Actually cheaper to keep renting??!

Cornucopia

Yes... and no.

Given that Stamp Duty et al are prerequisites to gaining access to House price growth, you cannot consider one without the other.

I do have such a spreadsheet, though, and as I said, in a moderately healthy market, parity between buying and renting occurs after 4 years. After that, the benefit grows exponentially, so that 15 years in, it just exceeds £100k - on the agreed basis of an interest-only mortgage.

Whilst my experience is never going to be reproducible by everyone (especially in this market), this reflects exactly what I have done over the past 15 years or so - except that house price inflation was more than 2.5%.

JimmyTheWig

Correct. If you are expecting house price inflation then buying is almost definitely best because of the leverage.
For example I bought my first place in January 2000 on what was essentially a 99% mortgage. Sold it less than three years later at an increase of 23% a year. Could no way have achieved that sort of result even if I paid zero rent.

I did a spreadsheet with the OP's figures. With 3% rent inflation and no house price inflation, even for 5 years renting works out cheaper (even ignoring stamp duty, etc).
But add in just 0.5% house price inflation then buying is best over 5 years.

Makes the question slightly chaotic.

qwert_yuiop

marathonic wrote: »

Cheapest Rent: £600
House Price: £115,000
Professional Fees: £1,500
Stamp Duty: £0
Deposit %: 25%
Deposit: £28,750
Mortgage: £86,250
Mortgage Rate: 2.90%
ISA Savings Rate: 2.80%

Annual Cost of Buying:
Lost Savings Interest: £847
Mortgage Interest: £2,501
Furniture : £1,140
Maintenance: £1,150
Buildings Insurance: £100
Council Tax (Rates in NI): £1,200
Total £6,938

Annual Cost of Renting: £7,200

Difference: £262


The rent includes rates at £7,200 whilst I'd have to pay them myself in buying.

The lost savings interest would be what I'd get if I put my deposit and professional fees (mortgage and solicitors fee) into the current best buy ISA.


The furniture figure is based on the fact that the rental comes pre-furnished. It's based on buying used furtniture at £5,000 and the need for replacement after 5 years (I've also included an element of interest here as you'd be able to put the £5,000 spent on furniture in a savings account if you rented).


Maintenance is set to 1% of the houses value.


With the above figures, you'd be slightly better off buying. In reality, you could buy used furniture (comparable to a rental) for much less than £5,000 and it's doubtful that a landlord would replace everything every 5 years.


The maintenance includes things such as boiler servicing, replacement of white goods, about 1-2 callouts to tradesmen annually and repainting every few years.


The figures may skew towards renting when interest rates rise as rents are unlikely to rise as much as the interest bill will in the coming years so the focus is to reduce the LTV to 60% and see what sort of 5-year fixes are available.

This skew towards rental would assume no capital appreciation in the property. At the end of the day, the long-term rise in rent prices and property prices should, in theory, rise with inflation with no upper ceiling. There will be an upper ceiling to the rise in interest rates (probably close to the long-term average of 4% base rate). At the moment, 10 year fixed rates are available at 4.19%.

You're from Northern Ireland? Why have you failed to mention the possibility of a devastating, heart-breaking, horrifying collapse in house value, from which there is no chance of escape in your working life?
We both know many people caught in this.

marathonic

qwert_yuiop wrote: »

You're from Northern Ireland? Why have you failed to mention the possibility of a devastating, heart-breaking, horrifying collapse in house value, from which there is no chance of escape in your working life?
We both know many people caught in this.

I didn't mention it because it's irrelevant. The same thing can happen to any house, regardless of location.

Northern Ireland has, obviously, been a lot more volatile with regards to house prices over the past decade - with rises of up to 49% and drops of up to 29% annualised.

Based on the latest Northern Ireland Residential Property Price Index, prices are now 10% below the Quarter 1 2005 level. They are also almost 55% below peak on a nominal basis - alot more after taking inflation into account.

From a personal perspective, my house was on the market for more than double the price I paid for it as a new build in 2007 and will need to fall 8% from the banks valuation of the house before it meets the price I paid for it.

