Might it be wiser for us to rent than to buy?

[Deleted User]

My partner and I have thought about and analysed this question for some time, and have come to the tentative conclusion that we're better off renting - but I'd like to sound out some other points of view. Hence this post.

For the past few years our medium- to long-term career security was unsure, but a pair of new positions has more-or-less sorted that out. (You never know, of course, but things should be fine.) However, we've moved to a new part of the country, and don't/can't yet know if we'll want to stay long-term. It all depends on how life plays out. So we're looking at a 3- to 5-year timeframe for our calculations.

Financially, we're in a good position. We've been saving quite a bit for the past few years: we don't have expensive tastes, and we've been lucky with renting places (one we house-sitted for a colleague, and just paid bills; the other was underpriced). We currently put away around £1k/month each, sometimes a bit less, but with no real hardship. In addition, my partner had some significant savings from an earlier career, and we've inherited a small amount. The total sum is currently just over £150k. The various accounts this is in earn around 3.5%-4%/yr., after tax. We have no debts. (We're not interested in investments that require any more management than bank accounts do: our time is more important.)

We live in a part of the country with a low cost of living. Consequently, we could buy somewhere outright, though we'd have to compromise on some things if we did, but even our perfect home, if it existed, would be affordable: it would cost around £250k-£300k. However having looked around a lot, I'm no fan of most of the buildings here. There's very few that I could love, and those I do like are in the wrong location. This isn't a matter of price, but personal preferences that not all buyers will share.

Here's our view on future house prices, over our 3-5 year period (people may want to dispute these views, but that's not really what I'm here for). They will at best rise with inflation: around 2%/yr. Most likely they will be more-or-less static in nominal terms. At worst, they will fall by anything up to 5%/yr (but probably not by quite that much).

Our rent is currently £695/month, and unlikely to change. We are tempted to move somewhere really nice, which would be around £900/month.

We've done the calculations in all sorts of ways. We also found a great calculator on the New York Times website. I can't link to it direct, as I'm a new member here, but if you google 'new york times rent or buy' you should find it. We've found it really useful; mods may want to advertise it more widely.

Anyway, the conclusion we've from our calculations is that is the interest from our savings, plus the likely real-terms fall in house prices each year (assuming they remain the same in nominal terms) is, depending on the specific numbers you use, more-or-less the same as our rental costs. Add in the interest we'd pay on any mortgage and the costs of buying, not to mention the uncertainty and stress, and renting looks quite attractive. If in a few years we decide to stay, we could buy then.

Admittedly, the current flat doesn't feel like 'home', but equally, I'm not sure there are that many places here that would - I'm unimpressed by the buildings. If we could find such a place, that might change things, but even taking that into account, there's still a good financial case for renting. Renting will also make things much easier if we do move on in 4 years' time or so.

Or am I missing something?

trailingspouse

There are a lot of numbers in your post - but I think that's a smoke screen for the main issue. You just don't like where you're living. And that's as good a reason as any for not buying, regardless of what the figures tell you. You might be better off spending your time deciding where you do want to live, and then arranging your life so that you can do it.

Buying is great if you can sell when you need to, and make money on the sale - but in current conditions you are likely to find yourself stuck with a house that you don't particularly like, and without even the benefit of making a profit on your investment. Renting gives you the flexibility you need to 'upsticks' when the time is right. Buying a house is something we do with our hearts as well as our heads, and if you're not ready to give your heart to the area you're in at the moment, then don't.

[Deleted User]

Thanks for the response.

The figures are there because in so many posts here people ask a question without giving all the information needed to answer it. Then responders have to ask.

Anyway, you're obviously right about buying with your heart as much as your head. I wouldn't say that we don't like where we are - we just don't know yet. We're new to town, and it takes time to settle in, find new friends and activities, and so on. So it's true we're not (yet) emotionally committed to the area, but equally it's not at all the case that we want out.

dimbo61

I would give it 12 months in your current rental and 2 months before the tenancy is up sit down and discuss with your partner if you want to move to better area or bigger place or BUY a property.
You have good savings and the ability to get the best long term fixed rate deals on the market.
Just take your time and the right place will come along.
PS we found our perfect house in 5 days of mad searching ( visited about 20 houses in 5 days)

franklee

tsp, I think you've thought this through well. Your conclusions are similar to mine if that helps at all. Good to see someone taking the interest income on their savings into account. So many posts on this subject completely ignore that even with substantial deposits ready to put down if they buy.

It's the drop off in saving rates that's hurting us right now. We do still have some time left on old 4.5% or so five year fixes for some savings have others have fallen to the 2.5% mark recently which is tough. My landlord's gross rental yield is just over 4%.

I think the key thing is you are in a great position when you choose to buy.

[Deleted User]

Thanks both. It seems that you're agreeing with us that holding off for now would be wisest. We'll see what happens.