Renting vs Buying - Tell me my maths is wrong!?!?
Discussion
For me its that simple fact that when you get to the end of your mortgage, you will have a house to live in for the rest of your life for free. Inflation works wonders on debt, so even if you pay nothing off the capital, the debt still drops relatively.
My parents bought their first house for 3.5k, it was a struggle for them and they had to borrow from family to get the deposit.
My first house cost me 30k, and I struggled to get the deposit. My father lent me half. I envied all those old people with 3k mortgages.
I've just bought a similar sized BTL for 122k, I wish I had bought 10 when they were 30k! Its peanuts in todays money.
In 20 years time we will be looking back wishing that we could buy at todays prices. For those that rented for that period, you will feel the same.
My parents bought their first house for 3.5k, it was a struggle for them and they had to borrow from family to get the deposit.
My first house cost me 30k, and I struggled to get the deposit. My father lent me half. I envied all those old people with 3k mortgages.
I've just bought a similar sized BTL for 122k, I wish I had bought 10 when they were 30k! Its peanuts in todays money.
In 20 years time we will be looking back wishing that we could buy at todays prices. For those that rented for that period, you will feel the same.
oyster said:
Did you not read the rest of the thread?!
My whole reply was to show that there can sometimes be no difference between renting and buying in a REAL scenario (as all other posts on this thread refer to opinions and theoretical situations). My figures are not hypothetical - they are real.
Edited to add: I'll bet that a very large proportion of bought flats in London are only owned for periods of 4/5/6 years.
Like I said, you did not buy, you bought a long rent, how hard is it to understand that? You cannot buy a flat in England as far as I know (there might be the rare cash purchase exception). You buy the lease to a flat. So you never bought a flat, neither have most people even if they think so. They just rent a flat, either AST or long lease circa, 99 years or so.My whole reply was to show that there can sometimes be no difference between renting and buying in a REAL scenario (as all other posts on this thread refer to opinions and theoretical situations). My figures are not hypothetical - they are real.
Edited to add: I'll bet that a very large proportion of bought flats in London are only owned for periods of 4/5/6 years.
Edited by oyster on Thursday 27th March 15:05
DozyGit said:
Like I said, you did not buy, you bought a long rent, how hard is it to understand that? You cannot buy a flat in England as far as I know (there might be the rare cash purchase exception). You buy the lease to a flat. So you never bought a flat, neither have most people even if they think so. They just rent a flat, either AST or long lease circa, 99 years or so.
You seem a bit confused between a leasehold property and a tenancy agreement. What would you consider a 999yr lease at a peppercorn rent to be?Jobbo said:
You seem a bit confused between a leasehold property and a tenancy agreement. What would you consider a 999yr lease at a peppercorn rent to be?
I highly doubt it, both are property that are rented out, generally most people in colloquial term use the former for longer leases whith the latter for shorter leases, but for all intents and purposes are essentially the same.A 999yr lease as the name implies is a property rented out by the freeholder for the said period for a nominal value. As with all rented property, the property steadily devalues once the lease is purchased till it acquires a zero market value when it reverts to the freeholder at the end of the lease or tenancy.
What is so hard to grasp about the concept of renting things vs buying things? Do you believe you own the car you hire for a day from avis or lease for 24 months from Skoda?
Long leasehold property doesn't exist for the benefit of the landlord, it's set up that way for mutual enforceability of covenants.
I know an assured shorthold tenancy agreement is also a lease, but the colloquial terms I used are actually quite helpful in distinguishing between types of residential lease. If someone pays a premium for a long lease at a peppercorn or low ground rent, they own the valuable interest in the property. A reversion in 999 years is so far off as to be merely hypothetical.
Of course, if you're getting into the real nitty gritty of property law, you'll no doubt be aware that the queen owns the land and a freehold is a subservient interest to hers
I know an assured shorthold tenancy agreement is also a lease, but the colloquial terms I used are actually quite helpful in distinguishing between types of residential lease. If someone pays a premium for a long lease at a peppercorn or low ground rent, they own the valuable interest in the property. A reversion in 999 years is so far off as to be merely hypothetical.
Of course, if you're getting into the real nitty gritty of property law, you'll no doubt be aware that the queen owns the land and a freehold is a subservient interest to hers
Jobbo said:
Long leasehold property doesn't exist for the benefit of the landlord, it's set up that way for mutual enforceability of covenants.
I know an assured shorthold tenancy agreement is also a lease, but the colloquial terms I used are actually quite helpful in distinguishing between types of residential lease. If someone pays a premium for a long lease at a peppercorn or low ground rent, they own the valuable interest in the property. A reversion in 999 years is so far off as to be merely hypothetical.
