Actually cheaper to keep renting??!

Cornucopia

Forgive me for stating the obvious, but it is as simple as this:

Rent for 25 years gets you somewhere to live for 25 years.

Mortgage for 25 years gets you somewhere to live for maybe 75 years.

There is no comparison.

JimmyTheWig

Cornucopia wrote: »

Forgive me for stating the obvious, but it is as simple as this:

Rent for 25 years gets you somewhere to live for 25 years.

Mortgage for 25 years gets you somewhere to live for maybe 75 years.

There is no comparison.

Stating the obvious, maybe, but not relevant.
We're only comparing the interest part of the mortgage repayment, rather than the whole thing.
If you just paid the interest of the mortgage (not technically possible, in general, these days) then you wouldn't get the next 50 years for free, as you'd still owe the bank the money for the house.

So you need to adjust your thinking to
Rent for 25 years gets you somewhere to live for 25 years.
Mortgage interest for 25 years gets you somewhere to live for 25 years.
Mortgage interest + mortgage repayment for 25 years gets you somewhere to live for maybe 75 years.
Rent + extra investment for 25 years gets you somewhere to live for maybe 75 years.

My point is that if rent is comparable to mortgage interest (**) then a mortgage monthly repayment would be higher than this. If you could afford that then you could afford rent plus money for investments. After 25 years there is no reason why these investments couldn't be providing a return that would cover your rent (*). So while you would have to pay rent, it wouldn't have to come out of your earned income. Which makes it little different, financially, to owning your own home and not having to pay a mortgage out of your earned income.

(*) This is assuming zero inflation. Which isn't going to be the case over 25 years. Which means that over 25 years buying is probably the best thing to do. But people don't, generally, buy for 25 years in one go - they move house. And there are periods (I would claim now is one such period) when house price inflation can be ignored.

(**) In my experience I've never found an area where this is true, so in my experience buying is cheaper than renting. But I have heard, as I said above, that this is only the case in 90% of the country and it appears from the figures that the OP is in the other 10%.

Cornucopia

Except that even that comparison (rent vs. mortgage interest) is "no contest".

I know the market is flat at the moment, but do people really expect it to remain so for the 25 years? And even if it did, inflation would still erode the real cost of the mortgage interest payments compared to rent payments.

franklee

Guys listen up, it's horses for courses. In a static/falling house market then buying the starter home is a bad plan. The costs of moving are so much higher as an owner than a renter. If OTOH you are ready to buy the family long term home then fair enough buying. There are many threads on here from posters who purchased a few years ago and are trapped in a property that's too small for their growing family or who have had to move and become accidental landlords finding it a struggle. Had they waited they'd be so much better off buying the family home now. So when you have a decent deposit then buy if you can get a good deal but there's not harm in renting till that time so long as you save along the way. The days of piling into the starter home asap are for a rising market!

Cornucopia

There's a lot of truth in that - as far as the emotional side of home-buying is concerned.

However, the straight economics of it are more complex: the figures suggest that even in a sluggish housing market (say an unprecedented 1% gain per year) buying is a better option than renting after 7-8 years, even including a hefty deposit for purchase,

In the very short term, yes, rent is the best bet. But assuming that you are going to buy at some point, it makes sense to do so early and as cheaply as possible - whilst being mindful of the risks.

JimmyTheWig

Cornucopia wrote: »

I know the market is flat at the moment, but do people really expect it to remain so for the 25 years?

No, I don't. But I pointed out...

JimmyTheWig wrote: »

(*) This is assuming zero inflation. Which isn't going to be the case over 25 years. Which means that over 25 years buying is probably the best thing to do. But people don't, generally, buy for 25 years in one go - they move house. And there are periods (I would claim now is one such period) when house price inflation can be ignored.

If you are going to move now and stay in the place you move to for the next 25 (or even 75, as been mentioned) years then I have no doubts that the best thing to do would be to buy.
But if you are looking to move now and then move again in, say, 2-4 years time then it is worth doing your sums.
If you are doing the sums for that period in time then you need to consider house-price- and rent- inflation during that time period only. If prices are the same in three years time as they are today then, for this calculation, it makes no difference whether prices will then double in the following 10 years. The fact that that might mean that buying in three years time is the right thing to do doesn't necessarily mean it is the right thing to do now.

Reue

Cornucopia wrote: »

Forgive me for stating the obvious, but it is as simple as this:

Rent for 25 years gets you somewhere to live for 25 years.

Mortgage for 25 years gets you somewhere to live for maybe 75 years.

There is no comparison.

I think you may have missed my point.

It wasnt to keep renting for 30 years..

It was to work out whether its better value to rent for 5 years (saving a bigger deposit) then buy over the next 25 years.

Or whether it was better value to buy now with a smaller deposit (and so worse mortgage rates) but own the house in 25 years.

StuC75

Reue wrote: »

I think you may have missed my point.

It wasnt to keep renting for 30 years..

It was to work out whether its better value to rent for 5 years (saving a bigger deposit) then buy over the next 25 years.

Or whether it was better value to buy now with a smaller deposit (and so worse mortgage rates) but own the house in 25 years.

Some people do miss the point; and we all know you 'got there' last week with what needed to weigh up..

Cornucopia

Reue wrote: »

I think you may have missed my point.

It wasnt to keep renting for 30 years..

It was to work out whether its better value to rent for 5 years (saving a bigger deposit) then buy over the next 25 years.

Or whether it was better value to buy now with a smaller deposit (and so worse mortgage rates) but own the house in 25 years.

To be fair, several posters are talking about the full 25-year comparison, not just me.

I think it's already been mentioned that your figures don't seem to address inflation. I accept that your premise about different mortgage deals is correct, however there is nothing (other than terms voluntarily entered in to) to prevent subsequent remortgage and/or overpayment to achieve the same advantageous terms, after buying in year 1.

Money spent on rent is always money lost. So unless you are reasonably confident about making a loss on your purchase, it seems likely that purchasing will be the better option (subject to the cost of fees, stamp duty, etc. which might be no more than 4 months' rent).

The shorter the term, the trickier the decision, but your premise is not merely 5 years' rent in isolation, it is 5 years' rent in advance of 25 years mortgage. Since the greatest cost in house purchase is the mortgage, it makes sense to reduce that (in time and money terms) as much as possible. Making an early start is potentially a way to do that. In other words, if you modified your spreadsheet to take account of the costs in years 25-30, that would be a fairer comparison.

JimmyTheWig

Cornucopia wrote: »

Money spent on rent is always money lost.

Money spent on mortgage interest is also always money lost. It's just like paying rent to the bank.
Similarly, stamp duty is always money lost. Estate agent fees, mortgage arrangement fees, solicitors fees are always money lost.
House price inflation (when comparing buying vs renting) is money gained if you bought. House price deflation is money lost if you sold.

For each side, add up the costs and subtract the gains to give you the total cost. Then whichever has the least total cost is the cheapest.