Home Ownership is £200,000 cheaper than a lifetime of renting

Graham_Devon

ukcarper wrote: »

Another flaw is not allowing for inflation in rent.

They have, it's 2%, for some unknown reason.

Theres loads of flaws. The renter is allowed to save the money they would have used as a desposit, but they only give them 3.5% and the renter isn't allowed an ISA! So they wipe 20% of the total savings growth in tax!

wotsthat

Graham_Devon wrote: »

They have allowed £2,000 a year for maintenance of the property.

The obvious flaw in the calculations, is assuming people buy one house and live in it for the rest of their lives. The low interest rate is of course another flaw, but who knows, could see these rates for another 25 years.

For a renter, moving doesn't really cost anything in financial terms, bar the actual moving costs (unless you do it yourself).

For a buyer / seller there will be stamp duty, legal fees etc to take into consideration. I have a figure in my head that the average person moves 6 times in their life. That's a huge cost thats been ignored in favour of the buyer. Enough to make a lifetime renting in the south west financially advantageous.

Still, if it labours the point and barclays can sell some of these intergenerational mortgages, I guess it's worked.

According to the table I should be upwards of £210,000 better off and will own a house too. I think I'll take the risk and remain an owner-occupier.

purch

Graham_Devon wrote: »

They have, it's 2%, for some unknown reason.

Theres loads of flaws.

Yes, they asked the BOE for an estimate :eek:

wotsthat

Graham_Devon wrote: »

They have, it's 2%, for some unknown reason.

Theres loads of flaws. The renter is allowed to save the money they would have used as a desposit, but they only give them 3.5% and the renter isn't allowed an ISA! So they wipe 20% of the total savings growth in tax!

I suspect they've used 2% because it's unrealistically low and therefore favours the renter in the calculations.

Well spotted on the savings flaw. I forgot that all renters were sat on handy deposit sized lump sums but choosing to stay in rental because it's cheaper.

Mr._Pricklepants

Graham_Devon wrote: »

For a renter, moving doesn't really cost anything in financial terms, bar the actual moving costs (unless you do it yourself).

check-in fees
check-out fees
reference fees
credit check fees
yearly contract renewal fees
deposit withheld for the silliest reasons

No thanks.

chewmylegoff

Graham_Devon wrote: »

That's not taken into account for a very good reason.

They are talking about never moving. Therefore, one could assume the house is disposed off after you part, therefore, you'd never see the benefit of any increase in value.

that's not a very good reason.

you cannot do an NPV calculation comparing buying vs. renting which has any credibility without taking into account the residual value of the asset you are buying at the end of the period.

there are so many holes in both sides of this calculation that they might has well just have made the numbers up.

basically this article should be titled:

"according to our uneducated guess we can confirm that, on the basis of our meaningless, unreasonably prescriptive and flawed calculations, renting will be £200,000 more expensive than buying, as long as you live in a fantasy universe where all the things we have ignored in the calculation don't happen".

System

wotsthat wrote: »

To all of these figures the value of the house at the end of 50 years needs to be added.

I guess it's not added to the saving as you may not sell it, but it still forms part of your wealth and gives something to hand down.

So, according to that, I'd save £201k and I'd also have a £543k asset using their 2% inflation .

purch

It would be interesting to see their "calculations" based on factors that existed at other times in the recent past.

What would they have looked like in the mid 1970's 80's and 90's ?

chucknorris

somethingcorporate wrote: »

How realistic is that 4.4% given the average rate over the long-term (i.e. last 20 years) is significantly higher than this?

Well if interest rates were significantly higher then inflation on the rent would also be running significantly higher than 2%

Graham_Devon

chucknorris wrote: »

Well if interest rates were significantly higher then inflation on the rent would also be running significantly higher than 2%

Ahh, but is this true?

Say for example interest rates went to 10%. We'd have a large property price fall. It would be difficult to then add 10% to tenants rent. There would be too much choice for them.

If what you said was true, then we would only have low interest rates at times of low inflation. Obviously this isn't the case.