Maths of Renting vs Buying

nickmason

Loughton_Monkey wrote: »

Well if you like!

My A levels were in 1968, and therefore in "Real Money". But I think this is beside the point.

excellent, so - as mine were 20yrs after you - we can both leave this skirmish with maths creds intact.

I'm afraid nothing will change me from my view that economically, buying will be better overall in the longer run.

I didn't expect to! Certainly it has been for everyone. I was just trying to remove the confounder of hpi.

I admit that 'cash flow' in the first few years can often be negative (for buying).

agree

Rather perversely, with today's artificially low interest rates, coupled with artificially high rental rates, there must be lots of instances where buying is even 'cash flow' better.....

Again I agree, and in fact a number of people seem to think this is the norm - like you I think that it's exceptional.

All I know is that the amount of interest I have paid in 38 years of house ownership is absolutely peanuts in comparison to the rent I would have paid. I still have a mortgage of £214K* which is costing a massive £3,210 a year. When I rented the property (years 2000 to 2005) it commanded annual rent of £25,200 a year!

[*It was paid off in 2003, but being an offset mortgage, it remained 'alive'. With interest rate at 1½%, I would have been a fool not to have withrawn it all out - and it currently resides in 4% fixed rates.]

I can't argue with people's experiences. It's just that I retain the right to argue that the past doesn't necessarily predict the future.

ash28

CLAPTON wrote: »

where I live a 4 bed decent sized house costs a modest 2k per month to rent

so that's 24,000 per year
which means at 20% tax rate you need income of about 28,000 pa just to pay the rent

against this, as owner you may spend say £1,000 per year on maintenance

I would guess that most retired people , even on very reasonable pension would see the matter as a no brainer


a family member, has just bought a modest one bed flat in london
the mortgage (repayment ) is about 850 pm
directly comparable rents in similar blocks charge 1,000 - 1,200 pm
they paid about 25,000 as deposit .. so say at 3% interest thats £62.5pm in lost interest
seems a better bet too

We are early retired (at 55 last October) and for us it was a no brainer.

A decent 4 bed here is around £1500 a month and up and a 1 bed flat £750 upwards - the fact we had very little mortgage left was the difference between early retirement and working.

If we took our mortgage to term (another 7 years) we would have paid £77.5k in interest (average of 6% - that's probably not a million miles away as rates have been fairly stable since we moved in here, and £83k capital - plus £14k deposit - if I calculate the interest lost on the deposit at 6% that's around £13k - so the house has cost us in the region of £200k plus maintenance which is roughly £20k - the house has just sold (end of July) for just shy of £400k - and no we won't be renting!

I have absolutely no idea how much renting the same house would have cost us over the 18 years we have lived here - but last year alone it would have cost us £18k - £20k - though we would have had no maintenance costs.

The reason we bought a house in the first place after 7 years of renting (and seeing rent increases every year) was to be mortgage/rent free when we retired and to retire at the earliest possible opportunity and give all you young whipper snappers a chance!

We never included the house in our retirement plans - especially the way the market has been since 2008 - if there had been a 50% or 70% drop in prices - it would have been painful but we would have still had somewhere to live that we weren't paying mortgage or rent for.

PasturesNew

I have an O level in maths, but I've worked out that once a house is paid for I can live in it almost free forever more .... probably 1-2 days work at minimum wage/week would cover it ... but for renting I'd have to find/get the highest paid job I could find in my whole county and get up every morning and drive miles to be there at God Awful O'Clock forever just to pay the local high rent.

Buy for me = win.

kabayiri

Maybe we are excluding a few additional factors in this comparison.

