Cheaper to buy than to rent

starsandmoon

ess0two wrote: »

Dont forget if you rent also,you save on having to replace the roof and boiler every 5yrs.

A roof should last longer than five years more like 30 plus and boilers should last at least 8 years. Of course you will have to maintain the boiler and a roof may need repairs at some point too depending on its age and weather conditions (high winds can cause damage).

Idiophreak

starsandmoon wrote: »

A roof should last longer than five years more like 30 plus and boilers should last at least 8 years. Of course you will have to maintain the boiler and a roof may need repairs at some point too depending on its age and weather conditions (high winds can cause damage).

I think ess0two's comment had quite a strong overtone of sarcasm...

breadlinebetty

Fire_Fox wrote: »

There are plenty of cheap decent places to live, do some research online instead of lumping the entire UK together!



It's you who is missing the point. What makes economic sense is not to look further than the headline figure when weighing up your profits, any accountant, landlord or business person will tell you that. Stretching yourself to buy a property and stay there until you have paid the mortgage off has always been a good idea, as long as you can afford basic maintenance. Basic over 25 years will generally include a few major works - rewire, roof, new windows perhaps.

But staying put for 25 years died with my parents' generation - now people divorce, they relocate for work, they trade up to a larger place, equity release. Not only do you have repairs, maintenance and improvements to consider, but you have to factor in the costs of buying and selling, stamp duty, buildings insurance, service charges if a flat, recessions, unemployment, and so on. None if these stay static for the life of a mortgage and none of these hit tenants in the pocket.

You could of course choose to buy a house that is unlikely to need a lot of work, or live in a slum and only do the redecoration and repairs right before selling. But that sort of negates the point of not renting a dump whilst you save a deposit or not really having much choice!

Some good points you've raised, but I disagree about needing a new roof and a rewire after just 25 years. Some houses only need a new roof every 50 (or even) every 100 years! And windows should last too - unless they're extremely old and the wooden frames need replacing.

Also, recessions and losing jobs effects renters just as much as buyers!

As for renting or buying a 'dump' - if you buy somewhere that needs doing up and you know YOU'LL reap the benefits - it's far more enticing for a buyer!:money: Not only can you choose how to do the property up, but you're also increasing the value that will one day go in YOUR pocket.:)

breadlinebetty

cwcw wrote: »

25 year fix at 5.24% costs £939 a month. BUT, the interest element of said repayments are £685 a month, so equivalent to £47 cheaper a month in "rent". You'd be paying £254 a month down into equity, which is the equivalent of paying into savings when renting. It's basically forced savings into an average paying account (house price inflation currently running around 1% a year, so comparable to average savings rates).

Also remember interest is front loaded, so 5 years into the 25, the interest only element is around £611 a month. I dare say the £732 a month rent will have gone up a few times over 5 years...

Thank you for explaining what some people cannot seem to see!:)

Fire_Fox

breadlinebetty wrote: »

Some good points you've raised, but I disagree about needing a new roof and a rewire after just 25 years. Some houses only need a new roof every 50 (or even) every 100 years! And windows should last too - unless they're extremely old and the wooden frames need replacing.

The clue was in the word PERHAPS! Unfortunately plenty of softwood or plastic windows don't last 25 years. Many older ones are better than newer ones - often period properties have hardwood that can be repaired. I previously owned an Edwardian cottage which had suffered some neglect but not left to rack and ruin: all the original windows on the north side were stripped, treated and repainted. The original windows to the south had new hardwood sills spliced in and were treated. The windows and door to the newer south facing extension were all replaced at less than twenty years old.

