Rent vs buy

mustang121

Without a shadow of a doubt. Buy....period.

Private renting should only be a short term solution i.e If you move to a complete new area for education or a career.

I would never consider raising a family whilst privately renting. Too many variables beyond my control.

Renting from the council is in theory good, safe and stable, but unfortuately many council estates were sold off so that there isn't enough houses to go around. The ones that remain tend to be anti-social cesspits. (although there are exceptions)

JimmyTheWig

katmcleod wrote: »

It seems to be drilled in that when you grow up you by a house, you don't rent a house.

But that doesn't mean that it is right. It certainly doesn't mean that it is right for you and your family.

We wouldn't have a house to sell to pay for care home bills

Irrelevant.

we'd never have a paid off mortgage, we'd always pay rent.
...
I don't want to go down the renting route then find out in 30 years I'll be retiring into poverty!

Completely relevant, and must be factored into your calculations.

The mortgage would cost roughly £130 a month more than our rent at the moment.

The one bit of info that is missing is what the rent/mortgage actually is. Which will vary greatly from place to place.
If it was £10 a month to rent and £140 a month for a mortgage then renting would be better. If it was £1000 a month for rent and £1130 a month for a mortgage then buying would be better.

There are all sorts of emotional / psychological / personal reasons to choose one over the other (e.g. the freedom to move at short notice when renting, the security of not being asked to move when buying, the surity that someone else will maintain the boiler, etc, when renting, the satisfaction of being able to do what you want to the place when buying, etc) but just looking at the money it comes down to how much interest you pay on the mortgage vs how much rent you pay, and whether you can afford it.
As you have said above, if you buy a place then in 25 years you will have no outstanding mortgage and no rent to pay. So you can't just compare the monthly cost of a mortgage with the monthly cost of rent.

You could look at it like this...
If you carried on renting but put £130 into a savings account each month you would be paying the same as if you had a mortgage.
How much would you have in savings after 25 years of doing this? If you can get 3% interest after tax on your savings then in 25 years you would have around £58k in savings.
If you bought, you would have no savings but you would own the house outright after 25 years.
So could you buy a house for £58k?
Certainly not, in most places. Which means buying would actually work out cheaper for you.

ReadingTim

I assume you're both in your companies' pension scheme? If so, have a look at the annual statement they send you - on it should be an amount which (subject to certain assumptions) might be the amount that pension would pay out per year. If you've moved jobs, do this for each scheme you're a member of. You might want to add in the state pension (or not, depending on whether you think it will exist in 30-40 years time!).

Then compare that sum with your present monthly outgoings, including rent. How many months will it last? And what will you do for the rest of the year? Even though the retirement age is increasing, you're likely to be needing to find rent for 10-20 years before you're consigned to a care home because you can't look after yourself.

Now take rent out of the calculation, and see how far that pension goes - considerably further I would imagine.

That's your answer.

InMyDreams

getmore4less wrote: »

You missed a bit

The renter starts with £32k in the bank

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

^^ That ^^

plus the renter also has *either* the compound interest earned from all of the above for 50 years, *or* the returns of some other investment/pension he has put the above into *or* 50 years of a better standard of living that the above could have funded while the home owner used it to pay off his mortgage.

Having said that, I have bought and have no regrets. Of course there are huge advantages but *it costs* and *there are risks*. Make sure you can afford both of those before you jump and it's probably still a good idea and likely to be cheaper in the long term. But it's nothing like as rosy or simplistic as Road_Hog and others imply and quite irresponsible to suggest otherwise.

JimmyTheWig

ReadingTim wrote: »

Now take rent out of the calculation, and see how far that pension goes - considerably further I would imagine.

That's your answer.

Not at all.
If, by paying lower rent than a mortgage, you can save up enough money to either (a) buy a house outright or (b) pay rent outright from the interest on this money then it turns that on its head.

[Generally I don't think that's possible, but unless you are prepared to consider the question you can't say which is best.]

nollag2006

According to the Torygraph buying is cheaper than renting in 90pc of the top 50 towns in Britain:

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9736741/Buying-a-home-is-1000-cheaper-than-renting.html

The real issue here is the insecurity of renting, a landlord is within their rights to chuck you out, with a couple of months notice, or to jack up rents as and when the market moves.

As a parent of young children, you owe it to them to provide a stable home for them as they grow up.

Buy now - by all means, get a decent long term fixed rate, if you are concerned about rates rising - but do buy now.

