UK Households wealthier than ever before

marathonic

Graham_Devon wrote: »

Where are you Marathonic?

The house price looks very cheap compared to the cheapest rental possible?

You can get a cheaper rental down here in Devon quite easily. Would be difficult (though not absolutely impossible dependant on area) to match that house price however for a house on par with the rental.

Very generally speaking, £650-700 a month rents you a house which would command around 160k

Sorry, that post might have been slightly confusing - when I say cheapest rent, I mean cheapest rent for a comparable house to the one purchased for £115,000.

I'm in Northern Ireland and rents for terraced houses are available closer to £500. These houses, in general, would sell in the £85-£90k price bracket.

As you move towards the lower end of the market, the potential yields as a BTL get higher and, therefore, the case for buying becomes stronger.

Likewise, as you move towards the higher end of the market here, the case for renting gets stronger - at least, in the absence of capital appreciation.

Graham_Devon

Ahhh Northern Ireland is probably a very different landscape to the rest of the UK.

Makes sense of your calculations. Think they would work out substationally differently across the majority of England at least.

IveSeenTheLight

marathonic wrote: »

These are figures for one of the houses I was looking at purchasing.

Yep, I won't argue that year one may be very close.
How about year 5, 10 or 15?
I'm sure you'll find the gap widening each year.

IveSeenTheLight

Graham_Devon wrote: »

Very generally speaking, £650-700 a month rents you a house which would command around 160k

£650 - £700 wouldn't rent you the 2 bed flat I lease out in my area.
It's recently been valued at £165k and commands £850 per month.

I may actually be leasing under the market value as here is an example of a 2 bed flat which is under offer at £1200 per month
http://www-b.aspc.co.uk/cgi-bin/public/LiveProperty/306635?ID=FAPOJEJL#picture

I also lease out a 4 bed terraced house for £1300.
This also is leased under market rate
http://www-e.aspc.co.uk/cgi-bin/public/LiveProperty/306413?ID=FAPOJEJL#picture

http://www-e.aspc.co.uk/cgi-bin/public/LiveProperty/305433?ID=FAPOJEJL#picture

Graham_Devon

IveSeenTheLight wrote: »

£650 - £700 wouldn't rent you the 2 bed flat I lease out in my area.
It's recently been valued at £165k and commands £850 per month.

Without doing the maths, I would think this changes the favour in marathonics calculations.

Not quite sure I understand the calculations anyway, as they only include mortgage interest, not mortgage repayment? Quite an odd one to leave out of the sums, though of course, makes the cost of buying considerably cheaper if you don't include the repayment of the loan.

marathonic

IveSeenTheLight wrote: »

Yep, I won't argue that year one may be very close.
How about year 5, 10 or 15?
I'm sure you'll find the gap widening each year.

Yeah, but if the figures stack up to make it profitable in year 1, it makes it a very clear-cut case of buying being better than renting.

I'm under no illusion that interest rates will increase - but not to infinity as will be the case with rents and house prices given the inevitability of inflation. Also, as I'm on a repayment mortgage, interest rate rises will have a diminishing impact as the years go on.

The general population tends to match expenses to income and allow expenses to rise with each payrise they receive. I know that payrises aren't as widespread as they used to be but this is what tends to happen.

For that reason, and that reason alone, it can be worthwhile buying on a repayment mortgage - even though a repayment mortgage is sure to work out more expensive (in terms of outgoings - although you are building equity). It's like an enforced savings plan with immeasurable benefits after 25-30 years (no worrys about keeping a roof over your head).

An interest only mortgage of £100k at 4% works out at £333.33 per month. A little less than £150 per month extra puts you on a repayment basis with a 30 year term.

The interest-only option works out cheaper than renting and the repayment option will eventually cost you less than renting as rents rise with inflation.

IveSeenTheLight

Graham_Devon wrote: »

Without doing the maths, I would think this changes the favour in marathonics calculations.

I'm quite happy with the 6.2% Rental yield.

Even better when you calculate the profit against the investment (over 13%)

wotsthat

Graham_Devon wrote: »

Very generally speaking, £650-700 a month rents you a house which would command around 160k

Not a bad imputed rent for someone that's paid off the mortgage and has an 'irrelevant' asset that you can't pay the gas bill with unless you sell it.

IveSeenTheLight

Graham_Devon wrote: »

Not quite sure I understand the calculations anyway, as they only include mortgage interest, not mortgage repayment? Quite an odd one to leave out of the sums, though of course, makes the cost of buying considerably cheaper if you don't include the repayment of the loan.

Graham, lets not go back over again the Rental Yield calculations

If you are comparing against rent, you have to compare against mortgage interest only.
That's the equivalent

Graham_Devon

IveSeenTheLight wrote: »

I'm quite happy with the 6.2% Rental yield.

Even better when you calculate the profit against the investment (over 13%)

I'm glad for you.. But my point was about the calculations laid out. Which, having noticed they include no mortgage repayment aspect, only leaves me believing they are skewed further.

Be interesting to see how the figures change when actually including repayment of the balance.