Just an observation - Renting VS Buying

quantic

I know there are a lot of arguments for each way, to be quite honest - in my opinion there is no right or wrong answer as each person has different needs. I personally swing towards the buying side as I feel it meets my needs better.

I recently made an interesting observation...

Two of my friends left university at the same time, both saved up for a house deposit and had both planned to buy in 2008 but one was put off with the idea of buying because of the crisis and wanted more freedom so she used the money she had saved to buy herself a car and rented instead, while the other bought as he was in it for the long run.

Fast forward 6 years, my friend who is renting is now paying £250 more than when she started, she has had no problems with her landlord really but feels she has outgrown her little flat - but can't afford the rent on a house and now spends too much per month on bills to save to buy one.

My friend who bought has just sold their house and came away with £64k "profit". I appreciate that this money is "theoretical" since he will need to buy another house with it eventually, but as of right now - the fact is, hes got a little over £64k in his account and my other friend has got 0.

I just find this pretty crazy. Especially considering the friend who rents earns considerably more than the other and shes now stuck renting somewhere she doesn't like, paying more per month and as nil chance of ever buying now - to make matters worse her rent is significantly more per month than it would cost in mortgage payments on the house she would like to buy.

I know its anecdotal and some people will probably come on this thread and say I'm advocating buying for my own self interests or something - please save yourself the effort. I am just making an observation. I'm not sure what my point actually is. I think its probably more an indication of how broken the "system" actually is, but sometimes its best to go with the flow rather than be a victim of it. Thoughts?

carslet

Everyone's situation is different but unless you move about for work, I can't see how renting will be a good option.

I rented for years because I thought houses were too expensive and a massive correction was coming.

So in the years i rented i was down 20k in rent alone.
never mind the capital i would have paid off.

so I do think the term renting is dead money is true. well at least for me.

sinizterguy

Renting in most cases is less expensive than a repayment mortgage.

If you save the difference, then you might lose out on any price increases, but you will still have additional savings.

In some years the difference will be the same as buying, in other it will be far behind and some other you will be well ahead.

In_For_A_Penny_2

The only people who are better off renting are the tiny minority that through pure luck don't buy at the peak. Having said that, there have been relatively few significant house prices crashes to benefit even that particular group.

Renting because of moving with work etc is a totally different situation and largely a "lifestyle" choice - although they may save some money when factoring the frequent solicitors charges etc they may have incurred when moving so frequently had they bought.

Sadly for me I'm in the latter group and move around far too often at the moment to justify buying a house. . .

I really can't fathom why someone would rent if they could buy.

wotsthat

sinizterguy wrote: »

Renting in most cases is less expensive than a repayment mortgage.

If you save the difference, then you might lose out on any price increases, but you will still have additional savings.

Even if that's true any difference is small and it's going to be a long old slog relying on that to build savings. If, as per the example in the OP, someone uses their 'deposit' to instead buy a car then the point is moot anyway.

Plus nearly all these calculations compare month one of renting vs month one of buying. For the renter this is almost certainly going to be their smallest monthly rental payment and for the buyer their smallest capital repayment.

Compounding is the buyer's friend and a repayment mortgage is a reasonably certain way of owning 100% of a house.

Graham_Devon

The example in the OP is another example whereby we look at someone who had a choice.

That choice was they could either buy, or rent.

At a guess, in every single example over the past 5 years, based on someone with this choice, buying would have proved beneficial due to HPI over the same time frame.

Looking to the future, and the next 5 years. Who knows. It could work out beneficial to buy, or it could work out beneficial to rent and then buy later. It's basically a gamble for someone with the choice.

But the prime issue here is the dicsussion always seems to surround someone with a choice.

Most don't have or make a choice to rent or buy. Most simply cannot afford to buy at that moment in time, so rent instead.

In these cases, the maths and anecdotes are irrelevant. If your only option is to rent, that's the option you have to take. And that's the option most people face in reality.

carslet

Graham_Devon wrote: »

The example in the OP is another example whereby we look at someone who had a choice.

That choice was they could either buy, or rent.

At a guess, in every single example over the past 5 years, based on someone with this choice, buying would have proved beneficial due to HPI over the same time frame.

Looking to the future, and the next 5 years. Who knows. It could work out beneficial to buy, or it could work out beneficial to rent and then buy later. It's basically a gamble for someone with the choice.

But the prime issue here is the dicsussion always seems to surround someone with a choice.

Most don't have or make a choice to rent or buy. Most simply cannot afford to buy at that moment in time, so rent instead.

In these cases, the maths and anecdotes are irrelevant. If your only option is to rent, that's the option you have to take. And that's the option most people face in reality.

