£200k inheritance, property ladder or not?

ReadySteadyPop

Herzlos said:

You can only leave a rental if you can find another rental, and if the price of all of them go up you're paying more.

Housing costing more over time is inevitable, but with a mortgage you are in more control of it via fixed rates, adjusting terms, shopping around etc, and are actively building equity so are more insulated from changes as time goes on. Your outstanding balance will never go up unless you borrow more for some reason.

The term is irrelevant to this argument. Assuming a 30 year mortgage then in 20 years with no overpayments, it's going to be about 50% paid off due to the way interests and balances work. That sounds bad but it's still 20 years ahead of rent which is 100% sunk cost.

The reality is that you need to live somewhere, and if you don't need to move regularly, it's much cheaper long term to buy than rent.

Herzlos said:

You can only leave a rental if you can find another rental, and if the price of all of them go up you're paying more.

Housing costing more over time is inevitable, but with a mortgage you are in more control of it via fixed rates, adjusting terms, shopping around etc, and are actively building equity so are more insulated from changes as time goes on. Your outstanding balance will never go up unless you borrow more for some reason.

The term is irrelevant to this argument. Assuming a 30 year mortgage then in 20 years with no overpayments, it's going to be about 50% paid off due to the way interests and balances work. That sounds bad but it's still 20 years ahead of rent which is 100% sunk cost.

The reality is that you need to live somewhere, and if you don't need to move regularly, it's much cheaper long term to buy than rent.

People are leaving rentals all the time, you are not trapped in them the same way that you are trapped with a mortgage, and as rent is based on wages and mortgage debt payments are decided by the bond markets the two costs are totally different, in fact one is a cost and one is a debt, very different legal definition as well, but in the present situation of rising debt costs it doesn`t make sense to say that a mortgage is cheaper because mortgage rates are going up and there is downward pressure on rents, making it the most sensible thing to hang on to the 200k in a very safe and liquid savings vehicle.

Herzlos

But you leave a rental, where are you going?

ReadySteadyPop

Herzlos said:

But you leave a rental, where are you going?

Are you saying that people can`t, or never leave rentals?

strawb_shortcake

Of all the people I know that have rented, the only ones that leave voluntarily is so they can buy their own house. The rest has been due to eviction and LL wanting to sell up. 

About a year ago locally, people wanting to rent were having to bid to secure a property, and paying well over the advertised rate. Its not uncommon in some areas that you either pay through the nose, or accept an absolute horror.

kempiejon

Herzlos said:

kempiejon said:

Can you find me an actual example, of 2 similar properties on rightmove where the rental is cheaper than the mortgage estimate?

Taking just that idea. Away from the original question of what the poster could do with the £200k let's suppose we could find such an example. I reckon you could too. It wouldn't prove anything would it?
It would not be quite right, there's more to it than just comparing rent to mortgage.

I didn't have to work hard to find a flat for rent £1250 pcm similar sold May 2024 £285000. Southsea in this case.
Mortgage quote  - estimated property value is £285,000, loan amount is £256,500, term is 25 years and 0 months and payment type is repayment.

4.71%   Barclays Green Home 5 Year Fixed.
£1,456.46(62 months) Fee £999  4.71%until 31st March 2030 6.74% variable for the remaining term *

Herzlos

Do you have links to both?

FreeBear

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

Herzlos said:

kempiejon said:

As we're a long way from the original Q.

Lets us posit "Is buying cheaper these days?"

https://www.cityam.com/renting-remains-cheaper-than-buying-in-uk-as-mortgage-rates-soar/

https://www.lloydsbankinggroup.com/assets/pdfs/media/press-releases/2024-press-releases/halifax/2024.03.27-renting-now-cheaper-than-owning-a-first-home-in-nearly-all-uk-regions.pdf

https://www.property118.com/londons-rents-are-cheaper-than-mortgages/

Or not?

https://moneyweek.com/investments/property/buying-cheaper-than-renting-again-how-much-could-you-save

That's interesting, because it seems to be talking about a particular spike in June 2024 where mortgages became more expensive than renting, because first time buyer costs on houses are up 114% in the last decade whilst rents are only up 84%, and is talking about mortgage rates of 6% which we've come back down from.

