Low rates mean its foolish to wait for a house price crash

westernpromise

There is no way to know what the odds are.

However, over a long enough holding period of say 10 years, in most parts of the country the chances of a fall have been nil for most of the last 60 years.

wotsthat

lisyloo wrote: »

I doubt it's simply that factor alone. They may also have short term work contracts, have long term plans to live elsewhere or a belief that prices will be lower as well.

I don't think it's that factor at all. The idea that, like all good housing bears, someone rents because their rent is dirt cheap, prices are/ will fall and they're an investment wizard sound nice but real life isn't like that.

lisyloo wrote: »

I did a comparison for my own circumstances (second home so CGT, 45.8% tax relief available on the exact same amount of money if put in pension).
I did not include the extra 3% stamp duty because that wasn't in place at the time.

I made assumptions of 3% capital increase and 3% rental increase, probably something equally conservative for pension fund gains (so it was conservative on BOTH sides).
I included service charges, transactional costs etc.
With my assumptions it turned out that the cut-off point for that scenario was 9 years i.e. less than 9 years I was better off renting.

The capital increases have shown my 3% assumption to be too pessimistic.

I don't have any argument that's it's better to buy a home if you know you are going to be living in one place for a long time.

I bought a holiday home after going through similar calculations. We would've been better off staying in good quality hotels than buying. We still bought because we valued some of the non-financial benefits but whereas most people would say we invested in a second home we just called it a cost from the off.

You've included pension tax relief in your calculations. Are you drip feeding the 'deposit' into pensions and really getting the tax relief? I didn't include it in my calculations because the choice was spend it on a holiday home or spend it on something else.

wotsthat

mubeye wrote: »

But if you have no idea whether prices go up or down. buying is the punt. You are gearing up and betting on a rise with leverage. How is that less risky than renting. If the odds of appreciation are 50/50?

If you want to own a house then buying is the way to go.

I always think people who want to own but then short housing by renting (HPC crew) are the people taking a punt. It's an expensive punt and the longer you keep the bet running the more likely you'll lose.

You also have to consider that when the mortgage is paid off the future rent/ mortgage liability is zero. Rental liability only decreases month on month because it's one month less until you meet the Grim Reaper.

Once the mortgage is paid of it's gravy all the way.

lisyloo

We still bought because we valued some of the non-financial benefits

I agree totally there are non-financial benefits. There are non-financial benefits to renting too. I'm sure you know what they are, but the main one for us is flexibility so if a work contract finishes we can just pack up and go (subject to notice of course) and the costs are a few hundred for the cleaning.

Are you drip feeding the 'deposit' into pensions and really getting the tax relief?

Not just the deposit but the mortgage/service charge/insurance/stamp duty etc.
The comparison was an exact equivalent
i.e. £X going in home owning costs (mortgage/service charge/insurance) verses the exact same £X going into a pension.


I already have enough money to buy holidays, spa days, theatre we are talking about a specific amount that's going into either house or pension.


I am assuming a repayment mortgage.
I didn't think you could get I/O now, but even if you could, you'd incur 40% tax on getting a lump sum from the pension to pay it off so it wouldn't help anyway.
I don't think I did anything wrong or biased in my calcs although I was deliberately conservative (as I didn't want to speculate).

because the choice was spend it on a holiday home or spend it on something else

The choice for that particular £X is spend it on a property (interest, repyaments, service charge, stamp duty, insurance etc) or spend it on rent and put the excess in a pension.
FWIW - I did of course compare the fact that in one case I'd have a house at the end on which I'd pay CGT and in the other case a pension pot on which I'd have to pay some income tax.

mubeye

If you say the long term odds are exactly zero of a fall over any ten year period. How is that different to crashers claiming to be able to time the market? You are claiming foresight too? if you really believe there is zero chance why not place more bets on it. There are loads of ways you could do this. Ladbrokes being one.

wotsthat

mubeye wrote: »

If you say the long term odds are exactly zero of a fall over any ten year period. How is that different to crashers claiming to be able to time the market? You are claiming foresight too? if you really believe there is zero chance why not place more bets on it. There are loads of ways you could do this. Ladbrokes being one.

