Comparing cost of buying vs renting over the next 5 years

obsessed_saver

Point taken.

Badger_Lady

I'd be more interested if this was a genuine calculator - it's based on a lot of assumptions that really don't apply to me!

The one that really made me laugh was "buildings insurance & repairs at 1% per year = £10,000"!!! So far, my property has cost me £60 a year, although for my figures I'm prepared to round this up to £500 for the sake of argument :-)

Anyway, I decided to make up my own little table in the same fashion but using my own circumstances and, based on property prices remaining the same for 5 years, the costs come out damn near equal:

Cost of buying property: -32,790
Cost of renting property: -39,000

Busbyuk

Having a little trouble figuring out if I'm saving or not. I'm pretty sure I am.

Found out the flat I'm living is is worth around £360,000. My rent is currently £1050 a month.

How much would this work out that I save every 5 years? thanks

Generali

obsessed_saver wrote: »

Point taken.

I think a lot of the problem with articles like this (and also ones that go on about how wonderful it is that house prices have risen by a squillion %) is that they're approaching the question from completely the wrong angle.

What they should say is something along the lines of, you've got £x pm to spend on housing. What's going to provide the nicest outcome for you and your family. !!!!!!, we live in a home, not an investment.

Generali

Busbyuk wrote: »

Having a little trouble figuring out if I'm saving or not. I'm pretty sure I am.

Found out the flat I'm living is is worth around £360,000. My rent is currently £1050 a month.

How much would this work out that I save every 5 years? thanks

Depends what interest rate you use to discount the net present value of the house when you revalue in 5 years time.

fimonkey

Busbyuk, I'm having a similar 'muppet' moment in trying to work out what my costs of buying vs renting over 3 years is likely to be. (Looking at 3 years as more suitable for me).

Can anyone help me with the formula please? (I'm willing to attempt the maths myself.. ha ha even if I get it wrong, .. just confused about what formulae to use).

So then,
1. My rent for the next 5 years is going to be £350pm exclusive, no increase. (I KNOW this for sure).
2. I have 30K in savings earning 6.3% Gross and I'm a BR taxpayer (so I earn about £112 net in interest, though that's compounded (added onto the balance every year) and I am rubbish when I try to compund figures, get myeslf in a real twist).
3. I save £350 per month at 6% Gross, paid annually (so again the balance increases monthly so I am confused with calculating interest etc).

If I were to buy a similar flat that I live in, I would need a fixed rate mortgage of £125K (and put the 30K I have in savings towards the deposit and fee's, so I would have no savings). At 6% repayment this would be £814.86

Straight away, just looking at the monthly outgoings (ie Rent + Saving = £700pm Vs repayment of £814.86pm) I can see I'm better off renting. I haven't included other outgoings such as bills/council tax etc etc as I'm assuming that renting or buying the same place then these would be the same also. The only other addition I can think of that I'd need when buying is buildings insurance and income protection (about £80 pm combined).

So given the figures above, and assume I am buying for a home not an investment (but will wnat to move on in 3 years time) and HPI remains static or at teh most is 3%p.a (is that a reasonable assumption)?...

...Is it better for me to rent or buy and how would I calcualte it all?

Many thanks in advance

Generali

fimonkey wrote: »

Busbyuk, I'm having a similar 'muppet' moment in trying to work out what my costs of buying vs renting over 3 years is likely to be. (Looking at 3 years as more suitable for me).

Can anyone help me with the formula please? (I'm willing to attempt the maths myself.. ha ha even if I get it wrong, .. just confused about what formulae to use).

So then,
1. My rent for the next 5 years is going to be £350pm exclusive, no increase. (I KNOW this for sure).
2. I have 30K in savings earning 6.3% Gross and I'm a BR taxpayer (so I earn about £112 in interest, though that's compounded (added onto the balance every year) and I am rubbish when I try to compund figures, get myeslf in a real twist).
3. I save £350 per month at 6% Gross, paid annually (so again the balance increases monthly so I am confused with calculating interest etc).

