Comparing cost of buying vs renting over the next 5 years

merlinthehappypig

kunekune wrote: »

And as for not seeing anyone from the LL or LA in 8 months: can I come to where you live????? Three months is the norm.

I realise that this isn't the norm, but this is why we picked this type of property in the first place, having heard lots of tales of woe about smaller private landlords. We have never had any form of inventory either;) though it is mentioned in the rental agreement.

I guess the downside might be if we need any work doing, but they have contractors working for them who seem pretty efficient and we don't need to go through the LL or LA to get anything done (in principle anyway).

Gorgeous_George

The rent on my BTL is £5K per year. Moving house can easily cost more than that.

If you don't want to live in the house forever (or 10 years +), rent it is my advice.



GG

tr3mor

kunekune wrote: »

And as for not seeing anyone from the LL or LA in 8 months: can I come to where you live????? Three months is the norm.

I've only seen my LL and LA around the village. Very nice people too! :beer:

kunekune

chriseast wrote: »

I realise that this isn't the norm, but this is why we picked this type of property in the first place, having heard lots of tales of woe about smaller private landlords.

Most tenants who have children at school and need more than two bedrooms don't have the luxury of picking between houses, let alone between landlords. See thread from poster in Hertfordshire about not being able to find an affordable three bedroom house at all. I'm a tenant and likely to stay so by choice for some time yet, but the downside is constant uncertainty about where we are going to live when the current protected term ends. One of the costs of moving we have just had is that of paying double rent for 3 months while the notice period runs out on the last place - no landlord is going to wait that long for you to start paying rent, and it isn't safe to give notice without another place arranged. OK, we had agreed to a long notice period but the only alternative was a 12 month AST with no possibility of renewal, and given the local market that wasn't wise.

Coming back to OP's point, yes, I saw that article and would have made the same comment about constant moving. But in essence, the real difference is about more than money. It is about being allowed to have pets (or children), being allowed to be a bit messy, putting pictures up on the wall, paint the house the colour you want. If you can get the kind of tenancy council tenants have or that some lucky s*ds mentioned, it might not be very different from owning the house. But for the average private tenant, it is hard to see this way of life as anything other than a temporary situation.

obsessed_saver

I should point out that the comparison is made with the "fist time buyer" in mind.

School catchment areas and number of bedrooms affecting the choice of houses is only given. This only affects families with kids though.

For the singleton or a couple, it's actually a lot more flexible to rent, and it makes economical sense if the prices are about to stagnate at 1% or 2% as the predictions are at the moment.

nobblyned

obsessed_saver wrote: »

The monthly repayment amount (including interest) used in their calculation is £1312.50 for a mortgage of £160k, is about right according to my rule of thumb of £160 per month per £20k mortgage. In 2004, my rule of thumb in estimating monthly repayments is £100 per £20k mortgage. Just goes to show how much of an impact the interest rate increases have been!

Just goes to show how much they've fudged their costs to slant against buying!

A 25 year repayment mortgage at 6.25% (their rate not mine) is £1050 pcm, not £1300.

They seem to have forgotton to adjust for the reducing interest on a reducing capital! If they can't even get this simple calculation correct, given the plethora of mortgage calculators out there, I'd be reluctant to trust any of their other 'assumptions'.

obsessed_saver

nobblyned wrote: »

A 25 year repayment mortgage at 6.25% (their rate not mine) is £1050 pcm, not £1300.

Actually, that is a good thing for the "buying" camp because the article is assuming you are paying more of the capital. If you use the £1050pcm figure, you will have less equity in the property after 5 years than was assumed in the article's calcuation, which means you've paid off more interest and only very little capital and you'll be paying more interest in the 25 years. The "equity after 5 years" is used as a plus point in the calculation. If you reduced that by reducing the monthly payments, the figures will be worse off for the buying scenarios.

I haven't personally plumped their figures through a spreadsheet, so I can't say whether they got their calculations right/wrong.

nobblyned

Ok, having had another 5 min to look at this calculation

Further erroneous assumptions:

- That if you keep the 40k deposit and rent, you pay no tax on your interest on that deposit.
- That rents don't increase for the next 5 years.
- That you don't have to pay any rental agency fees, AST fees, losses of deposit, loss on interest on deposit.
- No removal costs for the renter, assuming they will have to move a couple of times in 5 years as they don't own the property
- That you earn net interest on the non-payed mortgage capital, when this will be going in part towards the rent.

Whilst I have no doubt that if house prices didn't increase for 5 years AND rents didn't increase for 5 years also you would be better off renting. I disagree though that it would add up to the amount claimed, and I feel that these are some pretty large assumptions to make.

nobblyned

obsessed_saver wrote: »

Actually, that is a good thing for the "buying" camp because the article is assuming you are paying more of the capital. If you use the £1050pcm figure, you will have less equity in the property after 5 years than was assumed in the article's calcuation, which means you've paid off more interest and only very little capital and you'll be paying more interest in the 25 years. The "equity after 5 years" is used as a plus point in the calculation. If you reduced that by reducing the monthly payments, the figures will be worse off for the buying scenarios.

Not really, they charge the interest on the full £160,000 all the way through.

The capital going in at the middle of the calculation and coming back at the end is irrelavent - a zero sum. They are just overcharging on the interest...

Generali

The article is rubbish. It's not meaningful to compare the costs of buying or renting property over a long period due to the large number of assumptions that you have to make.

For example:

Benefit of owning a house over any given period:

Net present value of I]value of house at end of period + 'utility' gained by owning the house (e.g. security of tenure, ability to pain walls in colour of your choice) + imputed rent[/I

Cost of owning a house over given period:

Net present value of I]purchase cost of house + mortgage interest paid + utility lost by home ownership (e.g. hassle, extra financial risk) + repair costs + investment gains forgone on equity in home[/I

Subtract costs from benefits for net gain/loss.

There's a similar calculation to be made for renting.

This is pretty much impossible to cost. Small changes in interest rates make a huge difference to net present value calculations. It's almost impossible to price utility (except by montioring peoples' actual behaviour). What's the house going to be worth at the end of the period?

The calculations in the article are a huge oversimplification (and also plain wrong in many cases as pointed out by other posters).