Is this right? I'm only paying £186 off my actual mortgage?

roswell

cupid_stunt wrote:

Ok here one that doesn't rely on any 'ifs'

There is a 2 bed terraced house not far from me up for sale at £185000. The interest only mortgage on this would cost in the region of £800 per month.

I have seen similar examples to above from a builder who built houses that didnt sell the off plan price was £120 000 10 houses only 3 sold, he tried to rent 7 out last time i looked there was 2 left 1 to rent £395 a month the second is for sale ... wait for it ... £89 950 .... how pleased those 3 poeple that bought must feel, not only can you rent a hosue next to them cheaper than there mortgage you can buy a house got 30 000 less than they paid ... I guess the developer just wants his capital costs back.

tigerminxy

Martinslovechild wrote:

It begs the question:-

How is the landlord renting this place out making any money?

I'm therefore assuming that he would have to have bought the place some time ago otherwise there's no way he would rent out a house for £550 which is costing him £800 on an interest-only mortgage.

The BTL mortgage lender simply won't allow it under their terms & conditions - you have to at least cover your mortgage payments.

The landlord may have had a huge deposit (saved up while renting somewhere ) so that the mortgage is not for the full value of the house. Therefore the landlord can afford to rent the house out for a lesser amount than the interest someone else, who had less cash to put down, would pay.

You are assuming that all landlords have to take out buy-to-let mortgages for the maximum amount.

OverlandLandy

Martinslovechild wrote:

OK, let's demonstrate an example where renting is NOT dead money.

If house prices were to crash by 40%, then the cost of an average house would reduce from approximately £170,000 to £102,000 (£170,000 * 0.6). Total amount 'lost' = £68,000.

If a person rented a property over a 5-year period which costs £600 per month, the cost = 600 * 5 * 12 = £36,000.

Therefore, the person has effectively 'saved' £32,000 by not buying a property and waiting instead for the bottom of the next housing cycle.

I dont get this argument..where are you planning to live after 5 years? Does your spending on housing drop to £zero?

This 'theory' only works if house prices fall (a lot).........

If we both 'get a house' @ 20years old & Live until we are 70...you always rent (@ £600 PCM) but I buy......You will spend £360,000 on your rent.....I will only pay £328,000 to own my own house! (£17K mort @6% for 25yrs). I have something worth £102K ...and If I were to sell it I would only be £226,000 out of pocket.......you would still be £360K out of pocket.

Mind you...In the end its all Dead Money.......cos you cant take it with you!

talksalot81

OverlandLandy wrote:

This 'theory' only works if house prices fall (a lot).........

I did calculations over 2 years for the sort of property I can afford to buy. With most of the various costs (stamp duty/solicitors etc.), the sums are such that I would be over £9k better off having rented than having purchased. This equates to over 7% of the property value. So the theory works even in the instance of inflationary HP rises.

I assume you are however getting at the idea that at the end of all that, if you havent bought already, you are now going to have to do it and take the hit. This of course is right if houses rise by more the 7% or higher. However, if the increase is less than that, then the 2 year rent does work out better because your potential deposit is now going to be a greater percentage of the total property value...

If the market were to stay stable or make any significant drop, the short term rent could be enormously better value.

Snow_Dog

Unfortunately what most people lose sight of in these arguments is that housing is a long term investment. Most people seem to try comparing renting with buying over anything from 1 to 5 years.

As Overlandlandy has pointed out, you are (hopefully) likely to live till you are in your 70s. Over the next 25 years there will be fluctuations in the interest rates but averaged out the mortgage will remain relatively constant.

Rent however will go up over that time.

My in-laws recently finished their mortgage, they were paying about £20 pcm in the last few years to live in a house that would rent out for about £800pcm.

They are now living "rent free" and if needs be they can sell up and they are likely to have £250K in readies.

Now I am not saying that it is always a time to buy, because I, like many feel, this is a risky time as house prices are on the high point of the cycle, but ultimately a lifetime of renting is dead money over owning a property (long term).

talksalot81

Snow_Dog wrote:

Now I am not saying that it is always a time to buy, because I, like many feel, this is a risky time as house prices are on the high point of the cycle, but ultimately a lifetime of renting is dead money over owning a property (long term).

Spot on. The rental vs purchase arguement really only holds over the short term - get beyond 5 years and it starts to become questionable and beyond 10 I cannot see any chance of it working.

fivemice

Perhaps then, we should argue that renting is dead money IN COMPARISON.

If you buy, you pay the mortgage but you still get to keep some of your money, or at least have your own house with your own rules and own security at the end of it.

If you rent, you pay rent and that's it. Apart from having a roof over your head for 6 months at a time there isn't much else to it.

I've rented for the last 5 years. I moved out at 16 so I didn't stand a chance of buying. Instead, I rented a cheap house in a nasty area with my husband and two of his mates. Renting for me was "good" as it meant I didnt have to live at home, but it wasn;t great.

I am looking forward to paying off my mortgage (that I havent even got yet :rotfl:) and having a permenant home to live in, decorating it as I see fit, not running the risk of eviction...

But then I guess I am buying a home, and not bricks made of gold :P

amyface

eryn_kathleen wrote:

To quote from Martin:

I bought my first home at the age of 32 having saved up for it, so that I've never had a mortgage.

He obviously rented in order to do that!

Or never left home! Oh the joys of the little ones not flying onwards

talksalot81

fivemice wrote:

Perhaps then, we should argue that renting is dead money IN COMPARISON.

If you buy, you pay the mortgage but you still get to keep some of your money, or at least have your own house with your own rules and own security at the end of it.

If you rent, you pay rent and that's it. Apart from having a roof over your head for 6 months at a time there isn't much else to it.

I've rented for the last 5 years. I moved out at 16 so I didn't stand a chance of buying. Instead, I rented a cheap house in a nasty area with my husband and two of his mates. Renting for me was "good" as it meant I didnt have to live at home, but it wasn;t great.

I am looking forward to paying off my mortgage (that I havent even got yet :rotfl:) and having a permenant home to live in, decorating it as I see fit, not running the risk of eviction...

But then I guess I am buying a home, and not bricks made of gold :P

My own calculations have shown a mortgage to be dead money IN COMPARISON to renting over the initial few years (not the other way round and that includes what part of the house you own).

What it comes down to is that in the long term, a mortgage is likely to be less 'dead money' than renting (but dont forget there is still alot dead - at the moment £130k mortgage actually costs nearly 230k). In the short term it can go either way depending on the size of your mortgage and the way the market moves. If there is no growth or your mortgage is very large (in % terms), then comparatively it may well be the mortgage which is dead money.

Actually, at the end of the day, I suspect the calculations are just way too much for most people which is why this old myth still persists.

Maz

Mind you...In the end its all Dead Money.......cos you cant take it with you![/QUOTE]


Damn right! After all, what's the point of the argument? It's gonna go to the sodding Government when you cork it anyway (or at least a very large part of it) We're not gonna benefit from our 'assets' are we? Might get a nice marble headstone or summat................ At least if you sell up and rent, you can enjoy the cash that you've made, probably pay the rent from the interest you'll make anyhow and still be able to get you hands on the capital.