HAMISH_MCTAVISH

getmore4less wrote: »

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

You can currently buy a 25 year fixed rate mortgage at around 5.3%. And many other long term fixes are available, if worrying about rate rises is something you're prone to.

getmore4less wrote: »

You missed a bit

The renter starts with £32k in the bank

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

Of such little relevance it's not worth including.

The £36pm saving is wiped out within the first couple of years of rent rises, and the following 50 years of just the rent increases alone completely wipe out the £32k in the bank and then some.

Over a lifetime, there is virtually no realistic scenario that involves renters paying as little as owners.

Even the most optimistic (and unrealistic) renting scenarios, with no rent inflation, no house price inflation, etc, show that renting costs double buying over a lifetime in most areas.

When you start to include (which I did not) the almost certain real terms increases in both house prices and rent thanks to the current housing shortage over the next couple of decades, long term renters are little short of financially doomed by comparison to owners.

Even the typical buyer at absolute peak in 2007 is now pretty much at breakeven with the average renter since then, thanks to mortgage rates falling to record lows and rents soaring to record highs, and that's despite the worst house price crash in history.

Plus they're now a fifth of the way to being mortgage free, and financially gaining further against the renter with every month that passes.

I shudder to think how poorly renting will stack up with buying once prices inevitably start rising again shortly.

HAMISH_MCTAVISH

InMyDreams wrote: »

^^ That ^^

plus the renter also has *either* the compound interest earned from all of the above for 50 years, *or* the returns of some other investment/pension he has put the above into *or* 50 years of a better standard of living that the above could have funded while the home owner used it to pay off his mortgage.

Just.... No.

They really don't, as rising rents wipe out all those savings rapidly, while the buyer has fixed, low, costs for a lifetime.

What renters have to do is find somewhere in the region of £500,000 pounds more than the buyer, (yes you read that correctly), that's half a million pounds more than the buyer, to fund their housing costs over a lifetime.

It really is that simple.:cool:

helloyouu

HAMISH_MCTAVISH wrote: »

You can currently buy a 25 year fixed rate mortgage at around 5.3%. And many other long term fixes are available, if worrying about rate rises is something you're prone to.



Of such little relevance it's not worth including.

The £36pm saving is wiped out within the first couple of years of rent rises, and the following 50 years of just the rent increases alone completely wipe out the £32k in the bank and then some.

Over a lifetime, there is virtually no realistic scenario that involves renters paying as little as owners.

Even the most optimistic (and unrealistic) renting scenarios, with no rent inflation, no house price inflation, etc, show that renting costs double buying over a lifetime in most areas.

When you start to include (which I did not) the almost certain real terms increases in both house prices and rent thanks to the current housing shortage over the next couple of decades, long term renters are little short of financially doomed by comparison to owners.

Even the typical buyer at absolute peak in 2007 is now pretty much at breakeven with the average renter since then, thanks to mortgage rates falling to record lows and rents soaring to record highs, and that's despite the worst house price crash in history.

Plus they're now a fifth of the way to being mortgage free, and financially gaining further against the renter with every month that passes.

I shudder to think how poorly renting will stack up with buying once prices inevitably start rising again shortly.

Not sure. A lot of people who purchased on 2007 are actually loosing money when they want to sell now... Which means 5 years later the house value decreased. I used to see something between 10-40K of value lost (in london) and you have to add all the moving charge and fees.

You can then add up the fees and interest from the mortgage and over 5 years a lot of people can easily loose 50-80K over 5 years... And that's for a house purchased around 200-250K mark (house value I'm hunting now)


So yes it can make money over time, but you can also loose a lot of money too. And if the house value keeps going down (like the 20 years deflation from japan housing market), you'll end up loosing much more than you can ever get pay from renting

HAMISH_MCTAVISH

helloyouu wrote: »

Not sure.

I'll deal with national averages here, as it's what I referred to earlier. I'll also keep it simple and just look at percentage rental yields, mortgage interest and capital value change.

On average, house prices have fallen around 10% from peak over the last 5 years in actual cash terms according to Land Registry.

The average mortgage interest payment is 3.4%.

The average rent is 5.5%.

So the average owner has lost 10% of capital value since peak, but saved 10.5% through owning instead of renting.

I'm happy to take on board your anecdotal about some areas doing worse, and I could just as easily point out that my area is now above previous peak, has gained 4% in the last year alone, and has rents typically at 7% or so yields. So a buyer in 2007 here would be some £60,000 to £80,000 better off than a renter since then.

But neither of these examples are of much relevance to the national average, so better we stick to discussing that I think.