Rent vs buy

katmcleod

At the moment my husband and myself rent a 2 bedroom house with our two children and two dogs. Although it was fine when we moved in 5 years ago with one child and one dog things are feeling a bit cramped.

We've been planning on buying a house for a long time now, but we're still another 5 years away from being able to buy a house the same size as the one we're already in, much much further from being able to buy one as big as we'd like. So we could have children at the end of high school before we have a big enough house.

It seems to be drilled in that when you grow up you by a house, you don't rent a house. But I don't know how it would affect things later in life. We wouldn't have a house to sell to pay for care home bills, and we'd never have a paid off mortgage, we'd always pay rent.

But at the same time, we can afford to rent a nice four bedroom house in our area without stretching ourselves. I don't know if we should keep going with the no holidays, skrimping and saving to buy something the same that we're already renting. The mortgage would cost roughly £130 a month more than our rent at the moment. We wouldn't need to save as hard so the costs would probably cancel out, but then there's extra insurance and maintenance costs.

I've just no idea. I don't want to go down the renting route then find out in 30 years I'll be retiring into poverty! But at the same time, we'd have a much better standard of living for the next 5-10 years if we rented. I can figure out past that.

I'm mid twneties, my husband is mid thirties and we're both in okay paid jobs. Not enough to afford the big house anytime soon, but too much to qualify for any help schemes.

My head really is spinning trying to figure out how the decision will effect us 30 or 40 years down the line.

Thanks to anyone who managed to read all that and can help :rotfl:

Carl31

There are far too many variables to consider, no one can really advise you the best course of action. Whos to say you will ever afford to buy? You could get there in 5 years only to find things change in the market and it will be a further 5 years until you can buy. But then if its what you want to do, why give up on your dream?

Its difficult. I am in a similar position. We had a fair amount saved, but have a large family and have been renting a beautiful 4 bed house the past few years. I love the fact I have no worries, I pay my rent and thats it each month. We still save a fair sum each month, but recently got married, which bit a chunk out of savings.

Our kids are between 3 and 11. We have never been on holiday as a family as we have always been putting money away, but at the same time trying to make sure life is still lived. You will get the hardcore old school who bang on about young people buying iphones and holidays and that it shouldn't take preference over a house, but life is to be lived, why should your kids miss out due to some dream that may never happen due to factors outside your control? Who knows what will happen between now and retiring? Renting is on the increase, so there will be millions who can't sell their property for care reasons. Will that even be an issue then? who knows?

The way I see it, I have a great house to live in. Its not mine, but so what? a house is to be lived in, and we are getting that benefit. Ok, someone else keeps it, but they maintain our living standards for us. They sort out the problems when it goes wrong. There are good and bad points of both housing types.

NinaSwiss

Is it the deposit that you'd struggle to save up or the mortgage that wont be affordable. As Carl31 said, no one can really point you in the right direction.

If you are leaning towards buying a property then then its best to research the figures to work out how much properties cost in the area you'd like to buy, is saving a 10% deposit possible in x number of years, will the mortgage be affordable, whats the difference between the highest mortgage affordable and the morgage you require to purchase a place. Are there any changes that you could make to put you in a better position for a higher mortgage or higher deposit (get a better paying job, save more, live reasonably frugal). Ofcourse if you choose the renting route, certainly consider paying a good amount towards your pension.

Perhaps you could reach a balance where you live resonably comfortably whilst saving longterm towards a small house in a cheaper area when you kids have moved to university.

Road_Hog

katmcleod wrote: »

At the moment my husband and myself rent a 2 bedroom house with our two children and two dogs. Although it was fine when we moved in 5 years ago with one child and one dog things are feeling a bit cramped.

As a LL, who makes money from tenants, here's my advice.

Buy.

That's it. You'd be mad not to. Say, you pay £800 a month rent, in ten years it will be £1,200. You buy, you pay £800 a month, in ten years it will be £800 a month - you have to iron out interest rates which go up and down.

When you get to retirement age, do you want to be finding the rent money each month or sticking that £800 a month in your pocket because you own your own home?

Renting is great for short term and younger people, it give flexibility. As you get older you want security. As for the council taking it off you for care bills, you can get a lawyer to stick it in a trust (for a few hundred quid) which will stop them getting their hands on it.

Really, when you're in your 50's, 60's and 70's, do you still want to be finding the rent money?

London_Town

Although this debate has always interested me, I think Road Hog sums it all up perfectly. Unless you have amazing pension provision, buying is surely the only way you can afford to live in retirement?

As rents will always increase, will you be able to afford that sort of payment when you can no longer work? I fully understand the point people make about a house being taken to fund care home fees. However, with any luck, most of us can hope to enjoy a few decades of healthy retirement before the end.

