Cost of Owning vs Renting

Catherine_Johnson_2

As has been said already, it's better to pay your own mortgage rather than someone else's (you're paying someone else's mortgage by renting off them).

And, leaving the finances completely to one side, I'd always rather live in my own house than someone else's.

[Deleted User]

Catherine_Johnson wrote: »

As has been said already, it's better to pay your own mortgage rather than someone else's (you're paying someone else's mortgage by renting off them).

And, leaving the finances completely to one side, I'd always rather live in my own house than someone else's.

It's not your own home, it's the bank's home until you pay back the huge debt on it.

bristol_pilot

I have constructed my own 'rent v buy' spreadsheet and, even taking into account the 'opportunity cost' of having the equivalent of deposit/equity invested tax-free whilst renting and including stamp duty etc it still comes to the conclusion that buying is cheaper than renting for all levels of mortgage rates and rents for equivalent property.

There is, however, one factor that can tip the calculation the other way - if I am prepared to rent a significantly lower standard/size/location of property than I would consider buying. This has a massive effect on the calculation and reverses the make/buy decision in all the scenarios I have modelled.

bristol_pilot

[Deleted User] wrote:

It's not your own home, it's the bank's home until you pay back the huge debt on it.

The key difference is security of tenure. Provided you keep up the mortgage payments, you can continue to live in the hosue as long as you choose. If you keep up rent payments without fail, the landlord can still give you one or two month's notice to leave at any time except during the first six months. Or you could be thrown out with no notice if the landlord defaults on his mortgage and the house gets repossessed. For me, this means that renting is only an option for the young, single and mobile. No good for families, not in the UK anyway.

franklee

Londonsu wrote: »

That is so true - I paid of my mortgage in 2008 and now live rent and mortgage free.

But the problem is it takes 25 years or so to get into that situation and a lot of young people cant envisage having to wait for such a long time to reap the financial benefits - they want it all and they want it now.

I have lost count of the posts I have read on this board and others like pricedout and housepricecrash from whinging FTBs who state 'why should I pay a mortgage for 25 years to own a !!!!!! home in the Qrse end of town when I can pay the same amount in rent and live in a better property than I can ever hope to buy'.

The shortsightedness (sp?) staggers me at times.

Speaking as someone who did indeed pay a mortage for 25 years for a flat in a rough part of London, only for the area to become trendy and desirable when I came to sell, so I was able to sell for a lot more than what I paid for it (including interest) I cant understand the logic.

As for moving for new job etc, I have also just done that, the equity I got from my flat sale enabled me to move to the Isle of Wight and buy a property for cash and still have some left over.

If the rent is equivalent to the interest on the mortgage then it makes no difference to to amount the person is saving provided that the renter puts away an equivalent sum to the capital paid off the mortgage as they go along. That leaves the difference between renting and buying as the change in house prices. Now as we all know that goes in cycles, boom and bust if you want to call it that. In my opinion houses are overpriced now on just about every measure, salary multiples is a good one to compare like with like and that does show property is well overpriced. Even with the only run on a bank in 150 years, I'm sure we all saw those pictures at Northern Rock, even with the austerity measures the government is having to put in place to pay for the excesses the boom had caused, even with wage inflation not keeping up, it staggers me that so many people just don't get it.

So yes buying is great long term but the timing of when you enter the market matters hugely. Even though I'm not that young myself, I think you do those young people a disservice.

DVardysShadow

HAMISH_MCTAVISH wrote: »

....

As a sample calculation:

House price = 162,000 (current average)

Mortgage rate = 5%

Deposit = 20%

Rent = £690 per month (current national average)

HPI at long term average of inflation plus 2.9% (so 4.9% based on todays inflation target)

Rent increasing at 4% per year. (current rate)

After 10 years you'd be £112,267 better off with buying than renting.

After 25 years you'd be £595,915 better off with buying than renting.

After 40 years you'd be £1,670,683 better off with buying than renting.

Obviously those figures will change over the course of decades, but the point is clear. The sooner you buy, the sooner you start saving.

And with beer costing £3,700 a pint in 2051, it will amount to a really good night out to look forward to.

Kingb4

HAMISH_MCTAVISH wrote: »

Some of the web sites advocating that approach have been saying that since 2002.....



The current average house price is £162,000

The current average rent is £690

Those were the figures I used. Obviously individual circumstances may vary.

Hamish, I am a property owner, so no axe to grind.

However for the sake of fairness, I should point out that the logic is flawed. Typically a house up for £690 rent would cost far in excess of £162k. Suggest you use some houses that are up for rent and sale as a fairer comparison. Not sure what the ourcome of the calculation would be (possibly still in favour of buying), but at least would be defensible.

NEH

The_Blue_Hatter wrote: »

A good example is my wife's Nan. She rented the same house for over 40 years until she died!! If she had bought it the mortgage would have been paid in 20 years (easily) and she wouldnt have had to fork out 20 years in rent. I would roughly say she spent £120k on rent when she could have been mortgage free.

My Nan on the otherhand bought her house in 1959 (and still lives there) and has been mortgage free since the mid seventies and now has a home worth roughly £190k to call her own.

It's a ways a risk but look at it another way, if you own your own home and you pay it off and you then get ill and have to go into a home then you'll be paying for your own care....

HAMISH_MCTAVISH

Kingb4 wrote: »

Hamish, I am a property owner, so no axe to grind.

However for the sake of fairness, I should point out that the logic is flawed. Typically a house up for £690 rent would cost far in excess of £162k.

No, I'm afraid not.

A £690 rent will only get you the average house price worth of house these days..... On average, of course.

. The average yield increased to 5% in February, as the rent increased at a faster pace than rental property values during the month.http://www.urbanpad.co.uk/house-prices/2011/03/18/young-professionals-have-to-rent

The current average rental yield is 5%. Which would make rent on the average house price of 162K to 165K (depending on index) around 675 to 690 per month.

Suggest you use some houses that are up for rent and sale as a fairer comparison. Not sure what the ourcome of the calculation would be (possibly still in favour of buying), but at least would be defensible.

It's already a fair comparison, with sourced data.

The only individual examples I can give you would be from my town, where a 1 bed flat will rent for £550 a month, and sells for around £85K, but it's not representative of everywhere.

HAMISH_MCTAVISH

franklee wrote: »

If the rent is equivalent to the interest on the mortgage then it makes no difference to to amount the person is saving provided that the renter puts away an equivalent sum to the capital paid off the mortgage as they go along.
.

And what are they supposed to do if they live in the 80% of the UK where rent is more expensive than the mortgage interest?

Put aside a negative sum each month, perhaps?