Cost of Owning vs Renting

MyMFDream

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. 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.

I don't know if that is true in my area to be honest. 2 bed flat for sale fixed 230k, rent 1100 per month. If you had a 20% deposit then halifax 5 year 5.79% fixed repayment mortgage is around 1160 a month. http://www.rightmove.co.uk/property-to-rent/property-32337743.html http://www.tspc.co.uk/details.asp?id=98686

something maybe closer to typical rent prices, http://www.rightmove.co.uk/property-to-rent/property-18386691.html £650 a month, to buy in same building http://www.tspc.co.uk/details.asp?id=98231 a 25 year mortgage 5 year fix repayment mortgage is only £540 with halifax.

Just random examples areas that i know that had letting and for sale signs near by.

To the OP, it all depends on your circumstances and the home you buy. I am £230 a year for B&C insurance, mortgage payment insurance may be something you would want or need which would cost more but how much depends on cover required. Like another poster said redecoration costs but you may chose to do that once every 10 years or every 6 months persnally i'm in the if its not broke leave it alone camp. We put away £100 a month for such things and we are in 'credit' by over 4k with nothing needing or wanting done other than I quite fancy a gas BBQ and a nice wood outdoor table and chairs for this summer rather than the plastic chairs and disposable BBQ we have had last 2 summers

Neil_in_Bristol

HAMISH_MCTAVISH wrote: »

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?

For the purpose of this calculation, if an interest-only mortgage was £500, a repayment mortgage £1000, rent £550, then you'd put aside £450, not a negative amount.

Anyway.

In the long run, based on historical figures, buying is better than renting, but that doesn't mean that in the short term renting and saving a deposit isn't a better bet.

I've said this before on another thread: a couple of my friends bought in 2005 and 2006. People told them that renting was throwing money away and that they should "get on the ladder". They are now in negative equity and unable to move house. One has got divorced, the other is living with her husband, young baby and a dog in a two room house.

LittleMissAspie

Kingb4 wrote: »

Suggest you use some houses that are up for rent and sale as a fairer comparison.

That's what I did on my spreadsheet. The week we completed we saw two houses on our road up for rent, both exactly the same size and layout as the one we bought, so I took that number as my rent comparison.

FATBALLZ

HAMISH_MCTAVISH wrote: »

This handy rent versus buy calculator may help as well.

http://www.greengem.co.uk/Rent_V_Buy/rent_v_buy.php

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.

Can I point out to the OP that just because this post is in bold, does not make it any more credible than any of the others on this thread.

In the nearly 6 years I've been renting, house prices in my area are actually lower (6%ish in nominal terms) than they were at the start, and I'm paying less in rent than I was originally. Figures based on a relatively short period in the past (since 1975 I believe) used to calculate the above gains are a pretty shaky foundation to work out whether buying or renting will make you better off.

Inevitably though, at some point you'll be better off having bought than renting, however I'd suggest this is over a very long period and the gains you can expect by buying now will be much more marginal.

HAMISH_MCTAVISH

FATBALLZ wrote: »

In the nearly 6 years I've been renting, house prices in my area are actually lower (6%ish in nominal terms) than they were at the start, and I'm paying less in rent than I was originally.

In the last 6 years, house prices in my area have nearly doubled, and rents have soared too.

Individual areas will vary.... but the national average is as per the example.

One_Day_Rodney

This is a contentious issue and will always be argued. However here's my tuppence worth.......

A couple of aspects many people seem to miss when thinking about and making their own choice is that of inflation/wage changes and asset value.

Inflation & Wage Change -
e.g At the moment I pay say (for example) £650/month for my mortgage of £125,000 (property value £200,000)
Assuming a salary of £35,000 - this would equate to approx 30% of my take home salary (£2200/month).
Now, at this time monthly rental on a property of equivalent value would be pretty much the same.

But, roll forward 15 years... my salary should have risen (hopefully!)
Assuming 2% wage and cost inflation per year, my new take home = £2960.
My mortgage payments (assuming interest rate remains same) now equal 22% of my take home salary and the debt would have reduced greatly.
At this point I am also paying off more capital than interest on the debt, thus making it decrease faster.
Rent price though, will have increased with inflation, rising from £650 to £875. still representing 30% of my take home. A difference between the two schemes of £225 per month.