It still seems to indicate that it's not a bad time to buy, because higher rates are suppressing demand a bit.

It's also not addressing that if you have £200k in cash sitting about, that it's going to be cheaper to use that towards a house deposit than stick it in an investment account and rent.

It also isn't factoring in the long term, like the OP was concerned about.


Can you find me an actual example, of 2 similar properties on rightmove where the rental is cheaper than the mortgage estimate?

We can`t really factor in the future because we don`t know what will happen, I would guess that mortgage rates will be higher though judging by what is going on just now in the global economy. What happens if you take on a mortgage, put the 200k in as well then lose your job down the line if there is a recession?

We can make some educated guesses on the 20-year-ish scale:

If we had a 20 year mortgage, it'd be paid off
House prices will have doubled.

Rents will have doubled.

In terms of losing jobs, you'd be unwise to put all of it in the mortgage unless you already have a savings buffer. However, it's a lot harder to get evicted from a house you own than one you rent, and worst case you'd still be able to pull out some or all of the equity.

It's not cost effective to buy often, because there are overheads, and the longer you've owned and the more equity you have, the less risk there is. But I'm talking about longer term here, because the OP is talking about getting a house to raise their kids in. 

The problem is that your mortgage debt payments can also double at short notice as many people are finding out at the moment

Unless you are on an interest only mortgage, the rates are going have to skyrocket by a lot to double the repayments.

You really don't have a clue what you are talking about do you.

kempiejon

Herzlos said:

Do you have links to both?

And if I shared so what? You'd be surprised?
It wouldn't show anything much would it and it's really not such an outlandish prospect is it?
As I said I'm sure you could find examples. Mortgage costs are I assume a function of the debt taken on. There are place where rent is cheap, a function I guess of market forces. Debt is fairly expensive today, mortgage rates at 5% not the sub 2% of a few years back.
Comparing a monthly rental bill being less expensive than a mortgage is not be quite right, there's more to it than just those 2 numbers.

ReadySteadyPop

FreeBear said:

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

Herzlos said:

kempiejon said:

As we're a long way from the original Q.

Lets us posit "Is buying cheaper these days?"

https://www.cityam.com/renting-remains-cheaper-than-buying-in-uk-as-mortgage-rates-soar/

https://www.lloydsbankinggroup.com/assets/pdfs/media/press-releases/2024-press-releases/halifax/2024.03.27-renting-now-cheaper-than-owning-a-first-home-in-nearly-all-uk-regions.pdf

https://www.property118.com/londons-rents-are-cheaper-than-mortgages/

Or not?

https://moneyweek.com/investments/property/buying-cheaper-than-renting-again-how-much-could-you-save

That's interesting, because it seems to be talking about a particular spike in June 2024 where mortgages became more expensive than renting, because first time buyer costs on houses are up 114% in the last decade whilst rents are only up 84%, and is talking about mortgage rates of 6% which we've come back down from.

It still seems to indicate that it's not a bad time to buy, because higher rates are suppressing demand a bit.

It's also not addressing that if you have £200k in cash sitting about, that it's going to be cheaper to use that towards a house deposit than stick it in an investment account and rent.

It also isn't factoring in the long term, like the OP was concerned about.


Can you find me an actual example, of 2 similar properties on rightmove where the rental is cheaper than the mortgage estimate?

We can`t really factor in the future because we don`t know what will happen, I would guess that mortgage rates will be higher though judging by what is going on just now in the global economy. What happens if you take on a mortgage, put the 200k in as well then lose your job down the line if there is a recession?

We can make some educated guesses on the 20-year-ish scale:

If we had a 20 year mortgage, it'd be paid off
House prices will have doubled.

Rents will have doubled.

In terms of losing jobs, you'd be unwise to put all of it in the mortgage unless you already have a savings buffer. However, it's a lot harder to get evicted from a house you own than one you rent, and worst case you'd still be able to pull out some or all of the equity.

