Renting 'now cheaper than buying'

Gorgeous_George

carolt wrote: »

Am I missing something, Gorgeous George? - you're usually quite on the ball....

But doesn't jay7 say 'You can either buy this house for £272,500 and pay £1535 interest only mortgage' - so how does that make ' After paying the mortgage for 25 years, you live rent-free.' ???

Surely if the comparable figures are not for a repayment mortgage, you've paid off precisely.......zilch?

jay7 used a mortgage interest rate of 6.76%. I used 6.13% ( available from Nationwide - Lifetime tracker).

Paying interest only at jay7's mortgage rate would see you spending £460,500 over 25 years in interest. A similiar sum (£460,629) would be paid in rent over 24 years and 9 months.

Paying a little extra and with a better interest rate sees you owning the house one day. It's all about choice.

Ask an accountant to prove renting is best and he will. Ask him to prove buying is best, and he will.

We must make OUR choice - once all the facts are understood.

GG

carolt

You've obviously had a particularly bad experience of renting, barnaby-bear!

We've been in the same rented house over 3 and a half years, can redecorate if we like (can't be bothered) and our rent has not gone up in that time (interest rates/prices certainly have!).

So as I said, different strokes for different folks. We're not in a position to take a gamble on future house prices and economic downturns - we can't afford to risk negative equity and would only be able to buy something equivalent to what we rent by a combination of cripplingly high mortgage repayments and probably borrowing extra off family - the £1000 monthly rent versus £1500 mortgage costs that I gave as an example above are not that far out in our case. And in real terms, even if a bank was stupid enough to lend us the money to do this (they have offered...) we would be bloody stupid to accept and it would be more than foregoing the odd holiday - it would be putting our security on the line.

And as for your comment about buying a house at today's prices in 25 years time - that only makes sense if you think house prices are going to continue rising for the next 25 years. If you think they are just about to head for a massive fall (as I do) then it clearly makes sense to wait until AFTER the fall to buy. Not that I don't think that a house bought now will probably be worth more in 25 years (though this isn't always the case - look at Japan) but that a house bought in say 5 years time will probably be worth a LOT more in 25 years time.

Fundamentally, I in no way disagree with your overall view that buying a house is better long-term than renting. I just don't agree with your timing. This seems to me to be a uniquely bad point in the economic cycle to buy a house.

Apologies if you've just bought one and that's the last thing you want to hear........

barnaby-bear

carolt wrote: »

Apologies if you've just bought one and that's the last thing you want to hear........

Ahh but Mrs. B's eggs are getting near to the pickling point and whilst the economic cycle was far from perfect - being 17 and at school during the last downturn - and after 10 years of sh%tty tenure - there were risks to waiting to - so bought 22 months ago at what we thought was a stupid top of the market - but our landlord was satan so a big push - and since then 22% rise so 15% fall would take us back to sale price but we had a decent deposit and we've overpaid substantially plus one of us has a guaranteed 5 year notice period for work - but the pickling eggs scenario swung it - there are economic cycles sure and fine if you are 24 but we're getting wrinkly here too wrinkly to be treated like kids like some amature btl 'entrepeneur'.

carolt

I pickled my eggs (curious expression!) despite living in rented accommodation - maybe someone should tell your wife that IS an option!! In fact, I even gave birth to number 3 on the beige-carpeted landing of our current house :eek: (but that's another story, and undoubtedly not one you want to hear....).

Good luck with your house - you've obviously done reasonably well on it over the last couple of years so hopefully will not face any problems if the promised downturn does materialise.....

So here's to large price falls in my area, and large price rises in yours...:beer:

barnaby-bear

carolt wrote: »

So here's to large price falls in my area, and large price rises in yours...:beer:

NOOOO :eek: The stupidist annoying FTBers trot this out - their studio cost £90k but is worth £150k now... we got a small family home we can stay put - staying put is what we want nothing more - say we paid £160k but we wanted the £240k house - 80k short at the mo, falls of 50% and 40k upgrade bingo; falls are good. Fundamentally people want and need stability, communities and homes. ASTs and amature BTLers eating all the houses are bad for society. Economic factors aside we know all that but we didn't do anything silly, houses should be homes not investment vehicles. We know the economic stuff but tenure long term stability is something we pay more than renting for by choice we don't care really about rises or falls - as long as we can stay put. We could afford the choice what else should we have spent the money on, making a killing on a possible investment portfolio? Doesn't do it for us, just staying put and getting on with life, our neighbours etc.

Bet your landlord got a new carpet out of you. I'd have cr&pped myself worrying about the deposit - shifted you onto some lino...

carolt

No, carpet cleaned just fine...and to be honest, there are times in life when worrying about the carpet - yours or a landlord's - just isn't really top of your list of priorities. Am absolutely with you that I wish we lived in an age when houses were seen as a home not an investment.

Obviously I'm only a 'stupidist annoying FTBer' so can't be expected to know any better, but if you are not planning to move 'up the ladder', why did you object so strenuously to the theoretical rise in your (as opposed to general) house price?

