Enjoy renting but see the benefits of ownership… SO a good/bad idea?

betterbudgeter2021

Hi there, apologies in advance for a wall of text but I would like to provide as much context as possible.

I’ve been renting for a number of years, mainly because I spent a long time living in London where I could never dream of affording property close-ish to where I worked or socialised. I moved out of London a couple of years ago but have continued to rent because where I live (an hour north of London) it’s still far cheaper to rent than buy an equivalent property. 

For example my rent is £1050 and neighbours houses are selling for around £450k. I couldn’t afford to buy at that price but even at £350k which is probably my ceiling, I only have a 10% deposit so my repayments would be higher.

I’m currently offsetting some of the downsides of renting by putting £400 a month into a Vanguard Global fund. I reached the £500 figure by taking a typical mortgage repayment on a £315k mortgage plus a fairly arbitrary £1200 a year maintenance/improvement costs that I don’t pay in a rented house.

In terms of my position, I’m in my mid-thirties, earning £65k with zero debt and £35k savings. I pay £460p/m into my work pension scheme which is matched by them.

I’ve long been on the fence about home ownership. Mainly because as above, I haven’t lived anywhere I can afford to own close to the things I enjoy. My partner and I don’t have children and no immediate plans to, so have no real reason to remain in one place for 25-35 years. We have family in the south midlands and the far south west, so houses between those areas where we’d like to be are obviously at the higher end of the national averages.

We have both owned property in the past, with ex-partners and many years ago, but it means we won’t receive the stamp duty benefit for FTB.

However, despite the above I think we are well aware of the equity benefits of owning vs renting, and would like to ‘get on the ladder’ so to speak. But, perhaps selfishly, we don’t want to compromise on things like location or garden/garage/etc. We can currently walk to the town centre, have a lovely garden and we’d have to sacrifice that if we were to buy where we could afford. 

It’s really the short term we are looking at because we would like to ‘settle’ eventually, and with things like COVID bringing remote working, people moving all over the country, we’d like to wait a few years before deciding where to buy for the long term.

So with that in mind, we’ve seen a number of shared ownership properties that we could buy 25% of, in this case for around £125k. 

Would it be a stupid idea to do so? I’ve read a lot about the downsides to SO, namely the over-valuing and difficulty selling. 

We wouldn’t have any intentions of staircasing as it would likely be a stop-gap for say 3-5 years while we get closer to deciding where we might want to buy longer term.

I suppose a short way of asking the above would be would it be more financially sensible to continue to rent and add to the Vanguard fund for 3 years, or go for a SO property at 25% of £500k?

Again, sorry for such an enormous post but it’s a big decision and we are trying to weigh up all the factors.

Thanks

AdrianC

betterbudgeter2021 said:

I’ve been renting for a number of years, mainly because I spent a long time living in London where I could never dream of affording property close-ish to where I worked or socialised. I moved out of London a couple of years ago but have continued to rent because where I live (an hour north of London) it’s still far cheaper to rent than buy an equivalent property. 

For example my rent is £1050 and neighbours houses are selling for around £450k. I couldn’t afford to buy at that price but even at £350k which is probably my ceiling, I only have a 10% deposit so my repayments would be higher.

I’m currently offsetting some of the downsides of renting by putting £400 a month into a Vanguard Global fund. I reached the £500 figure by taking a typical mortgage repayment on a £315k mortgage plus a fairly arbitrary £1200 a year maintenance/improvement costs that I don’t pay in a rented house.

In terms of my position, I’m in my mid-thirties, earning £65k with zero debt and £35k savings. I pay £460p/m into my work pension scheme which is matched by them.

I’ve long been on the fence about home ownership. Mainly because as above, I haven’t lived anywhere I can afford to own close to the things I enjoy. My partner and I don’t have children and no immediate plans to, so have no real reason to remain in one place for 25-35 years. We have family in the south midlands and the far south west, so houses between those areas where we’d like to be are obviously at the higher end of the national averages.

We have both owned property in the past, with ex-partners and many years ago, but it means we won’t receive the stamp duty benefit for FTB.

However, despite the above I think we are well aware of the equity benefits of owning vs renting, and would like to ‘get on the ladder’ so to speak. But, perhaps selfishly, we don’t want to compromise on things like location or garden/garage/etc. We can currently walk to the town centre, have a lovely garden and we’d have to sacrifice that if we were to buy where we could afford. 

It’s really the short term we are looking at because we would like to ‘settle’ eventually, and with things like COVID bringing remote working, people moving all over the country, we’d like to wait a few years before deciding where to buy for the long term.

So with that in mind, we’ve seen a number of shared ownership properties that we could buy 25% of, in this case for around £125k. 

Would it be a stupid idea to do so? I’ve read a lot about the downsides to SO, namely the over-valuing and difficulty selling. 

We wouldn’t have any intentions of staircasing as it would likely be a stop-gap for say 3-5 years while we get closer to deciding where we might want to buy longer term.

I suppose a short way of asking the above would be would it be more financially sensible to continue to rent and add to the Vanguard fund for 3 years, or go for a SO property at 25% of £500k?

You're definitely doing the right thing in questioning your position... but in your position, I think you're doing the right thing.

Is the £65k just your income, or your household income? Assuming just you, then that's a basic post-tax of about £3,850. With the pension taken out, it's about £3,600 (less any other at-source deductions... student loan?) - but what about your partner? Are you just buying alone, or as a couple?

With £1,500 rent and savings out, that's still £2k/mo for... living life... If you wanted to, you could up the savings quite quickly without having to squeeze the pips too hard, right? Pension, of course, is just long-term saving with a big tax advantage - and if the employer's equalling, it's daft not to go for that.