Of course, if you're getting into the real nitty gritty of property law, you'll no doubt be aware that the queen owns the land and a freehold is a subservient interest to hers
I do agree from the point of a flat why we need a leasehold in the UK.I know an assured shorthold tenancy agreement is also a lease, but the colloquial terms I used are actually quite helpful in distinguishing between types of residential lease. If someone pays a premium for a long lease at a peppercorn or low ground rent, they own the valuable interest in the property. A reversion in 999 years is so far off as to be merely hypothetical.
Of course, if you're getting into the real nitty gritty of property law, you'll no doubt be aware that the queen owns the land and a freehold is a subservient interest to hers
Yes and 999 years for most people is more than 10 lifetimes, so doesn't matter.
What does shock me is the people buying your typical flat with 72 years lease and £2500 PA ground rent as is typically the case with a London property or any new build and saying they have bought a flat, in essence they bought lots of risk.
Ofcourse the Queen
But pray tell me how did the Grosvenor Group become so rich DozyGit said:
oyster said:
Did you not read the rest of the thread?!
My whole reply was to show that there can sometimes be no difference between renting and buying in a REAL scenario (as all other posts on this thread refer to opinions and theoretical situations). My figures are not hypothetical - they are real.
Edited to add: I'll bet that a very large proportion of bought flats in London are only owned for periods of 4/5/6 years.
Like I said, you did not buy, you bought a long rent, how hard is it to understand that? You cannot buy a flat in England as far as I know (there might be the rare cash purchase exception). You buy the lease to a flat. So you never bought a flat, neither have most people even if they think so. They just rent a flat, either AST or long lease circa, 99 years or so.My whole reply was to show that there can sometimes be no difference between renting and buying in a REAL scenario (as all other posts on this thread refer to opinions and theoretical situations). My figures are not hypothetical - they are real.
Edited to add: I'll bet that a very large proportion of bought flats in London are only owned for periods of 4/5/6 years.
Edited by oyster on Thursday 27th March 15:05
fido said:
oyster said:
I'm the first to admit I didn't deal all that well (rare for a PH'er to admit that I know).
I'm still stunned that a property in London (albeit inside Zone 6) didn't go up between 2007 (peak) and 2013. As you say, if you HAD to sell then that could equally take 10% or so off the value. But as someone who tried to buy in 2013, it is still hard to fathom. Back on topic, it doesn't make sense to compare in the short term because Repair Costs can add a lot of volatility into the equation - with renting it's smoothed out. Stamp Duty is also going to be proportionally smaller over time (unless you hit one of the SDLT thresholds!)Edited by fido on Sunday 30th March 00:11
Land Registry Website said:
Results
The Land Registry HPI for Bromley implies that a property worth £465,000 in July 2007 would be worth approximately £474,577 in January 2013.
This is equivalent to a change of £9,577 or 2%.
So for a quick sale, it wasn't too unusual.The Land Registry HPI for Bromley implies that a property worth £465,000 in July 2007 would be worth approximately £474,577 in January 2013.
This is equivalent to a change of £9,577 or 2%.
Rent on a place like mine is circa £1600-1800, zone 2 flat in London.
I bought 2007 and Im paying about the above with regards to mortgage, in the past 7 years the property has doubled in price.
So Im thinking that Buying was the way to go.
Probably cost me more in the amount of repairs, etc than if I just rented... but the equity increase has more than made it worth while.
If however I was in negative equity I would have been effing and blinding about not just renting the property instead of buying... but I did spend 9 months reviewing the market and locations (including future projects at the locations) to make sure I was not going to lose out.
I bought 2007 and Im paying about the above with regards to mortgage, in the past 7 years the property has doubled in price.
So Im thinking that Buying was the way to go.
Probably cost me more in the amount of repairs, etc than if I just rented... but the equity increase has more than made it worth while.
If however I was in negative equity I would have been effing and blinding about not just renting the property instead of buying... but I did spend 9 months reviewing the market and locations (including future projects at the locations) to make sure I was not going to lose out.
Du1point8 said:
Rent on a place like mine is circa £1600-1800, zone 2 flat in London.
I bought 2007 and Im paying about the above with regards to mortgage, in the past 7 years the property has doubled in price.
So Im thinking that Buying was the way to go.
Probably cost me more in the amount of repairs, etc than if I just rented... but the equity increase has more than made it worth while.
If however I was in negative equity I would have been effing and blinding about not just renting the property instead of buying... but I did spend 9 months reviewing the market and locations (including future projects at the locations) to make sure I was not going to lose out.
