House ownership - Selling yourself into a lifetime of servitude

debtistheft

CAN1976 wrote: »

3 bed semi to rent

http://www.rightmove.co.uk/property-to-rent/property-29653252.html

3 bed semi to buy

http://www.rightmove.co.uk/property-for-sale/property-29181217.html

The value is a little higher than I thought (128000), so make the returns 5.6%, still risk free and tax free

Looking at the two places, the rental property looks the more modern and nicer, but they are close in regard to location, so lets go with it.


The rental on that property is £650 per month.

The Purchase price of that other property is £128,000. I can't find a 100% mortgage as they don't exist anymore, 95% are rare too. The best mortgage I could quickly find was a 90% one from Santander fixed at 5.99% for 3 years. Let's pretend that they allow you to go 100% for that rate. An interest only mortgage on that house would cost you £638.93. You would also require buildings insurance which I am told costs £100 per year (lets say £120 to make it easier to calculate). You would be paying £648.93 to live there.

You are therefore saving £1.07 per month buying rather than renting.

However, you will also have had to pay one-off legal costs of around £600 to buy it. The property doesn't say whether it is leasehold or not so there might be an annual charge there. You would also have to spend £100 to get the electricity and gas checked before moving in to make sure your kids are OK (rental properties have these checks by law and I don't see why owner occupiers would not wantthe same protection for their kids).

SandC

debtistheft wrote: »

What if you need the money for some reason? You will have the greater part of your wealth invested in a manner that prevents you from easily accessing it.

Is building insurance just £100, really? For all types of housing, for all locations?

Paying Interest only mortgages is comparable to paying rent, the difference is that you are paying to a bank and I am paying to a landlord. The repayment part of your mortgage is comparable to me investing in the stock market, the difference is that you are reducing your debts and I am increasing my wealth.

Your last paragraoph makes no sense so I cant respond.

But its not money and it was never wealth. If I had been renting I wouldn't have been investing the money anywhere because I wouldn't have had it to invest!

Mine is, yes. I'm using my house as my example because you were implying that in all circumstances you are 'selling yourself into a lifetimes of servitude' weren't you? Or are you in agreement that this is not always the case?

If my mortgage were interest only I would still be paying far more if I was renting. The size of mortgage I have means the difference between the two figures is around £50-£75 per month off the top of my head.

Question: "If you put that 50% house equity into shares that paid an income and you paid that income towards your rent, would it not reduce your rent by half?"

That was your question. How could I possibly put 50% of my equity into shares without buying and paying the mortgage off for quite a few years? I could only feasibly make money out of shares by holding a large lump sum's worth couldn't I? Which means you really agree with buying a house, but selling once a decent equity is gained and then renting dont you? Which again negates your original point of home ownership in the first place.

We are not all the same. Some of us didn't pay much for our houses, comparatively. And the maintenance probably doesnt' amount to as much as you think when you take cosmetic improvement out of the equation. Some people like to decorate every year and have the latest gadgetry in their living rooms and kitchens. I don't.

debtistheft

SandC wrote: »

But its not money and it was never wealth. If I had been renting I wouldn't have been investing the money anywhere because I wouldn't have had it to invest!

How did you manage to pay down the capital of your mortgage if you had no money left over after paying the interest part of your mortgage?

If you rent, its the same as paying a 100% interest only mortgage. The repayment part of your mortgage is the same as the investment capital you would have left if renting.

Using the £128k house example above.

If the chap was on a repayment mortgage over 25 years he would be paying £648.93 in interest and £426 in repayment (£128k /25 years / 12 months) a total of £1074.93 per month in housing costs.

If the chap was renting, he would be paying £650 in rent and £424.93 to be invested. This comes to a total of £1074.93 in housing and investment costs.

SandC

The example of £128k refers to something you might buy now compared to the same property rented - not my situation. Mortgage payments go down, rental goes up. That's the simple way to give my situation.

My house on repayment has only ever cost £50-£75 more per month than interest only. Rent started off being £50 more per month and is now £250. If I rented right now I wouldnt have that £250 spare to invest.