It's not cost effective to buy often, because there are overheads, and the longer you've owned and the more equity you have, the less risk there is. But I'm talking about longer term here, because the OP is talking about getting a house to raise their kids in. 

The problem is that your mortgage debt payments can also double at short notice as many people are finding out at the moment

Unless you are on an interest only mortgage, the rates are going have to skyrocket by a lot to double the repayments.

You really don't have a clue what you are talking about do you.

https://inews.co.uk/inews-lifestyle/money/mortgage-payments-doubled-here-did-next-2476220

https://www.telegraph.co.uk/money/property/mortgages/mortgage-payments-double/

https://forums.moneysavingexpert.com/discussion/6501313/mortgage-doubling

ReadySteadyPop

Herzlos said:

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

Herzlos said:

ReadySteadyPop said:

confusedfreelancer said:

SadieO said:

This is ridiculously simplistic but if I put all my money into buying a house and its value tanks to zero, I've still got a house to live in. If all my money is in stocks and shares and they tank to zero then I've got nothing. Right?? 

Bingo. I reckon that even if my house value drops to zero, it's still going to be cheaper than renting once you factor in the decades of living rent free. It's such a stupid thing to be arguing against.

This is how I feel too. I feel a bit sick when I think of everything I've spent on rent.

Imagine how people coming off fixes just now feel when they realise how much they will be paying the bank for the use of their house loan?

"Wow this is expensive, but still less than rent! At least I can stop paying in a few years! Thank God I bought when I did".

Not that I need to imagine because I'm in exactly that category. My rate is about to go from 2% to 5%, meaning my mortgage will go from about £800 to £1000. Bad, eh? Well the only rental I can see in my town with the same number of bedrooms is £1400/month, but is a smaller house. So I think I'll be fine.  I'm not happy about paying more for mortgage, but I'm still so glad I've got a mortgage and not rent.

I'm sure you'll try and say that the only reason it's the only one for rent is because it's overpriced, any maybe it is, but if I needed to rent and had a choice of 1, what else do I do?

You can`t generalise the whole UK market from one town with a lack of rentals, if you expand your search area you will find more/cheaper rentals for sure, landlords can`t just bail out of the market the same way someone with stocks or a money market fund can, they have to wait for a buyer and in the meantime need to try to keep the property occupied to avoid double council tax etc. there are good deals out there if you look for them.

I'm comparing like for like, based on the actual house I'm sitting in right now, to provide my perspective as to why I, the sort of person you were targeting in your claim, don't agree with your claim.

Pick any other city and property type you wish and I can hash out numbers but the results will be the same.

The point your trying to dodge is that an equivalent rental is still 50% more than my mortgage *after* the rate hike.

I can`t see that being something that is sustainable going forward to be honest.

Absolutely. I've no idea how anyone can afford to rent long term. At least my Mortgage will go down.

The sad reality is that outside of social rents, which we need much more of, private rental rates are going to be based on the landlords mortgage, allowing for profit after tax. So the 2 are intrinsically linked but there's no way market rate will be less than an equivalent mortgage or the landlord will lose money.

The reality is that rents are based on wages and your mortgage debt is based on bond/credit markets (specifically the "10 Year Yield") no amount of a landlord needing, wishing, demanding that their debt costs be met by a tenant changes the fact that they are liable for the debt, and an empty property is going to cost them double council tax AND their debt tax to the bank, many landlords are VERY financially exposed now, and how many would dream of having 200k in a safe liquid place to cover their costs!

Aer you trying to imply that a BTL landlord isn't setting the rent rate based on their mortgage? That they'll take a loss on it for some reason? Sure there are some landlords who own outright (like yours, after 21 years) who aren't tied to mortgage rates, but as an investment and not altruism will be seeking the maximum value the market can bear.

I don't think I've ever seen a like for like mortgage/rental where the rental is cheaper than the mortgage, before considering equity/future - can you find an example?


I'm not saying renting doesn't suit some people, but it's just nonsense to claim it's somehow a better investment mechanism in the longer term.

There are posts on this thread quoting multiple articles saying that renting is cheaper, as debt costs rise renting will continue to get cheaper than mortgage debt.