If I were to buy a similar flat that I live in, I would need a fixed rate mortgage of £125K (and put the 30K I have in savings towards the deposit and fee's, so I would have no savings). At 6% repayment this would be £814.86

Straight away, just looking at the monthly outgoings (ie Rent + Saving = £700pm Vs repayment of £814.86pm) I can see I'm better off renting. I haven't included other outgoings such as bills/council tax etc etc as I'm assuming that renting or buying the same place then these would be the same also. The only other addition I can think of that I'd need when buying is buildings insurance and income protection (about £80 pm combined).

So given the figures above, and assume I am buying for a home not an investment (but will wnat to move on in 3 years time) and HPI remains static or at teh most is 3%p.a (is that a reasonable assumption)?...

...Is it better for me to rent or buy and how would I calcualte it all?

Many thanks in advance

Personally I would rent as the costs of buying and selling are pretty high so you need quite a bit of HPI to cover that.

Trouble with renting is you get no security of tenure so it depends how much you value that.

Badger_Lady

Wow, Monkey - where do you live? Just goes to show how much things vary by area - my old flat was worth £125k, but would have been £600pcm to rent!

The calculation I did above was for a property worth £145k, which would be £650pcm to rent (based on my new house), and I worked out marginally better off buying.

Sounds like in your area it's much cheaper to rent!!!

Of course, it is all conjecture anyway - about whether you prefer owning your own home (regardless of cost), and whether the property market will go up or down.

fimonkey

Badger_Lady: I share a 3 bed flat, so £350pm is my share of the rent. Of course I factored in that bills etc would be higher for me living alone if I were to buy a one bed place, but not that much higher (mainly CT)

Security of tenure not a problem for me (the other two tenants in the flat have been there 5 years so far and LL is happy with us).

Current uncertainty in the housing market aside, I've been swayed by the argument that owning is better as you eventually chip away at your capital and own your own home outright, and can then downsize to a mobile home when you need to top up your pension ;-) I also would like to own before I begin breeding (I'm 30 now, so in the next 6 years if it's going to happen) so I DON'T have the hassle of tenancy agreements saying 'no kids/no pets' etc.

So going back to the calcuations,... If continue to save £350 pm in a 6% Gross account, and have 30K in another 6% Gross account paying interest monthly (as I said, it's about £112 pm net).. where would I be savings wise in 3 years time? (As THAT's when I'm likely to buy, if not now).

Thanks in advance again

PS, Have 6K in an ISA (which is full for this year) which is NOT to be touched, it's my 'If I ever lost my job and was down on my luck' fund.

Badger_Lady

fimonkey wrote: »

Badger_Lady: I share a 3 bed flat, so £350pm is my share of the rent. Of course I factored in that bills etc would be higher for me living alone if I were to buy a one bed place, but not that much higher (mainly CT)

Security of tenure not a problem for me (the other two tenants in the flat have been there 5 years so far and LL is happy with us).

Current uncertainty in the housing market aside, I've been swayed by the argument that owning is better as you eventually chip away at your capital and own your own home outright, and can then downsize to a mobile home when you need to top up your pension ;-) I also would like to own before I begin breeding (I'm 30 now, so in the next 6 years if it's going to happen) so I DON'T have the hassle of tenancy agreements saying 'no kids/no pets' etc.

So going back to the calcuations,... If continue to save £350 pm in a 6% Gross account, and have 30K in another 6% Gross account paying interest monthly (as I said, it's about £112 pm net).. where would I be savings wise in 3 years time? (As THAT's when I'm likely to buy, if not now).

Thanks in advance again

PS, Have 6K in an ISA (which is full for this year) which is NOT to be touched, it's my 'If I ever lost my job and was down on my luck' fund.

Ah - so now you have a new thing to factor in: For like-for-like, you need to include lodgers' rent in your purchasing costs.

Assuming they pay £350pcm as well..? You would now offset that against your mortgage payments (£814), which means you would actually only pay around £114pcm, all of which would go straight into the equity of your home!