Renting Vs buying calcs, can you help ?

getmore4less

mubeye wrote: »

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

The overall costs(a sort of APR) with mortgages is useless and meaningless for any practical purpose.

Far better to do the numbers from scratch using real data.

mubeye

getmore4less wrote: »

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%

I have rental inflation is a flat 3% on initial price, irrespective of house price inflation.
Based on idea rental inflation lags house price inflation by about 3% on average.

You think it would be more accurate use a direct percentage of inflated house price?

mubeye

getmore4less wrote: »

The overall costs(a sort of APR) with mortgages is useless and meaningless for any practical purpose.

Far better to do the numbers from scratch using real data.

I was hoping to make a half-decent rent vs buy calculator that would work for various scenarios, As none online as far as I can tell that do the 'monthly reinvestment of average balance' stuff.

But perhaps I'm finding out why none already exist

getmore4less

mubeye wrote: »

I have rental inflation is a flat 3% on initial price, irrespective of house price inflation.
Based on idea rental inflation lags house price inflation by about 3% on average.

You think it would be more accurate use a direct percentage of inflated house price?

I would think a rental lag will be based on yield but a year or two behind(although there are factors than just house price)

You are compounding the 3% which won't happen.

mubeye

getmore4less wrote: »

I would think a rental lag will be based on yield but a year or two behind(although there are factors than just house price)

You are compounding the 3% which won't happen.

Okay fair. I wonder what would be a better way to conservatively calculate the inflated annual rent each year.

forcasted house price * 85% * average yield over term?

Cornucopia

We've had these discussions on MSE before, and the tendency is for over-engineering. At the same time, the prevailing bigger picture is that BTL LLs and their banks are involved in some fairly stark calculations regarding interest rates that are generally higher than those for residential, deposits that are generally higher than residential, and fees that can be higher than residential. The banks then apply the equivalent of affordability tests to the payments by comparing them with the rent, and then apply stress factors like higher interest rates.

Against that background, LLs are still generally making money. That suggests that in Year One, renting is likely to be more expensive than buying, when comparing like-for-like and factoring-out one-off costs for separate evaluation.

Where it gets more positive in favour of buying is that inflation will reduce the value of the mortgage debt over time, whilst the value of the underlying property has a tendency to increase with HPI. A houseowner can enter long-term mortgage fixes and over-payment regimes that are not available to renters.

A renter, OTOH, will typically see their Year One rent increase with inflation (more or less), and carry on doing so not just for 25 years, but on into retirement and in all likelihood for the rest of their life.

HAMISH_MCTAVISH

mubeye wrote: »

But perhaps I'm finding out why none already exist

As I recall a lot of people have tried to make one over the years, they all have flaws or at least highly contentious variables.

Cornucopia's post above is probably as good an explanation as any.

mubeye

ilovehouses wrote: »

..but it isn't being consistently applied. If inflation is affecting the value of your rent and house price then its also affecting the value of your mortgage. If you can fix for 10 years and inflation is 3% your mortgage payment (and debt) will be worth much less than today.

Try running it at 0% inflation - it's much easier to get your head around what you're looking at.



I think both are too high.

CBA to check but I think real HPI has run at about 3% pa over the last 40 odd years and about 4.5% for equities over an even longer period. My guess, and that's all it is, is that both will be lower for the next few years.

If i take a 25 year mortgage now, that rate is locked for duration. So can be forecasted to the penny. If you choose to stay locked in, that is. You pay extra rate for locking in that rate for 25 years maybe?

Your investment estimate has house prices lagging market returns, by more than my calc, 6 vs 7? So I need to widen the gap but lower both, based on your thoughts on that count. or not? So something like 5 vs 6.5?

Ive tried to factor in inflation as best I can but very open to suggestions for better ways to do it.

HAMISH_MCTAVISH

mubeye wrote: »

If i take a 25 year mortgage now, that rate is locked for duration. So can be forecasted to the penny. If you choose to stay locked in, that is. You pay extra rate for locking in that rate for 25 years maybe? .

As far as I know there are no locked in 25 year fixed rates available any more - the last one I heard of was Kent Reliance and that stopped a few years ago?

The way 25 year terms work is a fix of XX years and the balance of years on SVR. You know what today's SVR rate is but not what it will be in XX years.

mubeye

Cornucopia wrote: »

A renter, OTOH, will typically see their Year One rent increase with inflation (more or less), and carry on doing so not just for 25 years, but on into retirement and in all likelihood for the rest of their life.

This is why I'm using a 25 time period, to fairly compare the resulting assets of both paths.

After retirement, there will no further monthly reinvesment but renters capital should not shrink if net return > rent.