is considered dead money but, as things currently stand, the intrest we would pay on a mortgage (p/m) would be more than the rent p/m so it would almost look like we would be better off paying rent rather than intrest, obviously providing we put the remainder aside?

getmore4less

billymadbiker wrote: »

No, I do not want to be renting when retired.
That was kind of the point,
Should we buy now with view to having the mortgage paid off by the time we retire or is it worth thinking about renting until retirment and investing in the mean time and buying outright before retirement?

I know a lot of the time renting is considered dead money but, as things currently stand, the intrest we would pay on a mortgage (p/m) would be more than the rent p/m so it would almost look like we would be better off paying rent rather than intrest, obviously providing we put the remainder aside?

The trade off is HPI against other investments.

HPI and low risk investments both are currently dead so not a lot in it so better off renting.

This will change but when.


You could look at a retirement investment if you know what that will be(likely to be different to the current home).

A nice ltlle retirement bungalow rented out till you need it.

property.advert

You'd have to be mad as a hatter to project forward an interest rate of 5.99% on a repayment mortgage over 25 years. You'd also be mad thinking about renting for the rest of your life. Simply, you cannot use these figures to "work out" the best deal. In any case, renting does not buy a property so you cannot use repayment figures. Working out all the conundrums and maths over 25 years with various risk and discount factors will make you lose the will to live.

You've rented for 8 years, you're not kids anymore and you need your own place so that when you are old you aren't turfed out into the street. That is enough reason to buy.

Engeroosi

Can you not just look around and find a cheaper house that you like and then not have such a big mortgage. Plus if you have £25000 as a deposit then you might get a better interest rate as your LTV will be better.

jayphe

You don't have to make a decision today that ties you in for the rest of your life. It's very difficult to make good estimates of all the things that could happen. Make a decision based on what you know today.

Your landlord would like to let you a similar home to your current one that is estimated to be worth £250,000ish for £600 per month. It would cost much more than £600 to fund (interest payments, or lost interest on cash) and maintain (buildings insurance, boilers, roof, walls, driveway, carpet,etc...) a £250,000 house. So, assuming a broadly flat property market in the short term, renting this house looks like the better deal at the moment.

If you would like some stability go for a longer lease than normal, but try to keep your options open in case your circumstances change and you want to buy somewhere in a few years time.

It is also possible to have exposure to property prices in your savings or investments without owning your main residence, allowing you to take advantage of this good offer from your landlord, a great example would be the retirement house one given by getmore4less above, or buying shares or bonds in property related fields.