"Camden Councilii argues that uPVC windows do degrade, they are not maintenance-free and worst of all they cannot be repaired when necessary. A National Building Federation reportiii gives uPVC windows a life expectancy of 20-25 years, one reportiv states that up to 40% of units are failing within 5 years. As uPVC degrades from ultraviolet rays from the sun, it emits toxic gases, such as vinyl chloride, some of which enters the home, and eventually becomes brittle and powderyv. If uPVC windows are not cleaned regularly they quickly get permanently discoloured through dirt retention; it’s then impossible to restore them to a nearly new conditionvi. The major defect insurer for housing associationsvii states that uPVC windows must be cleaned every six monthsviii, lubricated and adjusted annually and have weather stripping and gaskets renewed every 10 years. Slight damage requires the whole unit to be replaced. ix"
http://www.redbricks.org/home/gtr/why-we-do-not-want-upvc-windows/

cwcw

mrginge wrote: »

Still referencing a niche product with limited availability. Can you compare to mainstream products over a more reasonable term instead?

I was referencing the 25 year fix at 5.24% as requested. Obviously products over shorter terms are available at even lower rates.

cwcw

InMyDreams wrote: »

OK, I did say I would let breadlinebetty ignore any arrangement fees, other associated buying costs, deposit requirements and pretend you can borrow the full £157,400. But is the £47 per month going to cover all the additional expenses of ownership once you've got your pad? Buildings insurance, maintenance... even if it did, and even if you were allowed to take out interest only on 100%, you wouldn't be paying off any of your capital, so wouldn't own the house at the end.

But actually she was also insistent that the monthly cost would be cheaper *and* you would own your house at the end, so your example doesn't count. This repayment mortgage would be over £200 per month more expensive (plus the extra costs mentioned in my last paragraph). If the renter could afford that *this year* then they can also afford to start to save towards a deposit.

I wasn't suggesting interest only, but only the interest element of the mortgage can be compared with the rent. Therefore, it's £47 a month cheaper. The capital repayments are equivalent to putting into savings when renting, with a similar return at the moment (but historically much better over any given 25 year period).

For the record, I bought at the top of the market and sold earlier this year, moving into rented after our purchase collapsed. Currently a price crash would suit me very well, but I'm not going to wait around if the right property comes up. Despite buying at the top of the market, I worked out all costs from 5 years of ownership (including buying costs, selling costs, maintenance, interest payments, insurance, a small loss on sale, etc) and it worked out at around £450 a month, whereas renting the same property would have been around £550 - £600 a month. Granted, we got lucky with a good tracker at the right time though.

breadlinebetty

InMyDreams wrote: »

To be fair, you are probably right. But when you see articles in the press like the one that started this discussion off, it frustrates me that it doesn't tell the whole story... you can't just ignore the potential returns of the deposit if you were to invest it in something else either. And it encourages people with no deposit to feel unfairness that banks won't lend 100% as they think they would save so much money if they could. I was trying to point out that even if a hypothetical 100% mortgage still existed, it still wouldn't necessarily help those who can't save for a deposit.



I couldn't agree more. I'm sure hoping that it *will* end up cheaper *in the long run*, otherwise I wouldn't be doing it! But those returns require *extra commitment* now, it's not cheaper! In order to realise those returns, I need to spend extra now, not less. (Or go with a short term mortgage, recognising that once rates rise, so will my costs, whilst the price of my house may go down. So you still need to put aside extra to mitigate those scenarios anyway.)

That's why headlines like 'Why it's cheaper to buy than rent: Difference of £132 a month on three-bed house' grate on me, because they are inaccurately comparing *today's* monthly costs which will confuse people (such as breadlinebetty) trying to do their own maths. And there *are* risks which shouldn't be taken lightly. Just ask many of those 'lucky' people who managed to get 100% (or more) mortgages in 2007. I'm sure they did their maths too, helped by media frenzy.

You are SO patronising!

Let me tell you - and this has nothing to do with luck or inheritance - but I'd hazard a guess that I'm a darned site more richer than you are. You've revealed a little of your personal finances and I can tell you now.....I've got a lot more equity than you have.

So stop patronising me.......

breadlinebetty

InMyDreams wrote: »

OK, I did say I would let breadlinebetty ignore any arrangement fees, other associated buying costs, deposit requirements and pretend you can borrow the full £157,400. But is the £47 per month going to cover all the additional expenses of ownership once you've got your pad? Buildings insurance, maintenance... even if it did, and even if you were allowed to take out interest only on 100%, you wouldn't be paying off any of your capital, so wouldn't own the house at the end.