This is so true for many people I know

wotsthat

Graham_Devon wrote: »

In these cases, the maths and anecdotes are irrelevant. If your only option is to rent, that's the option you have to take. And that's the option most people face in reality.

Choices people make are more nuanced than a 'can I buy, yes or no?' view of reality.

So whilst you think it's a stark choice I'd suggest that a significant number who 'don't have a choice' are simply unwilling to accept the compromises that may need to be made. If they additionally can't think past the first month of rent vs the first month of a mortgage then they might be under the illusion that the maths is supportive too.

Anyway, just how do 'most' people end up with only the option to rent? It's past choices that either limit or expand future choices - there's no genetic predisposition that leads people to be renting or buying. I just don't buy the 'no choice' argument - by far the biggest influence over our own lives are the choices we make.

Graham_Devon

wotsthat wrote: »

Choices people make are more nuanced than a 'can I buy, yes or no?' view of reality.

So whilst you think it's a stark choice I'd suggest that a significant number who 'don't have a choice' are simply unwilling to accept the compromises that may need to be made. If they additionally can't think past the first month of rent vs the first month of a mortgage then they might be under the illusion that the maths is supportive too.

Anyway, just how do 'most' people end up with only the option to rent? It's past choices that either limit or expand future choices - there's no genetic predisposition that leads people to be renting or buying. I just don't buy the 'no choice' argument - by far the biggest influence over our own lives are the choices we make.

I think you are taking the word "choice" and making a bit of a song and dance out of it to be honest.

At the time of requiring a home, not many face a choice over whether to buy a rent. They either have the funds to do either, or they don't. It really is as simple and basic as that.

For the vast majority who rent, they don't have the choice at the point of signing a rental contract, and that is why they are renting.

Those that do have the choice usually fall into 2 or 3 camps

A) Those who are making an informed decision to time the market.

Those who have a choice to buy or rent, but have other things going on, for instance, job security, looking to move location etc etc. I.e. something is going on in their lives which maybe stops them putting roots down there and then in one area.

C) Those who prefer renting over buying or vice versa and have the choice to do either.

Previous life choices running back over your entire life are of little use at the point of making a decision to buy or rent. I know what you are saying, one choice may lead down 3 paths, etc etc. But like I say, all of this, and whether you studied a bit harder or took a different course in sixth form is neither here nor there when you face the choice of needing a property to live in at that point in your life.

Hence why I believe you are making a song and dance out of my word "choice".

Jason74

wotsthat wrote: »

Choices people make are more nuanced than a 'can I buy, yes or no?' view of reality.

So whilst you think it's a stark choice I'd suggest that a significant number who 'don't have a choice' are simply unwilling to accept the compromises that may need to be made. If they additionally can't think past the first month of rent vs the first month of a mortgage then they might be under the illusion that the maths is supportive too.

Anyway, just how do 'most' people end up with only the option to rent? It's past choices that either limit or expand future choices - there's no genetic predisposition that leads people to be renting or buying. I just don't buy the 'no choice' argument - by far the biggest influence over our own lives are the choices we make.

There's quite a lot of truth in this for many people, and as you say, he whole thing is sometimes more complex than a yes or no question. The OP provides a good example of exactly what you're talking about. But for more and more people, it doesn't work like that. For example, in London, the starting point to buy almost any property in almost any area is in practice just short of £150k (there is the odd exception, but this is a decent guide).

That means that unless someone is gifting you a decent deposit, you need to be earning about £30k (again, a rough guide) to even consider home ownership. And at that price point, you're talking about a not very nice 1 bed flat in lthe less desirable roads in the cheapest areas of London. There are a heck of a lot of people in London for whom earning £30k is a pipe dream, and in practice, many of those people have (and have never had) little choice about it, and who have no realistic prospect of reaching that earnings level. For a decent sized 2 bed flat (which most of us would I hope agree is the minimum you'd expect anyone to bring up a chld in), you're starting point is probably about £250k, needing a household income of £50k.

I'm not saying that there anren't people who do not own a home because they are unprepared to give up enough to do it. Of course there are. But there is a large group of people who do not have that option, and probably never will. Of course, that has always been teh case. But there can be little doubt both that HPI is making that goup bigger and bigger, and that the way that private renting is increasingly replacing social housnig as the primary tenure for non-homeowners means that the housing optins for that growing group have got significantlyu worse in recent years (and will likely continue to do so).

purch

Graham_Devon wrote: »

I think you are taking the word "choice" and making a bit of a song and dance out of it to be honest.

I know Gra................it's really annoying when someone takes a single word out of your post, and makes a fuss about it rather than address the actual post itself