Increasing the rent - tenants angry.

saverbuyer

marathonic wrote: »

Well, obviously you're a bear and I'm a bull and in a few years, we'll know who was right.

I'd have to have been extremely lucky to have timed the bottom exactly and I don't think I have done so. However, I do think that prices, on average, will be higher in 5 years time - so I don't care what they are next year.

The Northern Ireland Property Price Index is out on Wednesday and runs up until December 2012 (when I bought my house).

Therefore, I can use this as a baseline for judging whether or not my timing was good.

And no doubt factor in last years inflation.

marathonic

saverbuyer wrote: »

And no doubt factor in last years inflation.

It's cheaper for me to have bought than to rent so inflation is doing nothing except eat away at the value of my mortgage.

When it's cheaper to buy than rent (including maintenance and rates), it's only nominal falls that you need to be concerned with because your mortgage is withering away through both repayments and inflation.

saverbuyer

marathonic wrote: »

It's cheaper for me to have bought than to rent so inflation is doing nothing except eat away at the value of my mortgage.

When it's cheaper to buy than rent (including maintenance and rates), it's only nominal falls that you need to be concerned with because your mortgage is withering away through both repayments and inflation.

Except that wage inflation errodes the debt. Remind me what private sector wage inflation was for N.I in 2012?

I'd love to see those cheaper to buy than rent figures for your house in Derry.

marathonic

saverbuyer wrote: »

Except that wage inflation errodes the debt. Remind me what private sector wage inflation was for N.I in 2012?

I'd love to see those cheaper to buy than rent figures for your house in Derry.

Do I care what NI wage inflation was? No. My own wage inflation was 3.63%.

Anyway, even without wage inflation or any other type of inflation, the point still stands - inflation doesn't come into it when buying is cheaper than renting. Only nominal house price changes matter.

Regarding the figures:

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 annually (it was built in 2007/8 and maintenance is low).

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.

At the end of the day, in the long-term, 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 a 4% base rate). At the moment, 10 year fixed rates are available at 3.99% (not in Northern Ireland yet but it shows you where the banks feel that rates will go (or stay)).

marathonic

Now, that's a pretty long post. Try and pick some holes in my thinking so I can come back and talk sense into you!!!

saverbuyer

marathonic wrote: »

Now, that's a pretty long post. Try and pick some holes in my thinking so I can come back and talk sense into you!!!

Thanks for the detailed figures. I wonder how they compare to similarly socially deprived, high public sector employment areas in say the North of England.

With annual drops in the north west of 18% and a difference between buying and renting of £262 per annum I don't think I have to. Rents have been falling, prices have been falling, and housing benefit is falling. It's interesting that 115K house rents for 600 a month, a 200k one probably rents for the same.

Good point on the 3.99% 10 year fix (no available). Might be hard to get when the deposit has been eroded and the LTV is back up to 90%.

marathonic

saverbuyer wrote: »

Thanks for the detailed figures. I wonder how they compare to similarly socially deprived, high public sector employment areas in say the North of England.

With annual drops in the north west of 18% and a difference between buying and renting of £262 per annum I don't think I have to. Rents have been falling, prices have been falling, and housing benefit is falling. It's interesting that 115K house rents for 600 a month, a 200k one probably rents for the same.

Good point on the 3.99% 10 year fix (no available). Might be hard to get when the deposit has been eroded and the LTV is back up to 90%.

Why does it matter what the situation is in England? It's akin to comparing the figures to south-east India - I don't live there so why bother?

Annual drops in the North of Northern Ireland were 14% up until Q3 2012 (new figures out this Wednesday). I bought my house in December 2012 so I took advantage of the drops in both the Q3 and Q4 figures. It's the future reports that matter to me.

House prices will eventually bottom out. Continuous drops of 14% annually are unsustainable - just like the continuous rises were. Likewise, the chances of negotiating the discounts that you can achieve now are slim when the markets start rising.

If house prices bottom out 10% below current prices and you wait until the market turns before jumping in, you are very likely to pay as much, if not more, than I did. Gazumping will be the name of the game at that point.

I haven't noticed rents dropping in my area but I'm sure that varies regionally.

I agree that houses of double the price do not rent for double the rent, or even close to it. This is irrelevant to me - although, if my requirements were such that I required the more expensive house, I'd probably have rented instead of buying.

For lower valued properties, the case for buying is even better. It's just that, in my case, I opted for a house that I see meeting any future changes in circumstances and gives me the option of renting rooms if desired (it's a 4-bedroom detached house and I'm single).

The point I was making with the 10-year fixed rates wasn't that I wanted to get one - I didn't even consider it. The mere fact that they are available shows that the banks feel that rates are going to stay low for quite some time.

marathonic

By the way, Q1 2012 figures posted a drop of 6% for Northern Ireland and this could have been reasonably predicted by referring to asking price changes on PropertyPal last January.

Whilst there has been drops in asking prices in my region this year, they don't seem to be as widespread (a lot of properties have dropped but had been listed at the previous price for 6 months+ so were due a drop anyway).

Quarter 4 2011 and Quarter 1 2012 showed drops of 3% and 6% respectively. Personally, I see Quarter 4 2012 and Quarter 1 2013 showing drops but not as large. Therefore, I can see the annual rate of decline dropping as 2013 progresses.

View the report here on Wednesday:

http://www.dfpni.gov.uk/lps/statistics-and-research-publications.htm