But TBH, to get back to what was originally being discussed in this thread, your example, though obviously of prime importance to you, isn't really relevant. The current debate is not about whether it made sense to buy two years ago - hindsight clearly shows that it did. For people like me, with the option of buying or renting NOW, the BBC piece showed that the option of buying clearly made much less sense. You are in the lucky position of having built up equity in your house over recent price rises to cushion you against potential falls. Someone buying now would be unlikely to be able to do that. If they go in with a large deposit they can afford to lose, then I agree, your example is relevant.

But ultimately, whilst having a roof over your head is a necessity, for that roof to be your own, rather than a landlord's, is a luxury - and increasingly an unaffordable one.

merlinthehappypig

Comparing renting with buying is not a simple formula. It depends so much on an individuals circumstances and what they want from life.

For FTB's it may be the only option they have if not got the money to buy, which is most of them judging by recent figures. Where I live, the average house now costs £400000 whilst the average household income is £28000 so the figures don't add up.

In my case, whilst I could afford a house as I have equity from a previous sale, the type of house that I can afford to buy is no-where near as as nice as the type of house I can afford to rent. I'm renting a house for £900 a month which would cost £2500 a month to buy on a 100% repayment mortgage over 25 years, plus all the maintenance is someone else's responsibility. I only have to pay for contents insurance as well.

The interest on my equity pays for the rent so for the first time ever I have no debts at all and can actually save money. Whilst I don't have the security of owning my own house, I have a much better, stress-free lifestyle. Having done both, I know which I prefer!

I'm not advocating that no-one ever buys a house. After all, that is the only reason I made anything, but it's also about getting some balance into life. It simply isn't worth being heavily in debt all your life simply to have nice things or (part) own your own home.

My point is that there is no right or wrong answer about whether to buy or rent - it depends entirely on a person's own circumstances at the time and their judgement on the way the property market is going to move. I've owned a house for the last 25 years, but taking everything into account I didn't actually make any money until the last 8 years when the house I bought in 1999 doubled by 2003 and the one I moved to in 2003 went up 110% by 2007. Between 1982 and 1999 things were pretty neutral, with small price rises (big rise and big crash excepted) being cancelled out by expenditure. This shows, to me, that the last 8 years or so have been pretty exceptional and it's probably going to end soon. When I started out it made no sense at all to rent as it was actually cheaper to buy. This is not the case now, by a long way. Either rents are way too low or houses are too expensive. Most people seem to assume that it's the latter.

Ama

Dear Members

I am hoping someone will talk to me in plain English and help me with a dilema. I currently rent a 2 bedroom house and pay just below £400 per month. The property is owned by a housing association hence the low rent. I have applied to them to buy the property and I will be paying a morgage of around £1,050 per month if I go ahead with the purchase. At the moment. the responsibility for maintaining the property rests with my Landlord.

Looking at the above figures, it is obvious that it will be more expensive to buy. However, I am interested in the long term and wondering whether I can take these figures on face value and draw the conclusion that £1,050 is more than £400 and not go ahead with the purchase? Afterall, unless I do something really, really bad, my family and I can remain in this property till thy kingdom come!

Can somebody say something please? Any advice would be appreciated.

jyonda

If you rent off a HA you really shouldn't buy it until AFTER the 'crash/ correction/ whatever' but definitely not now when prices are sky high compared to earnings. If you have been persuaded that property is your path to riches by the property !!!!!! on telly then it's a bit late for that frankly.
Barnaby bear is basically saying that he'd rather pay over the odds and take a big financial gamble (negative equity) for the sake of security of tenure which you don't get from Private LL's. You have that security with the HA and can choose when you wish to buy that property.
You have the best of both worlds at the moment so why do you want to change that???????

You also have a rather large debt that you should clear first.

In my opinion it would be madness for you to buy now.

All the best

merlinthehappypig

Hi Ama. You will get plenty of advice and it will differ enormously between members so take it with a pinch of salt. After all, only you know what is best for you and what you can afford.

For what it is worth I can't see any benefit in buying yet for you, from what you have said above. No-one knows what is going to happen with property prices, but most experts assume that growth in house prices is going to slow to almost zero over the next 6-12 months. So worst case scenario for you is that the house you are interested in now won't cost you any more in 12 months time - best case, it may cost you less.

During this time you can save the difference between rent and mortgage and have a much larger deposit for when you do buy, reducing your mortgage. You can also save all the legal costs for the time being, any maintenance costs on the house, the cost of buildings insurance etc etc

Against this is the likelihood that mortgage criteria will tighten over the coming months so it might not be as easy for you to borrow the money 12 months down the line. This won't be a problem if you can easily afford the repayments and have a good credit record, but if you are struggling to find the cash and have a small deposit then a) you might not get the mortgage and b) you shouldn't be considering buying anyway.

edit: Making a snap judgement from your debts listed in your post, I would stick with the rent and pay them off before considering buying.

Hope this helps.