Does this mean that they won't fall further - of course not. However, the fact remains that, in my opinion, it's more likely to have risen in value in 10 years time than it is to have fallen, regardless of the short term movements. It's also a fact that, at the moment, it works out cheaper for me to have bought than to rent.

Do I care where prices go in the short term? The answer to that would be a yes - I bought with a 25% deposit. As soon as I can make up a 15% lower LTV through both repayments and potential house price rises, I can move to a 60% LTV mortgage.

Do I want prices to rise? The answer to that would be a no. I would prefer for them to flatline at current levels for a few years. Excessive price rises provide no advantages to me unless I want to downsize. At 30 years old, I'd have no intentions of doing so.

I may actually consider a new location - not upsizing because my current house is a 4-bedroom detached house and is big enough for whatever life throws at me. If prices flatline or fall slowly, moving to a more prestigious address would be more viable.

If prices fall more than 30% from current levels on a nominal basis (based on the banks valuation of my house), I'll risk falling into negative equity. This would leave prices almost 70% below peak on a nominal basis and, probably, 85%+ below peak on a real basis.

qwert_yuiop

marathonic wrote: »

I didn't mention it because it's irrelevant.

I'm afraid it's very far from irrelevant.

Every day of further depreciation is a cost to you as the owner which would have been suffered by the landlord had you remained as a tenant.
This is represented by the excessive mortgage payments made on an inflated price, or if you paid cash, by the opportunity loss of capital tied up in a devalued, and still devaluing, asset.

Delaying purchase in today's market can only be a winner.

marathonic

qwert_yuiop wrote: »

I'm afraid it's very far from irrelevant.

Every day of further depreciation is a cost to you as the owner which would have been suffered by the landlord had you remained as a tenant.
This is represented by the excessive mortgage payments made on an inflated price, or if you paid cash, by the opportunity loss of capital tied up in a devalued, and still devaluing, asset.

And explain to me how depreciation on a house located in England, Scotland or Wales results in any different outcome?

qwert_yuiop wrote: »

Delaying purchase in today's market can only be a winner.

Looking through your crystal ball? Noone knows what the future will hold. Personally, I think prices will stabilise this year or next.

My purchase has an 8% cushion between valuation and purchase price to cushion falls this year, if any.

Property price inflation WILL return but we don't know when. However, what I'm almost certain of is that, when prices are rising, there isn't a hope in hell that I'd be able to negotiate a purchase price of 8% below the banks valuation - which tends to be on the conservative side considering their position as the lender.

It's possible that we'll see another 12% drop in 2013. It's equally possible that we'll see a 2-3% rise (less likely a 5%+ rise IMO).

For now, I have no regrets buying. Come 2014-2015, one of the two of us will have regrets.... which one is anybodies guess.

qwert_yuiop

Two other items in your calculation - £600 rent on a house of £115,000 is excessive, as is rates of £1200, which would be what you'd pay on a £200,000 house.

qwert_yuiop

Well, you're the one who knows the future, as indicated by your use of the term "WILL". I'm only claiming to know the present, which is a market of depreciation.

Depreciation is the same disaster for a buyer anywhere. I'm just astonished your calculations as an NI buyer ignored it when we're witnessing a market reversal that hasn't been seen here since 1919.

As for the crystal ball, I can't see any major boost for the NI economy, and from what I can gather, the London market looks a lot like ours in 2006.

Bank valuation seems to be important to you. If I was as staggeringly bad at my job as the bankers are at theirs, I would be in prison.

getmore4less

Not read all the posts so it may(should) have ben covered.

the basic error in the first post is you need to use interest only mortgage or track equity if using repayment.

Thats before you include the other costs of owning against the costs of renting.

Then you have the HPI to consider.

The simple starting point is the interest rate and the gross yield.

before the other factors the cheapest is the lower rate.

marathonic

qwert_yuiop wrote: »

Two other items in your calculation - £600 rent on a house of £115,000 is excessive

That's what it is in my area. BT47 and BT48 postcodes.

qwert_yuiop wrote: »

as is rates of £1200, which would be what you'd pay on a £200,000 house.

You are correct. My rates are actuall £1180 - LPSNI valuation is £150,000 and it's in Derry.