Personally, I regard SO as a benefit for those who simply can't afford to buy any other way. You can. You just can't buy what you WANT to buy. I don't think you're that far short of being able to afford to buy all of a £450k property if you really wanted to, and were prepared to sacrifice some of the flexibility and lifestyle.

BUT - it doesn't sound as if that's what you really want. You want the flexibility. That's the real showstopper for SO. You have all the downsides of ownership with none of the benefits.

betterbudgeter2021

I’ve just looked at the rent costs for the 75% unsold value of the SO house and it’s £1300!!! So total monthly costs would be upwards of £1800! 

At that figure I’d be far better off just buying a £350k property.

I suppose I’ve answered my own question but I’d be keen to hear thoughts on whether buying, knowing we wouldn’t stay for more than 3-5 years is at all a more sensible option than continuing to invest and rent.

seven-day-weekend

Personally I would compromise on quite a lot  if I was putting over £1000 a month into someone else's pocket.  But I'm 71 and probably have a different outlook on the pros and cons of renting.  The only 'pro' I can see is the flexibility.

You must do what you feel happy doing and if that is paying a lot of money out for things like a garage, then that is your choice.

I wish you well whatever you decide.

AdrianC

seven-day-weekend said:

Personally I would compromise on quite a lot  if I was putting over £1000 a month into someone else's pocket. 

It's just like any other paid service. You are paying for accommodation...

If somebody leases a car rather than buys it - same thing.

One thing's for sure, at £1k/mo rent for a £450k property, the landlord is getting an abysmal rate of return, and if they have any kind of leveraging at all, they're probably subsidising the OP's accommodation... and that's probably the OP's biggest thread to their current lifestyle.

betterbudgeter2021

Thanks both.

It’s very true we could up our savings. My partner lost her job and struggled finding another for over a year due to the pandemic. She’s now back in work but only part-time so I haven’t factored her income in. In an ideal world she’d be earning around £25k but as of right now that’s not the case. We would buy together but I’m trying to base affordability on just my income so as not to over commit until things have improved. 

That’s also why our luxury budget seems so, luxurious currently. I’ve been covering her outgoings (things like contact lens/Spotify subscriptions etc) and obviously paying all bills food costs. As a higher earner I’d continue to pay the rent/bills but our joint income would I suppose be £90-100k in a ‘normal’ year, when things hopefully improve.

Regarding compromising on the garage, one of my biggest passions/pastimes is working on old motorcycles and heavy craft (wood/metalwork). We have a very modest car and currently park that on the street, but I would like a garage or workshop space just because my hobby is a big part of my life.


Thanks for the valuable reply, I think saving more and looking at upping our budget in time is a great idea.

steampowered

What you really need to think about is retirement. Sounds like a long way off, but you need to plan - it will be too late otherwise. Can you afford to be paying rent when you retire at age 65?

As you are in your mid thirties, you are at about the age where if you get a standard 30 year mortgage and make the minimum payments, you will clear it by the time you reach age 65. 

Personally I would get a mortgage on the £350k property rather than going down the SO route. You might have to make a few sacrifices now, but you can also move to a more expensive property in a few years time once you have built up a bit more equity.

steve866

Is the house you are renting really worth £450k? If so sounds like you’ve got a good deal. 

betterbudgeter2021

steampowered said:

What you really need to think about is retirement. Sounds like a long way off, but you need to plan - it will be too late otherwise. Can you afford to be paying rent when you retire at age 65?

As you are in your mid thirties, you are at about the age where if you get a standard 30 year mortgage and make the minimum payments, you will clear it by the time you reach age 65. 

Personally I would get a mortgage on the £350k property rather than going down the SO route. You might have to make a few sacrifices now, but you can also move to a more expensive property in a few years time once you have built up a bit more equity.

Thanks! That’s a great point about buying a more expensive place in a few years. Again something I’d not really considered.

I definitely do not want to be paying rent into retirement. I guess a loose, wildly optimistic plan was that if I did eternally rent, I’d pour as much as I could into a tracking fund with the hope of compound interest and a strong 30 years giving me enough to buy a house outright at 65-70 and then live on private pension.

At 8%, assuming I don’t increase my £400 investment over time, it would be worth around £1mil in 35 years. Complete speculation of course.

That also assumes the fund does very very well and house prices don’t increase as much in the next 35 years as they have in the previous. Otherwise I’ll be in the same boat in 35 years time as I am now. 

Again though, that’s a risk I’m not entirely comfortable with which is why buying property in the near future does make sense to me.

betterbudgeter2021

steve866 said:

Is the house you are renting really worth £450k? If so sounds like you’ve got a good deal. 

Possibly more, that was based on a sales figure from last November for our neighbours house which is identical, and if anything, slightly less nicely decorated.

I’m guessing our Landlords have owned the place for a long time and bought for a far lower price. House prices have increased enormously here in the last 10-15 years.

London was similar, we paid £1650pcm rent for a place that would’ve cost £700k to buy.

I think that’s been the impetus to rent over the years, we’ve never lived in a place that we could afford to buy. Otherwise we’d have probably bought far sooner.

julicorn

betterbudgeter2021 said:

I’ve just looked at the rent costs for the 75% unsold value of the SO house and it’s £1300!!! So total monthly costs would be upwards of £1800! 

At that figure I’d be far better off just buying a £350k property.

I suppose I’ve answered my own question but I’d be keen to hear thoughts on whether buying, knowing we wouldn’t stay for more than 3-5 years is at all a more sensible option than continuing to invest and rent.

For us it has worked out, even when not taking house price inflation into account. We've been paying around £200 a month interest, where beforehand we were paying almost £900 in rent (for a less nice property). Even that on its own has allowed us to save up a massive amount of money / build equity, meaning we're quite a lot closer to moving into a long-term home than we ever would have been had we continued to rent.