stupid beliefs about finance

sabretoothtigger

Endowment sounds like it brought back in the middleman that switching from renting should have cut out.

The government backed 1% charges stakeholder type pension is ok. Hopefully thats not a myth, I had one at some point and it seemed pretty low risk and low cost to me.
Something like a SIPP is a bit like special mortgages, buyer beware.
Can turn nice, but anyone who fixed their rates five years ago is worse off now


Simple ideas work best is the best prevention for most stupid ideas?

jimjames

bankhater_1965 wrote: »

i thought the buildings insurance payable on a mortgage would offset such a rise

Rent increases with inflation, mortgage payments don't. So even if rent and mortgage are the same amount now in 25 years the rent will have risen but mortgage will be the same (assuming constant interest rates).

Rent inflation is not linked to buildings insurance.

Hooloovoo

bankhater_1965 wrote: »

so over a 25 year year period
rent =£180.000
mortgage =£ 330.000 plus £20,000 deposit plus maintance at a guess the same would cost you £360,000
this adds upto 50 years rent

As mentioned, you've forgotten rent inflation. And no, buildings insurance would not fully compensate for this.

Anyway to contrast your example lets look at ... me.

Bought a three bed house in 2006. First time buyer. Purchase price £130k + costs. I paid £32k deposit and took out £98k mortgage over 20 years paying approx £650 per month.

By over paying I've knocked years off that and thousands of pounds in interest. By the end of 2012 I will be mortgage free.

I've spent about £20k doing the house up. All in by the end of 2012 I would say the house has cost me about £165k in purchase price, charges, interest, refurb, and general maintenance.

I could have rented for those six years at say £650 per month, at a total cost of £46.8k, so I'm out of pocket by the best part of £120k

But here's the kicker.

Lets say I live another 50 years which would put me just shy of my 85th birthday. I will have to pay for buildings maintenance over that time, of course. Might need a new boiler every ten years that's a couple of grand a time - call it a couple of hundred quid a year. Let's be pessimistic and say I need to spend £1k a year on maintenance. Not unrealistic I don't think. So that means I will spend a further £50k on the house before inflation.

On the other hand I could sell the house, spend half on beer and hookers and waste the rest. Then I could pay rent for the next 50 years instead. Lets say I pay £650 per month. That's a total of £390k before inflation.

Lets look at the totals.

Rent £436.8k.
Buy £215k

And that's not even taking into account inflation. I would suggest that rent inflation will massively outweigh the inflation on parts+labour for general maintenance. So the difference between those two figures is only going to get bigger.

Even if you don't over pay the mortgage and let a £650 per month mortgage run for 25 years, that's still only £195k + £30k deposit + £50k maintenance, total £275k. Over £160k cheaper than renting before we even think about rent inflation making that difference much worse.

Anyone that seriously thinks renting is cheaper needs their head looking at.

bankhater_1965

Hooloovoo wrote: »

As mentioned, you've forgotten rent inflation. And no, buildings insurance would not fully compensate for this.

Anyway to contrast your example lets look at ... me.

Bought a three bed house in 2006. First time buyer. Purchase price £130k + costs. I paid £32k deposit and took out £98k mortgage over 20 years paying approx £650 per month.

By over paying I've knocked years off that and thousands of pounds in interest. By the end of 2012 I will be mortgage free.

I've spent about £20k doing the house up. All in by the end of 2012 I would say the house has cost me about £165k in purchase price, charges, interest, refurb, and general maintenance.

I could have rented for those six years at say £650 per month, at a total cost of £46.8k, so I'm out of pocket by the best part of £120k

But here's the kicker.

Lets say I live another 50 years which would put me just shy of my 85th birthday. I will have to pay for buildings maintenance over that time, of course. Might need a new boiler every ten years that's a couple of grand a time - call it a couple of hundred quid a year. Let's be pessimistic and say I need to spend £1k a year on maintenance. Not unrealistic I don't think. So that means I will spend a further £50k on the house before inflation.

On the other hand I could sell the house, spend half on beer and hookers and waste the rest. Then I could pay rent for the next 50 years instead. Lets say I pay £650 per month. That's a total of £390k before inflation.

Lets look at the totals.

