Renting Vs buying calcs, can you help ?

mubeye

Cornucopia wrote: »

Yes, I was. If we were all accountants or economists there'd probably be some useful jargon to express this, but the essence of it is that if I borrow £200k today to buy a house then assuming I don't move, I'll never owe (much) more than that £200k at any stage in the future - in fact my repayments will reduce it. The £200k I borrow and repay is, in fact, likely to result in a property at the end of 25 years worth maybe £300k, depending on the effects of HPI.

By comparison, if I rent a home today at £1000pm, the likelihood is of progressive rent rises with inflation.

The cost of rent increases with inflation in a way that neither mortgage payments or mortgage debt do. (Mortgage payments can increase with mortgage rates, but that's a different thing).

The calc does inflate rent over time. 3% a year by default.

Stating the obvious of course, but total paid to bank on a200k loan over the term at 3% is 285k. Debt compounds too even as the balance shrinks.

I've attempted to ammortise rent inflation into the calc as best I could to match the way mortgages work. In order to work out the reinvestment. Don't have the foggiest clue if it is right or not though!

getmore4less

Rents and mortgages(for newish entrants) move broadly in line.

If house prices double rents will double at least from historic low yields.

In the mean time the rent on the money stay the same.

The renters ability to invest will be gone their rent has gone up.

Cornucopia

I finally found a few minutes to look at the spreadsheet.

Just a couple of comments...

- Generally, I'm not finding it easy to follow. Someone suggested a year-by-year analysis, and I think that could be clearer (and also highlight if there are any future break-points or changes in overall trends).

- I struggle to believe that the rent starts out lower than the repayments on a 70% LTV mortgage.

- Once the rent starts to become higher than the mortgage payments, in year 6, where does the funding come from to contribute to the £996k equity for the rental case? The typical scenario is that a renter has little or no equity.


It's a good start, but it's easy with spreadsheets to make erroneous assumptions and have them multiplied-up into a highly misleading conclusion.

Here's a random Buy vs. Rent Calculator I found: http://www.greengem.co.uk/rent_v_buy/rent_v_buy.php

On similar figures to yours, it is showing an overall benefit between Buying and Renting (with no parallel investments) of £1.35m over 25 years.

mubeye

Cornucopia wrote: »

I finally found a few minutes to look at the spreadsheet.

Just a couple of comments...

- Generally, I'm not finding it easy to follow. Someone suggested a year-by-year analysis, and I think that could be clearer (and also highlight if there are any future changes in overall trends).

- I struggle to believe that the rent starts out lower than the repayments on a 70% LTV mortgage.

- Once the rent starts to become higher than the mortgage payments, where does the funding come from to contribute to the £99k equity for the rental case?

Yes it rather flawed. Especially with regards to mortgage rates. Ive given up on it to be honest.

But rent is not lower then repayments, it is lower than the mortgage repayments plus all other costs for the term (upkeep etc) amortised into an equal monthly payment.

getmore4less

The problem is you seem to have averaged

that means an allocation part of the maintenance in Y25 to today.

yhe renter then gets to compound that for 25y

the key is that the mortgage+monthly costs soon don't provide any surplus to the renter as the rent goes up.

That's when the renter goes into drawdown, even with £125k starting fund chances are they can't keep up.