Renting vs Buying

datlex

I have always rented until now. Number of reasons, lack of funds for deposit, someone else can sort issues. Now I have bought- main reason, I don't want to have to pay ever increasing rent into retirement.

getmore4less

madvicker wrote: »

If you ignore the opportunity to benefit from rising house prices and just look solely at the money it costs to rent vs pay a mortgage - buying wins out in every situation bar those where you need to move a lot. But in this scenario, it would make sense to buy and then rent it out.

The simple reason why, a proportion of the monthly payments for your mortgage is a capital payment - I would view this as saving that portion in the equity of the house. With renting, no portion of the money you pay is going toward any capital.

An argument put forward by many people is you can earn more by putting that money into investments with better upside - ie the stock market.

Lets take a simple example, comparing 2 people over 10 years. One rents (family pays for deposit and moving fees), the other buys (100% mortgage, no Stamp duty as first time buyer and family pay for other fees). Assuming 2% growth in house prices and 5% growth in stocks. Earning a real wage of £1500. Mortgage payments of £1000 (£500 capital, £500 interest), rent of £1000. Neither of them move for the ten years and they don't need to pay for anything else so disposable income all goes into the stock market.

Renter - £79240 investments after 10 years

Buyer - same investments, but additional £67012 in capital.

Now obviously, frequency of moves will eat into the investments/capital for the buyer, but they would need to move a lot to equal the financial status of the renter.....

lets say the gross yield on the rental is 5% that's a property of £240,0000

A loan of £240,000 say at a generous for a 100% loan 3% paying £1k per month(that's a ~23y loan) in 10 years you owe £184,103.

with 2%pa growth on the house it is now worth £293k thats £110k of equity

with 4% rate you owe £210k knocking that equity back to £80k

madvicker

getmore4less wrote: »

lets say the gross yield on the rental is 5% that's a property of £240,0000

A loan of £240,000 say at a generous for a 100% loan 3% paying £1k per month(that's a ~23y loan) in 10 years you owe £184,103.

with 2%pa growth on the house it is now worth £293k thats £110k of equity

with 4% rate you owe £210k knocking that equity back to £80k

The calculations I made were more straightforward than that - I ignored the interest rate on the mortgage, simply saying you'd pay £500 toward capital, £500 toward interest for a mortgage term of 10 years. So total loan repayable of £120,000. This is obviously not how a mortgage works in reality but the figures were never meant to accurately depict the inner workings of a mortgage. The figures are just illustrative of the financial differences between renting and buying. Your example doesn't change the logic, or my conclusion.

SG27

martinlewisjunior wrote: »

Buying everytime surely? You get to see the money if you move. Assuming the price has stayed the same/gone up in value.

Why do people always sat this? Its just not true. This only works if you are downsizing or moving to a cheaper area.

I have just sold my 2 bed house for around 30% more than I paid 5 years ago :beer: unfortunately the 3 bed houses I need are also 30% more so it is now costing me 30% more in uplift to move plus the extra stamp duty!

Add to this the fact that our household income has dropped as we now have a child so my wife is part time.

We worked hard to overpay the mortgage previously and got the 25 year term down to 17! But now we had to borrow all that back plus max the mortgage back up again AND extend the term to 30 more years to meet affordability...

Jane_B

It depends on a lot of factors, if renting is a lot cheaper than a mortgage would be, and you were planning on only staying in an area for 1-2 years, renting would win.
However in my experience, and my daughters, its always been cheaper to pay a mortgage than rent.

Rent doesn't stop when you retire, so would always suggest getting on the ladder 20+ish years before retirement, so you can have the mortgage paid off before retiring.

Ruthie0889

There are pros and cons to both.

Renting Pros:-
* Flexibility to move around if you need to.
* Not being tied into a mortgage
* Not having to pay for any maintenance/ issues that need fixing.

Renting Cons:-
* Paying someone else's mortgage (feeling like you are throwing money away)
* Can be more expensive than paying a mortgage
* Difficult to redecorate/make the place your own (unless you have LL permission)
* Risk of LL terminating tenancy

Buying Pros:-
* Mortgage can be cheaper than rent.
* Can make the place more your own
* No LL to terminate your occupation

Buying Cons:-
* Tied into a mortgage for a long time, therefore bank really owns the property.
* You can't move as easily if you regret buying the house.
* Circumstances can change, meaning you may have to borrow more money or affordability goes down.

I think it very much depends on your circumstances. I for one used to resent renting, but after buying last year I realised that I may have sometimes taken renting for granted.

Lauralou79

It's all individual. I was happily renting in my twenties/early 30s. I didn't have to pay for repairs and liked having little responsibility, as I got older the thought of buying was more interesting. I sorted my debts out and saved.
We bought last year at the grand old age of 37/38. I love having my own house, yup it's bleeding us dry as we do repairs but once done itll be fine. We have a low LTV and are over paying ( aiming for 15 years max) So hopefully more Cash towards retirement/maybe working part time as I age!

lookstraightahead

I like the idea of buying over a shorter term so you pay less interest. 25-30 years is such a long time not to really own your property. My friends children (in their early thirties) are already feeling the pinch and it will be a huge shock if or when interest rates rise.

gozaimasu

For me the hassle of buying is way better than the hassle of renting. Your employer doesn't need to get dragged into things with referencing and OTT checks. Renting used to be easy, now I find buying easier. Nobody needs to know your job except the bank.


Estate agents take everything way too far, I hate them. I prefer the Scottish system in every way, done through solicitors officially.

t0rt0ise

Sometimes it depends where you want to live. I could afford to buy in many places but I don't want to live there, so I have to rent. Luckily I have a HA place so no worries about having to move on. But if I had enough money I would buy.