I know the monthly mortgage figures will be different with interest rate changes, but it will be roughly inline with change in the rental inflation as most landlords will adjust the rental to match the new rates too - especially if they have a mortgage on the property.

Asset Value -
The other point is at the end of 25yrs you have an asset of say £200,000 (or equivalent in the future)(e.g.)





At the end of that 25yr term (or anytime therafter) you have choice -

• 
  You can sell the asset (getting the said £200,000), then rent for the remainder of your life if you wish and enjoy spending the cash (or keep it for your retirement)
• 
  You can sell the asset (getting the said £200,000) and downsize and realising the price differential.
• 
  You can just live in your property rent free.

Whereas when renting, you pay for someone else to have an asset of say £200,000 after that 25yrs and have you have no asset to show for it.

There are other aspects too e.g. the opportunity (if you wish) to add value to your property by modernising,extending etc.
I also haven't shown house inflation over that 15 yr term representing a relative increase in asset value (at no time in modern history has property value shrunk over a 15yr period).



I have to agree with some of the earlier posters when they talk about FTBs finding it difficult to see past the first few years of housebuying. It is a long term commitment and in the early years it can be very hard.

But, the bottom line is whether renting or buying, you still have to pay for the place you live in.
Personally I think its horses for courses really - if you need to (or don't mind) moving around a lot (and sometimes at short notice) or if you simply can't afford the initial cost of buying or you want to live in something normally 'beyond your means', then rent.
If you think similarly to myself, then buy.


I know the above calculations are a simplistic and only discuss one point of buying or renting (albeit an important one) and only reflect my personal attitude to the major finances of living in a property.

All in all though, it is really down to the individual. As I said at the beginning, its a contentoius issue and there will never be 'one size fits all' I'm afraid. :cool:

The_Blue_Hatter

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. 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.

I am looking at putting my house on the market in the next few weeks. I expect to get between 150 and 160 for it but I could rent it out tomorrow for £700 pcm easily, in fact I would expect £750.

(For reference check out LU2 on rightmove)

The_Blue_Hatter

NEH wrote: »

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....

I am 30 years old with 15 years left on my mortgage. I will be upsizing but my goal is to be mortgage free on my own home by 50 at least and hopefully a couple of BTL's.

My hope is that i'll still have all my marbles when im 50 and wont be going into the nuthouse/care home for quite a while (and i'll also try and prevent the government getting their hands on as much of it as possible anyway).

spadoosh

shortchanged wrote: »

By the way gigglepig if you didn't already know HAMISH MCTAVISH is one of the most infamous property rampers on this site. He has VI's in high property prices so you will not get an impartial opinion from him.

Thats a bit harsh. Ive seen hamish a few times (hard not to when your trawling the forums looking at 'house buying, renting or selling') and yes to be fair he does like to push the housing market however on this occasion he has give the op a valuable tool to help them calculate costs of buying/renting.

Give the man a break.... even when he does help the 'HAMISH MCTAVISH hate club' come running!

Cheers hamish, thats a good link!

franklee

One_Day_Rodney wrote: »

I have to agree with some of the earlier posters when they talk about FTBs finding it difficult to see past the first few years of housebuying. It is a long term commitment and in the early years it can be very hard.

But, the bottom line is whether renting or buying, you still have to pay for the place you live in.
Personally I think its horses for courses really - if you need to (or don't mind) moving around a lot (and sometimes at short notice) or if you simply can't afford the initial cost of buying or you want to live in something normally 'beyond your means', then rent.
If you think similarly to myself, then buy.

Especially for FTB there's nowt wrong with a different short term plan to the long term one. Why not rent now whist the housing market is looking overpriced and while saving up for that deposit with a good LTV to get the best interest rates, and then buy.

The house a few doors down from me was purchased in 2007 for 265K and is now up for sale asking 250K. On top of that they paid 7,950 in stamp duty and I'm guessing about 1K in solicitors fees. I've been here longer than them and I paid 100 in agent's fees. I'm paying rent of approx. 4% of the house "value" while my deposit savings are earning between 4 and 5% before tax plus some of it RPI + 1% tax free with national savings.

Renting for me isn't a long term choice as I will be buying, just not yet That's why these long term 15-25 year calculations don't help (although they are needed to make buying look better) as there really is no reason not to mix and match the options which for me means buying when I think the value is worth it. Meanwhile I'm happy to have spent this last weekend sitting in the sunshine instead of trailing round the DIY shops.