Is renting really dead money compared to buying?

J_i_m

Like with anything it really comes down to personal preference and circumstance.

Rent is paying for a roof over your head, but long term it's not your 'investment' and you'll have to pay rent which is liable to increase for as long as you live there.

If you're one of these highly paid professionals whose career sees you moving about a lot then renting well may suit you but it's not the definitive option for everyone.

I used to rent but found it very expensive. I found out that a mortgage on the flat I rented would cost up to £300 (which was almost half the rent) per month less than my rent.

I was just about making ends meet with no frills and then my income dropped. I soon got fed up being constantly overdrawn and having no financial capacity to save money.

I considered finding a cheaper tenancy but decided that I no longer wanted to pay for someone else's 'investment'.

I gave notice and moved back in with my parents which enabled me to save for a deposit. I'm now about to exchange on a flat of very similar size to my old tenancy within 2 miles away and sure enough my mortgage repayments are set to be £300 less than my old rent of £650.

Even though it's leasehold, I view this as a more satisfactory position to be in. My monthly outgoings are less, I have the opportunity to save money and I have a rent free home to retire to.

To me this is much more appealing than being stuck in a tenancy lining the pockets of a landlord.

Pixie5740

With leasehold properties are you not essentially taking out a mortgage to pay for a long lease/tenancy which may have to be renewed whilst you're living there?

I'm fairly certain that if I hadn't rented during my studies and early career giving me flexibility that I wouldn't be earning anywhere near as much as I do now. In fact if I'd bought I would have lost money. Sharing a flat with those boys at university prepared me for working in a male dominated environment.

I'm just waiting for all those people with interest only mortgages and no repayment vehicle to hit the fan. We've already started to see if creep in on some of the forum boards but I reckon that's just the tip of the iceberg.

Brown_Eyed_Girl

Buying with a mortgage is sort of like saving albeit with a fee in the form of interest. But the interest is still less than you'd pay in rent.

Renting is saving for someone else, you're paying off their mortgage for an asset that rises in price for the most part. Or you're just putting money into their savings if they don't have one.

The thing is it's often not a choice, it's circumstance. So unless you're actually in a position to buy then it's a non question as you don't have the option. Sure property prices will drop at some point (who knows when and how far) but they'll go up again after too. So long as you can ride that out and keep paying the mortgage the negative equity will eventually pass. And if you can't then with your own place you can rent it out and move somewhere cheaper. You don't have to be stuck if you need to move.

fred246

I remember looking at a website that calculated how much money you needed to retire on. One side was for those with ongoing housing costs IE rent and the other was for homeowners. The homeowners needed much less pension to retire. I would always want to own my home in retirement.
In the early years of a mortgage most of the payment is interest, which is dead money the same as rent. If you are renting I think you should be saving for a deposit at the same time. This has a similar effect to buying your own home. The deposit then makes your monthly payment less and you get a lower rate on your mortgage when you come to buy.
I meet a lot of young workers who pay for everything on monthly terms especially their cars. As long as their salary covers their monthly outgoings they think it's fine. Putting your head in the sand avoiding ever buying a house is a long term mistake.

marksoton

Pixie5740 wrote: »

With leasehold properties are you not essentially taking out a mortgage to pay for a long lease/tenancy which may have to be renewed whilst you're living there?

Of course. But at 122 years i was better off taking it. In the South to get a house freehold simply wasn't going to happen.

No pity party but prices down here are ridiculous. I often muse as to where the hell the money is coming from.

As for London, bonkers. And i don't appreciate having firearms being aimed at my head. Be they Russian or Chinese. But that is the reality.

worried_jim

Somebody recently asked me how many years were left on my lease and I got into a bit of a panic as i genuinely had no idea. I felt foolish not knowing or having any memory. As soon a as I got home I dug out my paperwork to see it was 999 years from when the property was built in 1964, panic over.

csgohan4

Whether renting is dead money or not is irrelevant if the renter cannot afford to buy a property outright with or without a mortgage. I.e they have no choice.


It would be dead money if they have a sizeable deposit and can afford to buy.


They are still getting service, a roof over the head without the issues of property maintenance generally.


That may be advantageous to some in terms of mobility and lack of responsibility for repairs.

J_i_m

Pixie5740 wrote: »

With leasehold properties are you not essentially taking out a mortgage to pay for a long lease/tenancy which may have to be renewed whilst you're living there?

Yes that is true and my next priority is saving money to extend the lease.

In that respect freehold is more attractive. However I am priced out of the freehold market as I am single and do not have the financial capacity to raise the budget needed for one.

Therefore my options were between owning a leasehold and renting.

And the owning route is turning out to be much more manageable financially than renting with the added benefit of having a rent free (less service charge + ground rent obviously) home to retire to or sell for care costs.

There is no right or wrong answer here it really is down to personal preference and circumstance.

System

I'm leasehold at the moment and soon to be selling and buying a house, I had to extend lease but its definitely better than renting and have saved thousands, far more than lease extension costs, its resaleable and a step up the ladder

System

Leasehold is better value than short term rent as you're eliminating a middleman, eliminating insurers and taxmen, and your agreement is longer term so the price per year is profoundly less, and extending a lease is even better value as you're buying years that are far in the future outside living memory