I can think of a few, and there may be others :-

a) moving house. People rarely stay in the same house for the lifetime. Factors like reduced job security can enforce change.
b) mobility. Renting potentially offers greater mobility which may aid someone's career progression.
c) opportunity cost. There is no doubt that in earlier years, things like deposit cost lock up your money. 6K committed to that mortgage deposit is 6K not available for that HGV license training, or OU degree support etc etc.
d) increased regulation. Things like Part P; Gas Safe; push up the ownership costs of a house. Hamish quoted 20 years for replacement boiler. For a modern condenser boiler we should work on a reduced life of 10 years. I aim to replace the consumer unit and revisit the house wiring every 20 years.
e) domestic circumstances! The elephant in the room. Have people forgotten the divorce rates? A marital split can cost dearly when it comes to dealing with house ownership. I've lost count of how many times I have heard the phrase "she got the house".

IveSeenTheLight

Just a few other considerations to your points: -

kabayiri wrote: »

Maybe we are excluding a few additional factors in this comparison.

I can think of a few, and there may be others :-

a) moving house. People rarely stay in the same house for the lifetime. Factors like reduced job security can enforce change. Likelyhood is for more moves in rental properties than in owner occupancy properties
b) mobility. Renting potentially offers greater mobility which may aid someone's career progression. Owner occupiers can still be mobile with their career. I moved abroad to expand my career and rented out my home
c) opportunity cost. There is no doubt that in earlier years, things like deposit cost lock up your money. 6K committed to that mortgage deposit is 6K not available for that HGV license training, or OU degree support etc etc. It's a strange way to look at it that a deposit locks up your disposable income. I prefer to look at it as it reduces the debt and thus reduces the amount of interest payable. Having completed an OU degree, I certainly know that you wouldn't need the amount of a mortgage deposit towards module fee's
d) increased regulation. Things like Part P; Gas Safe; push up the ownership costs of a house. Hamish quoted 20 years for replacement boiler. For a modern condenser boiler we should work on a reduced life of 10 years. I aim to replace the consumer unit and revisit the house wiring every 20 years. I would agree 20 years is a bit excessive, however I do know of modern boilers that have required relacing 12 - 14 years. So maybe
e) domestic circumstances! The elephant in the room. Have people forgotten the divorce rates? A marital split can cost dearly when it comes to dealing with house ownership. I've lost count of how many times I have heard the phrase "she got the house". I dont believe you should calculate the likelyhood of divorce when considering options to buy or rent. Divorce is somthing that is a fact of life for some and can indeed come around unexpectedly. According to this link the divorce rate is 3.08 per 1000 people. The Gaurdian ran an article at the beginning of the year which stated that

It's the sixth consecutive year that the number of divorces has fallen, from a peak of 153,065 in 2003.

[/QUOTE]

ukcarper

People can try and convince us or maybe themselves that renting over a lifetime is cheaper than buying but you will never convince me. I had a mortgage for 38 years, which was lower than the equivalent rent for at least 30 of those years and I am now living rent free in a house that would cost me at least £1300 a month I’ve already saved £25k. If I had invested the £800 deposit plus another say £1000 for extra mortgage payment over the first few year. At 10% I would now have £67k and that doesn’t take onto account the time when the mortgage was less than rent.

That is not to say buying is the best option for everyone and that renting doesn’t have its advantages.

Percy1983

People can't even afford to get a divorce these days!

ukcarper

Percy1983 wrote: »

People can't even afford to get a divorce these days!

You think they could in the past.

Really2

Why not use an online calculator
http://www.greengem.co.uk/Rent_V_Buy/rent_v_buy.php

The simple mistake in the calculations is ignoring an asset value at the end.

Batchy

I think your missing the point.

Renting is a business deal more than buying a house, contracts, terms and conditions etc, etc.

Buying is an emotional thing, its just what people do, its part of the pension plan... ie, not having rent to pay.

If your not buying you should be paying a HELL of a lot of money into a pension plan with a RPI increases factored in throughout, and when establishing your annuity.

The 600 rent your paying now, for the 120k house, just think, what the rental will be on the 300k house in 30y years will be? Will your pension even cover it!!!