Rent £436.8k.
Buy £215k

And that's not even taking into account inflation. I would suggest that rent inflation will massively outweigh the inflation on parts+labour for general maintenance. So the difference between those two figures is only going to get bigger.

Even if you don't over pay the mortgage and let a £650 per month mortgage run for 25 years, that's still only £195k + £30k deposit + £50k maintenance, total £275k. Over £160k cheaper than renting before we even think about rent inflation making that difference much worse.

Anyone that seriously thinks renting is cheaper needs their head looking at.

yes this has been a good move for yourself , im sure if we worked or looked at the average figures its a differant situation

Hooloovoo

bankhater_1965 wrote: »

im sure if we worked or looked at the average figures its a differant situation

I still disagree. It's really quite simple the figures speak for themselves.

Mortgage £650 per month for 25 years - £195k - assuming constant interest rates. This might go up a bit but I very much doubt we're going to see 15% rates again. Add to that £50k worth of maintenance and also the initial deposit. Roughly £275k over 50 years.

Rent £650 per month over 50 years - £390k. It's already over £100k more and this figure is only ever going to get massively higher with rent inflation. Add on to this the priceless worry that your landlord might sell up and force you to move.

There really is no question. It would have to be a very unusual set of circumstances for buying to work out more expensive than renting.

There are many reasons to rent. Long term cost is not one of them.

bankhater_1965

Hooloovoo wrote: »

I still disagree. It's really quite simple the figures speak for themselves.

Mortgage £650 per month for 25 years - £195k - assuming constant interest rates. This might go up a bit but I very much doubt we're going to see 15% rates again. Add to that £50k worth of maintenance and also the initial deposit. Roughly £275k over 50 years.

Rent £650 per month over 50 years - £390k. It's already over £100k more and this figure is only ever going to get massively higher with rent inflation. Add on to this the priceless worry that your landlord might sell up and force you to move.

There really is no question. It would have to be a very unusual set of circumstances for buying to work out more expensive than renting.

There are many reasons to rent. Long term cost is not one of them.

would you agree that goverment will (only a matter of time ) eventually demand the sale of the property to fund elderly care, and close the oppertunity to pass the wealth on to family ! if so all your hard work will be for nothing !
house owners like myself will just be funding there own care as to non house owners will get the same treatment but would have the oppertunaty to pass wealth on in savings as to property

talexuser

I think the assumption that the state will always give (decent) old age care for free is rather naive given the direction of government policy, the nation's finances and an increasing ageing population. It my well turn out that as well as renting being much more expensive in the long term due obviously to inflation, that selling your own house may well be the only way to fund any kind of decent care in your dotage. The kids will then need to take care of themselves (by buying).

molerat

£650 rent pcm needs an earned income of at least £11470 pa or pension income of £9750 pa, I certainly would not have been able to retire at 55 if renting. You can pay a mortgage off before retiring, rent is with you for life.

srcandas

bankhater_1965 wrote: »

would you agree that goverment will (only a matter of time ) eventually demand the sale of the property to fund elderly care, and close the oppertunity to pass the wealth on to family ! if so all your hard work will be for nothing !
house owners like myself will just be funding there own care as to non house owners will get the same treatment but would have the oppertunaty to pass wealth on in savings as to property

bankhater you cannot compare state care with private care.

My father had to go for regular treatment after numerous medical problems (kidney transplant, stroke, alt...). He saw where they dropped off the state care home residents on his way back home in the hospital coach. Luckily it was easy when he was again sitting in his arm chair in his own home to explain that if need be he could sell and he could live in high quality surroundings located near his family until he was 120 years old. You couldn't buy the smile on his face

Just to help with numbers I live in a house valued at £165000. The rent on three similar is £650 per month.

And another advantage of purchase. Ten years ago I urgently needed money (55000 euros) in Spain (my wife is spanish). Extended mortgage by £40000 and the money was in the bank in two weeks. Now had I been paying rent

Hooloovoo

bankhater_1965 wrote: »

would you agree that goverment will (only a matter of time ) eventually demand the sale of the property to fund elderly care, and close the oppertunity to pass the wealth on to family !

I'm not doing it to pass wealth on to family. I'm doing it to improve my own quality of life both now and also in retirement.

But the previous couple of posters have said everything better than I could so I'll just refer you to post #100, #101, and #102.

I repeat - anyone who thinks renting is cheaper needs their head looking at.