A more typical PH'er than I.I bought 2007 and Im paying about the above with regards to mortgage, in the past 7 years the property has doubled in price.
So Im thinking that Buying was the way to go.
Probably cost me more in the amount of repairs, etc than if I just rented... but the equity increase has more than made it worth while.
If however I was in negative equity I would have been effing and blinding about not just renting the property instead of buying... but I did spend 9 months reviewing the market and locations (including future projects at the locations) to make sure I was not going to lose out.
king lucky!!We bought our last house in 2004 and sold last year almost 9 years later exactly.
On balance of everything we made about £100 a month having owned vs renting.
BUT, we spent loads of our free time doing the house up to make it nicer and add value. Probably £200 pcm average over 9yrs on maintenance/improvements.
We had annoying neighbours at times.
We felt trapped and unable to move up the ladder as houses were rising faster than our fast-rising salaries, so we'd get little extra for all the stamp duty/fees trying to move.
When the softening of house prices hit things became easier but at that time all our efforts and investing to maintain/make nicer would have been made near zero.
In the end we got a good deal when we sold but looking back renting would have been much nicer for that 9 year period of our lives. We'd have probably rented somewhere nicer, had more freedom where we lived, etc, easily worth the rough figure of £100 a month we think we're better off by.
That isn't to say we won't buy again. I want to but am unwilling to put a load of money into an inflated investment when all the signs are that it's going to soften quite a bit.
All these recent changes to ISA savings and pension pot annuities can make financial planning more important imo so I'd stack up a load of scenarios and see what makes the best long-term sense for your current financial/life outlook
On balance of everything we made about £100 a month having owned vs renting.
BUT, we spent loads of our free time doing the house up to make it nicer and add value. Probably £200 pcm average over 9yrs on maintenance/improvements.
We had annoying neighbours at times.
We felt trapped and unable to move up the ladder as houses were rising faster than our fast-rising salaries, so we'd get little extra for all the stamp duty/fees trying to move.
When the softening of house prices hit things became easier but at that time all our efforts and investing to maintain/make nicer would have been made near zero.
In the end we got a good deal when we sold but looking back renting would have been much nicer for that 9 year period of our lives. We'd have probably rented somewhere nicer, had more freedom where we lived, etc, easily worth the rough figure of £100 a month we think we're better off by.
That isn't to say we won't buy again. I want to but am unwilling to put a load of money into an inflated investment when all the signs are that it's going to soften quite a bit.
All these recent changes to ISA savings and pension pot annuities can make financial planning more important imo so I'd stack up a load of scenarios and see what makes the best long-term sense for your current financial/life outlook
Mr Whippy said:
All these recent changes to ISA savings and pension pot annuities can make financial planning more important imo so I'd stack up a load of scenarios and see what makes the best long-term sense for your current financial/life outlook
I agree entirely.No 2 circumstances are the same. I was blinkered that buying a house was by far the best thing, both short or long term. My parents drilled that concept into my head and it's often rolled out in pub talk. I've since adapted my view to think there is no such economic certainty involved.
There are far too many permutations to say with any degree of certainty what makes most sense, either financially or in terms of the attitude to risk/permanency etc that each individual/couple/family will have.
As has been seen in the context of this thread, sometimes it can be cheaper to buy, other times cheaper to rent. To some extent there is a degree of (educated perhaps) gambling involved in how things will pan out in the future - both the greater economy and the micro-economy for the individuals that make up that particular household. You make your bed...
Like so many things in this life "you won't know until later" so the decision you make has to be something of a guess.
I have no time for those who predict a long, hot summer or those who predict the coldest winter on record. They simply cannot know. Same applies in matters of finance. All you can do is make an educated guess.
Fundamentally IMO your main residence is not an "investment" it is a "home". There is considerable peace of mind in owning your own home.
Also, I never see much point borrowing money which you're already got. If you take a mortgage at, say, 5% interest you need a return from your investments of 8.5% just to break even. And then there's the risk that your investments might fall in value.....
I have no time for those who predict a long, hot summer or those who predict the coldest winter on record. They simply cannot know. Same applies in matters of finance. All you can do is make an educated guess.
Fundamentally IMO your main residence is not an "investment" it is a "home". There is considerable peace of mind in owning your own home.
Also, I never see much point borrowing money which you're already got. If you take a mortgage at, say, 5% interest you need a return from your investments of 8.5% just to break even. And then there's the risk that your investments might fall in value.....
