Renting Vs buying calcs, can you help ?

mubeye

HAMISH_MCTAVISH wrote: »

Fair enough.



25 years is too far out to predict, but as rates today can be fixed for so long at such a low level, the average mortgage rate over a 25 year term will almost certainly skew downwards from historical averages.

I reckon it's unlikely we'll see base rates over 2.0% in the next 10 years so a tracker wouldn't worry me, but as you can fix for 10 years at 2.4% today, that'd be a pretty tempting option as well.



Fair enough - large house, rural area up north, it's possible I guess.

Most places would be closer to 6%.

Re fixing for 10 years at 2.4%, I had a quick google and cheapest seems to be 3.2% (overall cost including teaser rate). Which bank is this with?

So if we are at historical lows getting 3.2 on a 10 year, makes sense to project a touch over 4% over 25 year term?

Assuming a mild rate increase is ahead. Could go negative of course!

Correct re house type btw

HAMISH_MCTAVISH

For 10 year fix mortgages...

Cheapest today appears to be 2.49% for 10 years.

What it goes to thereafter will depend on rates a decade from now.

getmore4less

if yield are less than interest rates then you are losing money by reverse gearing.

That is not the normal letting business model you borrow at less than yield to gear up your capital investment.

if you don't like 2.5% make it less but positive not negative as you currently have.

a quick google found this from 2015

http://www.liveyield.co.uk/blog/buy-to-let-yields-over-time-series/

and this
http://www.savills.co.uk/research_articles/186866/193120-0

THe ONS has some stats on rentals may be something on yields.

mubeye

HAMISH_MCTAVISH wrote: »

For 10 year fix mortgages...

Cheapest today appears to be 2.49% for 10 years.

What it goes to thereafter will depend on rates a decade from now.

Ok this is a bit of a game changer for me, as I always use the overall cost for comparison rather than the teaser rate, which in that example is 3.2%.

So is it like a credit card, after the 10 years is up I just move to a new fixed rate?

Sorry for newb questions

mubeye

getmore4less wrote: »

if yield are less than interets rates then you are losing money by reverse gearing.

That is not the normal letting business model you borrow at less than yield to gear up your capital investment.

if you don't like 2.5% make it less but positive not negative as you currently have.

a quick google fount this from 2015

http://www.liveyield.co.uk/blog/buy-to-let-yields-over-time-series/

Firstly, thanks a lot for your help. I really appreciate it, I'm not trolling honest....

But that article says average current yield in UK is 4.5%.

In my postcode, deducting 1.5% from average UK yield is perhaps reasonable.

But I get your point about if rates rise, then so do yeilds, so perhaps parity might be a better figure in my case

HAMISH_MCTAVISH

mubeye wrote: »

Ok this is a bit of a game changer for me, as I always use the overall cost for comparison rather than the teaser rate, which in that example is 3.2%.

So is it like a credit card, after the 10 years is up I just move to a new fixed rate?

Sorry for newb questions

Yes - basically like shopping around for card deals, on a much bigger scale.... after the fixed term is up most mortgages will allow you to switch to a different product or provider without penalty. (check the small print though)

So if there are still good deals around in 10 years your cost may decrease. If rates have gone up markedly the cost for the remaining term/balance may increase.

But either way if you overpay during the fixed 10 year term your total finance costs will be much lower when you remortgage the balance at 10 years than an initial calculation based on 3.2% would suggest.

mubeye

ilovehouses wrote: »

The only numbers that matter are those that relate to the house you're buying and renting.

You know how much a house would cost you and you know how much rent you'd need to stay put. Why not plug those numbers in? I can't see the point in trying to calculate the yield on a house you might buy unless renting a similar property is a likely alternative to buying.

In terms of a mortgage - what would you go for? A ten year fix? If so plug that in for the first 10 years and just guess a rate for the final 15 years of the mortgage.

I'd also consider taking out inflation. I don't really like running scenarios where inflation isn't applied across the board i.e. if rents are increasing due to inflation then your mortgage payments and debt are falling in value.

With few variables it is much easier to run 'what if?' scenarios and you can work out which of the variables matter.

Don't like the idea of applying a c7% (pre or post inflation?) investment return to a house deposit either. If this is a once only decision fair enough but if you decide to keep renting and buy later are you really going to take that sort of risk with a deposit?

I'd have a row for each year and then at the end of the year remove the formulae in that row and put in real numbers. Then in year 2 you'd be guessing 24 years hence and so on.

The calculator has separate inflation inputs for rent, upkeep and house price.

Investment return is based on 75 year averages so over 25 year period is no more speculative than 6% house price inflation. (is my uneducated assumption)

I like that you can change the variables as I might make the calc into a web app if it gets good enough. Might make a tenner a month in adsense or something!

getmore4less

mubeye wrote: »

Firstly, thanks a lot for your help. I really appreciate it, I'm not trolling honest....

But that article says average current yield in UK is 4.5%.

In my postcode, deducting 1.5% from average UK yield is perhaps reasonable.

But I get your point about if rates rise, then so do yeilds, so perhaps parity might be a better figure in my case

The graphs show that the current 4.5% is a historical low just like the interest rate.

I would say there is at least a 2% margin at the moment.

mubeye

HAMISH_MCTAVISH wrote: »

Yes - basically like shopping around for card deals, on a much bigger scale.... after the fixed term is up most mortgages will allow you to switch to a different product or provider without penalty. (check the small print though)

So if there are still good deals around in 10 years your cost may decrease. If rates have gone up markedly the cost for the remaining term/balance may increase.

But either way if you overpay during the fixed 10 year term your total finance costs will be much lower when you remortgage the balance at 10 years than an initial calculation based on 3.2% would suggest.

Ok cool, thats definitely a surprise. But good news I guess. I've lowered interest rate average to 4 for now...

getmore4less

It looks like your rental inflation does not factor in yields.

year value rent yield

1. £400,000 £15,200 3.8%
25.£1,619,574 £30,898 1.9%