I have a small works pension that I've paid into since I was 18. That said, it's still going to be tight in my retirement and would be totally impossible if I had to find a huge rental payment each month.

kidmugsy

You have a choice: rent a house, or rent the capital to buy a house.

People who give firm advice, such as Road_Hog, usually do so on the assumption that house prices, and rents, will always increase. Maybe they are right, but unless they share the secret of their crystal ball with you, there's no reason to assume that they know any more than you do.

Pupnik

I would say buy, for the reason that Road Hog says - rent will always go up, while your mortgage repayments go into the equity of the house. As a long term investment I think it is unlikely you would lose money, while renting guarantees you lose money every month.

However, if you can't afford to buy you don't really have many options - the worst thing to do would be to buy something you can't afford to pay for and end up losing your house.

Have you looked around in other areas which are a bit cheaper? Where I live, for example, prices vary a huge amount even within my small town but travel 10 minutes up the motorway and they sky rocket. I appreciate that with kids you have schools to consider so it won't quite be as simple as that.

missile

Is it not an easy decision. Do you want jam today or security for tomorrow?

HAMISH_MCTAVISH

Rent or Buy?

Well, the following illustration may prove helpful....

- Assume the current average house price of circa £160,000, so not a 1 bed starter flat and no need to ever trade up. A home for life, ie, 50 years or so.

- Assume the current average rent of circa £730 per month

- Assume a 20% deposit, and 25 year fixed rate mortgage currently available from MBS in the UK at 5.24%

- Assume absolutely zero increase in rent or house prices in real terms over the next 50 years. Nominal terms increases for both at BOE inflation target of 2% only.

Results are as follows:

Total capital paid = £160,000

Total mortgage interest repaid = £101,884

Value of house at end of 50 years = £430,654

versus....

Total rent paid = £755,915

Now of course you'll have a few tens of thousands in maintenance costs and insurance over a lifetime, but it's nowhere near the half million pounds or so more expensive that renting is versus buying over a lifetime.

And you can put the house in trust for your children relatively cheaply, avoid care home liabilities in the process, and leave them a house worth in the region of £430,000 on your death.

Or.....

Waste three quarters of a million pounds enriching your landlord, and have no asset at the end of it.

getmore4less

Road_Hog wrote: »

As a LL, who makes money from tenants, here's my advice.

Buy.

That's it. You'd be mad not to. Say, you pay £800 a month rent, in ten years it will be £1,200. You buy, you pay £800 a month, in ten years it will be £800 a month - you have to iron out interest rates which go up and down.

When you get to retirement age, do you want to be finding the rent money each month or sticking that £800 a month in your pocket because you own your own home?

Renting is great for short term and younger people, it give flexibility. As you get older you want security. As for the council taking it off you for care bills, you can get a lawyer to stick it in a trust (for a few hundred quid) which will stop them getting their hands on it.

Really, when you're in your 50's, 60's and 70's, do you still want to be finding the rent money?

With interest rates at an all time low the likelyhood is the mortgage payment will go up not down.

.............

The financial comparison should be done using interest only mortgages against the rent, repayment mortgage includes savings, also consider interest rates in the 4%-6% range.

then you need look at the other costs that you get with buying against renting.

for a buy-V-rent the gross yield will give an idea of how good a deal the buy option is against the rental option for equivilent.

if the gross rental yield on a place is 4%-5% it will struggle to make money as rental so the rental/buy is neutral, less rent, more buy

Buying will most often be the long term thing to do BUT timing the cycle is important in determining how long term that plan will take.

Many people forget the frictional costs of moving so buying right is also important to reduce the number of changes.

In the past inflation, house price inflation and wage inflation eroded the debt and hid the costs of moving, this happens a lot slower now so it is even more critical you buy right and can save up for the moving costs.

Looking at a 4bed places near us one just sold for £10k below the peak price paid in 2007 for equivilent in 2010 they were £20k less. An i/o mortgage at 4% would have cost about the same as rent so over 5 years they have not even boke even.

A look at 2beds they rent for around £700 selling at aound £160kish a gross yield of 5.25% so borderline find a good one at a good price buy, when they were selling for £60k they rented or £450, 9% gross yields(base rates 7%).

We are currently in the cycle where there are properties with more realistic prices that will be ok-good buys, but there is still plenty of stock overpriced so buying is not a no brainer.

Buy right, clear the mortgage in <20 years, get it wrong and it could be 30-40 years.

getmore4less

You missed a bit

HAMISH_MCTAVISH wrote: »

Rent or Buy?

Well, the following illustration may prove helpful....

- Assume the current average house price of circa £160,000, so not a 1 bed starter flat and no need to ever trade up. A home for life, ie, 50 years or so.

- Assume the current average rent of circa £730 per month

- Assume a 20% deposit, and 25 year fixed rate mortgage currently available from MBS in the UK at 5.24%

The renter starts with £32k in the bank

mortgage is £766 so the renter has £36pm savings to start with