Negative Equity -v- Renting

bristol_pilot

BTW, as someone who lived through the last property crash, whilst it is true that neg equity is only a problem if you have to sell, in a property crash there are lots of forced sellers due to everyone being sacked! Where I worked in 1989, 80% were made redundant. This is because, when property prices fall, people don't feel rich any more (the dinner party bores), they tighten their belts, no-one buys anything, so no-one sells anything so.....I had just bought my first property and would have lost 30% of its value if I had not been one of the lucky ones who kept their jobs. I rode it out and it took 12 years to get back what I paid for that property. But £140k is virtually free these days, so in the OP's location I would buy. Hey, if I can rent it out for £750 pcm, maybe I'll buy one as an investment!

jyonda

Bukup- If your REPAYMENT mortgage + maintenance costs + insurance premiums are less than the rent then I'd say go for it. Don't forget the initial costs of buying (SDLT, solicitors etc) will be about 5k on top of 140K.

The 'Dead money' arguement is well known but the example you use in your OP only really applies if you buy in cash rather than with a mortgage but even then you would have to figure in what that cash might otherwise be earning you in the way of interest which may more than cover the rent....

If you are comfortable with your repayments, are looking for a home rather than an investment and have a recession proof income then you'll be fine.

bristol_pilot

And buy a property that has enough rooms for you to be able to take in a lodger if the worst happens - it could save the roof over your head.

franklee

I am puzzled by your figures, although house prices are high in Christchurch, rental yields are pretty low. So are you buying a similar standard of property to the one you are renting? I would expect to pay 750pcm rent for a property worth £220K or so, not one worth £140k.

Rental yields are nearer 4% than your 6.5% and there is very little you can buy for £140k.

Finally as jaype has pointed out you need to take account of the interest you pay on your mortgage loan, that disapears just like rent does.