My circumstances are not the same as someone buying right now, or even 5 years ago.

But even if I were, there are circumstances where you could buy that house sooner than planned - inheritance, salary rises, bonuses all can be used to pay off some of the mortgage. You can't do that with rent. Which will continue to go up.

IveSeenTheLight

debtistheft wrote: »

How did you manage to pay down the capital of your mortgage if you had no money left over after paying the interest part of your mortgage?

If you rent, its the same as paying a 100% interest only mortgage. The repayment part of your mortgage is the same as the investment capital you would have left if renting.

First point: -
The interest part of many mortgages is a fraction of the equivalent rent.

Second Point and more pertanent: -
Each month on the repayment mortgage, the interest reduces and more capital is paid off.

Third point: -
Compare point two two rent and over time, the rent increases, meaning less invested compared to the mortgage capital. Indeed, if the mortgage capital was increased in line with rents, then the amortization period would reduce.

debtistheft

IveSeenTheLight wrote: »

First point: -
The interest part of many mortgages is a fraction of the equivalent rent.

Second Point and more pertanent: -
Each month on the repayment mortgage, the interest reduces and more capital is paid off.

Third point: -
Compare point two two rent and over time, the rent increases, meaning less invested compared to the mortgage capital. Indeed, if the mortgage capital was increased in line with rents, then the amortization period would reduce.

First Point. Prove it.

Remaining points, are reliant on the first point being true.

ukcarper

debtistheft wrote: »

Looking at the two places, the rental property looks the more modern and nicer, but they are close in regard to location, so lets go with it.


The rental on that property is £650 per month.

The Purchase price of that other property is £128,000. I can't find a 100% mortgage as they don't exist anymore, 95% are rare too. The best mortgage I could quickly find was a 90% one from Santander fixed at 5.99% for 3 years. Let's pretend that they allow you to go 100% for that rate. An interest only mortgage on that house would cost you £638.93. You would also require buildings insurance which I am told costs £100 per year (lets say £120 to make it easier to calculate). You would be paying £648.93 to live there.

You are therefore saving £1.07 per month buying rather than renting.

However, you will also have had to pay one-off legal costs of around £600 to buy it. The property doesn't say whether it is leasehold or not so there might be an annual charge there. You would also have to spend £100 to get the electricity and gas checked before moving in to make sure your kids are OK (rental properties have these checks by law and I don't see why owner occupiers would not wantthe same protection for their kids).

Lets take the 95% mortgage would be 5% less so mortgage £121,600 repayments and go 25 year repayment. £792 +10=£802. So £150 more.

So renter saves £6400 deposit + £600 fees and then adds £1800 a year if he gets a rate of 6% he will have £135k at the end of 25 years.

If house prices only increase at 2% the house will be worth £210k.

With 2% inflation rent will be more than mortgage payments in 10 years time and the renter would actually pay £14k more than buyer would over the 25-year period.


So if we take into account renter will not be able to add to his savings after year 11 the renter would only have £95k after 25 years.

debtistheft

SandC wrote: »

But even if I were, there are circumstances where you could buy that house sooner than planned - inheritance, salary rises, bonuses all can be used to pay off some of the mortgage. You can't do that with rent. Which will continue to go up.

You can have the same bonuses and inheritanceas and invest them instead. You can then offset your rental costs with some of the returns from your investments.

SandC

Looking at my ISA right now I'm not so convinced on the investment side of things! But seriously you'd have to be very savvy at the stocks and shares investments to get the same back in recent years as you would have saved in paying off some of the mortgage.

debtistheft

ukcarper wrote: »

Lets take the 95% mortgage would be 5% less so mortgage £121,600 repayments and go 25 year repayment. £792 +10=£802. So £150 more.

Mortgage £121,600 @ 5.99% = £606.99 Interest Only
Repayment Part = £121600 / 25 /12 = £405.33

I don't know where you are getting £792 from because even with a 5% deposit I'm seeing a £1012 per month mortgage.