But actually she was also insistent that the monthly cost would be cheaper *and* you would own your house at the end, so your example doesn't count. This repayment mortgage would be over £200 per month more expensive (plus the extra costs mentioned in my last paragraph). If the renter could afford that *this year* then they can also afford to start to save towards a deposit.

So even if this product did exist without arrangement fees and deposit requirements (which it doesn't) it still wouldn't do what Betty is describing. She's yet to find me one that does. I can't, and I have searched.



You've yet to come up with the figures, betty so we'll have to agree to disagree. And magicking up a huge deposit doesn't count. We don't all have rich relatives to help us out.



You can't 'shop around' for houses to rent? Maybe not once you are settled and don't want to move and the rent goes up. But there are plenty of 'settled' homeowners that are struggling to 'shop around' for mortgages too, once their current deals have ended. They are stuck with their bank's SVRs which also risk going up. Just a half percent rise of the SVR would be over £65/month, equivalent to nearly 9% increase on monthly rent. Oh yeah, sorry, you were going to fix for 25 years with that elusive mortgage no-one seems to be able to find.



Err, that doesn't mean anything! They put down over 75% deposit! Why not put down 100% deposit and then mortgage is 'free'? How is that a fair comparison? I thought we established that we were assuming no deposit. I have always said, if you have a decent deposit and can afford the repayments, then buying is a reasonable way to go. The point of this thread (I thought) was to point out that people with no deposit think they would be better off buying with a 100% mortgage if they were allowed, because 'buying is cheaper than renting'. My point is that no, it's not, *unless you have or can save a deposit*. And even then you are taking risks, but at least they are risks you can hopefully afford to take and *hopefully* (but not guaranteed) will pay off in the long run.

OK, your quote:


"even if you were allowed to take out interest only on 100%, you wouldn't be paying off any of your capital, so wouldn't own the house at the end."


Not many people would pay interest-only for 25 years. Interest-only is just a cushion to tide people over until their income improves. You know that and I know that.

Of course uyou wouldn't own your house outright after 25 years if you only paid the interest on the mortgage, but most people WOULD be able to pay the capital off with time - wages go up over 25 years! As do houses! And if you look back 25 years ago your house was probably fetching a fraction of its value now! Soo.......in 25 years from now - EVEN if you had only made interest payments - the outstanding 25 year loan for the house would be peanuts to most people...so they could either rake up the money to pay the capital off, or just sell the property and pocket the difference!!!:money:

InMyDreams

cwcw wrote: »

I wasn't suggesting interest only, but only the interest element of the mortgage can be compared with the rent. Therefore, it's £47 a month cheaper. The capital repayments are equivalent to putting into savings when renting, with a similar return at the moment (but historically much better over any given 25 year period).

For the record, I bought at the top of the market and sold earlier this year, moving into rented after our purchase collapsed. Currently a price crash would suit me very well, but I'm not going to wait around if the right property comes up. Despite buying at the top of the market, I worked out all costs from 5 years of ownership (including buying costs, selling costs, maintenance, interest payments, insurance, a small loss on sale, etc) and it worked out at around £450 a month, whereas renting the same property would have been around £550 - £600 a month. Granted, we got lucky with a good tracker at the right time though.

BINGO! Thank you! You've explained much better than I seemed to manage. So if you can afford the capital repayments on a repayment mortgage, you should be able to afford to save for that deposit when renting. The true cost comparison is "rent + saving vs repayment" or "rent only vs interest only". But that's not the message that the original article (and breadlinebetty) was trying get across. Both suggest that a repayment mortgage would give you a lower monthly cost than rent alone. I don't believe it except in very rare cases that you certainly can't engineer and even less bank on. (Oh and obviously if you buy outright with cash or put down a large deposit so only have to borrow a smaller percentage of the cost of the house and conveniently ignore the potential returns that money might have got elsewhere.)

I'm sure even you, when you took out your tracker, weren't banking on (or probably even dreaming that) interest rates would be slashed in they way they were towards the end of 2008.