[quote=Ozzie Osmond]Fundamentally IMO your main residence is not an "investment" it is a "home". There is considerable peace of mind in owning your own home./quote]
I completely agree but I'd tend to say that government meddling has done more harm than good to that notion.
Today people see their home as an asset that has to maintain it's value otherwise it means financial ruin or hardships for many stupid buyers who paid too much, borrowed too much, or whatever other combination of silly choices they made.
Today we seem to want to protect these people, even though a 50% drop in values would really not hurt anyone significantly. Negative equity is an issue for people own own *a* home, but in the end as long as they can finance the debt there is no reason they couldn't move, it'd just mean unsecured debt moved around with them (that is what I think government should do as policy to protect *home* owners)
Then for everyone else who has several, then they have those beyond their primary residence as assets, investments, and we all know the values can go up as well as down.
The current focus is on protecting the values of an asset because people have been stupid enough to mis-use their home as one. Borrowing against their equity in the late 90's and early 00's. Borrowing more than they can afford in the early to mid 00's with silly multipliers. Then borrowing more than they can afford if/when interest rates return to average levels.
Normality will only resume in the housing market, for people to own homes, not assets, when government let peoples risk taking impact them.
All those who have been prudent with their homes and savings have suffered while those borrowing excessively and stupidly have been rewarded by been supported.
Even now we have government supporting people to buy houses which they can't afford (the repayments are still horrendous, just deferred) perpetuating inflating values and causing more people to be trapped and not letting the interest rates move in the direction they need to do.
Gah!
If I woke up tomorrow and the values were down 50% I'd be a happy person. Only idiots or investors would be upset and to be honest, that is the nature of stupidity or investing!
I completely agree but I'd tend to say that government meddling has done more harm than good to that notion.
Today people see their home as an asset that has to maintain it's value otherwise it means financial ruin or hardships for many stupid buyers who paid too much, borrowed too much, or whatever other combination of silly choices they made.
Today we seem to want to protect these people, even though a 50% drop in values would really not hurt anyone significantly. Negative equity is an issue for people own own *a* home, but in the end as long as they can finance the debt there is no reason they couldn't move, it'd just mean unsecured debt moved around with them (that is what I think government should do as policy to protect *home* owners)
Then for everyone else who has several, then they have those beyond their primary residence as assets, investments, and we all know the values can go up as well as down.
The current focus is on protecting the values of an asset because people have been stupid enough to mis-use their home as one. Borrowing against their equity in the late 90's and early 00's. Borrowing more than they can afford in the early to mid 00's with silly multipliers. Then borrowing more than they can afford if/when interest rates return to average levels.
Normality will only resume in the housing market, for people to own homes, not assets, when government let peoples risk taking impact them.
All those who have been prudent with their homes and savings have suffered while those borrowing excessively and stupidly have been rewarded by been supported.
Even now we have government supporting people to buy houses which they can't afford (the repayments are still horrendous, just deferred) perpetuating inflating values and causing more people to be trapped and not letting the interest rates move in the direction they need to do.
Gah!
If I woke up tomorrow and the values were down 50% I'd be a happy person. Only idiots or investors would be upset and to be honest, that is the nature of stupidity or investing!
DozyGit said:
Like I said, you did not buy, you bought a long rent, how hard is it to understand that? You cannot buy a flat in England as far as I know (there might be the rare cash purchase exception). You buy the lease to a flat. So you never bought a flat, neither have most people even if they think so. They just rent a flat, either AST or long lease circa, 99 years or so.
Not quite true, I own one outright with no lease. And it's in England.
jonny70 said:
OP its very simple . Over the long term buying makes most sense due to inflation
Just to be clear here generally inflation doesn’t erode debt, inflation is usually an enemy. Salary increases above inflation are just about the only thing that are going to erode debt (or actually paying it off), as it means you are more able to service the debt – just don’t forget salary increases are usually taxed, so that 5% salary raise when the costs increase by 5% could mean you are worse off as your rise is taxed. Inflation above salary increases (like now for almost everyone) is very bad as it means necessities like food & fuel take up an increasing proportion of salaries and there is less surplus for debt repayment – what would be really bad for the over-borrowed minority is if this was happening at the lowest base rate for over 300 years and at the end of a huge credit bubble …. Oh dear...The big unknowns for me:
Will generation Y learn from your parents that you need to vote in elections if you want politicians to listen.
What other ludicrous schemes the next few governments are going to cook up (at taxpayers expense of course) to stop the market correcting back to where people can actually afford housing again.
How long it will take before lettings are properly regulated.
When will interest rates increase.
How long before the rapidly increasing national debt and ageing population force tax increases.
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