During the life of my mortgage I've seen prices fall a lot twice. Buying still turned out to be better than renting. That's the only gamble that needs to be made.

I can see why you don't get it. You're seeing prices falling, are paying spit in rent and can achieve double-digit investment returns on your deposit money.

Buying isn't really a punt on house prices but, if you want to be rent and mortgage free, you've got to go long house at some point. There's no middle-ground other than shared ownership where you get to combine the negatives of ownership with the negatives of renting.

Windofchange

wotsthat wrote: »

During the life of my mortgage I've seen prices fall a lot twice. Buying still turned out to be better than renting. That's the only gamble that needs to be made.

I can see why you don't get it. You're seeing prices falling, are paying spit in rent and can achieve double-digit investment returns on your deposit money.

Buying isn't really a punt on house prices but, if you want to be rent and mortgage free, you've got to go long house at some point. There's no middle-ground other than shared ownership where you get to combine the negatives of ownership with the negatives of renting.

How about saving £250k in whatever vehicle over the years and buying your house cash? How about cashing in your pension after 40 years of work and buying a house cash? How about inheriting your parents home? How about inheriting £xxx and buying somewhere? Why is having a mortgage the only way to own a house?

Maybe renting just works for some? I stand to be gifted a home at some point in the next 20 - 30 years assuming my parents stay sane of mind and don't need an £800 a week care home. I'll not have paid a mortgage on it.

wotsthat

Windofchange wrote: »

How about saving £250k in whatever vehicle over the years and buying your house cash? How about cashing in your pension after 40 years of work and buying a house cash? How about inheriting your parents home? How about inheriting £xxx and buying somewhere? Why is having a mortgage the only way to own a house?

I want to live in my own home so renting for 40 years and then buying cash doesn't cut the mustard. With a mortgage I was able to buy straightaway and in 25 years I can be almost certain I'll have paid it off.

I don't think I'll ever see a decent inheritance and, anyway, if I want to buy a house I'd prefer not to have to rent and wait for the old boy to do one.

Windofchange wrote: »

Maybe renting just works for some? I stand to be gifted a home at some point in the next 20 - 30 years assuming my parents stay sane of mind and don't need an £800 a week care home. I'll not have paid a mortgage on it.

Great I'm pleased for you. I find having to pay for my own accommodation somewhat tedious. I almost can't imagine what it must be like to have parents who might gift me a house.

economic

just to use some real numbers to see the benefit of buying young:

have owned my own home since 31 years old. i currently rent out my spare room for £700 a month. this equates to a return on "investment" of around 3.5% (includes rent i dont have to pay since i own). This is of course tax free!

now tell me where can i stash 300k away to earn 3.5% guaranteed tax free?

GreatApe

Windofchange wrote: »

How about saving £250k in whatever vehicle over the years and buying your house cash? How about cashing in your pension after 40 years of work and buying a house cash? How about inheriting your parents home? How about inheriting £xxx and buying somewhere? Why is having a mortgage the only way to own a house?

Maybe renting just works for some? I stand to be gifted a home at some point in the next 20 - 30 years assuming my parents stay sane of mind and don't need an £800 a week care home. I'll not have paid a mortgage on it.

You cant put down £30k and borrow £120k fixed for ten years at 2.5% interest on anything other than buying your own home.

Birmingham is more representative of the country than London or some expensive price but cheap rent area. In Birmingham it takes just 16.5 years to pay off a mortgage at the same monthly sum as renting.

That turns your £30k deposit into a £150k house in 16.5 years. That works out to a risk free tax free 10.25% annual compounded.

If house prices and inflation go up 2.5% a year then buying a house is a risk free tax free compounded annual 13% return.


Anyone claiming it's better to rent better find an investment that does better than 10.25-13% annual every single year. This is unlikely very very unlikely but its guaranteed if you buy a house.