Is there any advantage in renting over buying?
Discussion
I am starting to look into the mine field that is buying a house. Myself and the GF are currently saving for a deposit and since we live in Aberdeen it would appear that we will need at least £20k so it could take a while.
However, I got thinking. Are there any advantages in renting over buying? I know there are a lot of people out there who rent rather than buy. I have always had the mindset that I would rather pay for my own mortgage rather than somebody elses and that the sooner we get our own house the sooner in life we become mortgage free.
We are both 22 and both live at home still but are dying to get our own place and have our own space.
Does anybody have any sound advice for first time buyers? To be honest everything seems to be confusing the sh*t out of me.
Cheers,
Jamie
However, I got thinking. Are there any advantages in renting over buying? I know there are a lot of people out there who rent rather than buy. I have always had the mindset that I would rather pay for my own mortgage rather than somebody elses and that the sooner we get our own house the sooner in life we become mortgage free.
We are both 22 and both live at home still but are dying to get our own place and have our own space.
Does anybody have any sound advice for first time buyers? To be honest everything seems to be confusing the sh*t out of me.
Cheers,
Jamie
Quick reply:
I HATE comments like "paying someone else's mortgage not mine" or "paying rent is just throwing money away" that people also think applies.
YOU HAVE TO PAY INTEREST ON A MORTGAGE.
It is JUST LIKE RENT, except instead of borrowing a house and paying someone for the use of it, you are borrowing money and paying for the use of it.
Buying is like taking a MASSIVE real estate bet with SIGNIFICANT transaction costs.
Example.
Interest rates are 5% and the rent on a house is roughly 5% of the value of the house.
So you rent.
Your £20k savings stay in the bank and you receive some, minimal, interest on it.
Or you buy and sell.
If the house price stays the same then you simply lose the transaction costs in selling.
So if you are in a £100k house, your savings become £17k since you lose £3k to the estate agent and solicitors, survey, movers etc...
Of course let's say the house goes up 10%.
Then your £20k is £27k (£100k * 110% - £80k mortgage - £3k costs).
Or down 10% = £7k (£90k * 90% - £80k mortgage - £3k costs).
So really you are just taking a whopper bet on the price of your house.
Just don't forget RENT = INTEREST.
There are plenty of other issues to consider though, such as you landlord fixing the roof and insuring the house etc...
But some people like being able to move walls or put up pictures and can't call a place "home" unless they own it.
They are weird.
They don't own it. The bank does.
I HATE comments like "paying someone else's mortgage not mine" or "paying rent is just throwing money away" that people also think applies.
YOU HAVE TO PAY INTEREST ON A MORTGAGE.
It is JUST LIKE RENT, except instead of borrowing a house and paying someone for the use of it, you are borrowing money and paying for the use of it.
Buying is like taking a MASSIVE real estate bet with SIGNIFICANT transaction costs.
Example.
Interest rates are 5% and the rent on a house is roughly 5% of the value of the house.
So you rent.
Your £20k savings stay in the bank and you receive some, minimal, interest on it.
Or you buy and sell.
If the house price stays the same then you simply lose the transaction costs in selling.
So if you are in a £100k house, your savings become £17k since you lose £3k to the estate agent and solicitors, survey, movers etc...
Of course let's say the house goes up 10%.
Then your £20k is £27k (£100k * 110% - £80k mortgage - £3k costs).
Or down 10% = £7k (£90k * 90% - £80k mortgage - £3k costs).
So really you are just taking a whopper bet on the price of your house.
Just don't forget RENT = INTEREST.
There are plenty of other issues to consider though, such as you landlord fixing the roof and insuring the house etc...
But some people like being able to move walls or put up pictures and can't call a place "home" unless they own it.
They are weird.
They don't own it. The bank does.
+1 you are in effect taking a leveraged bet with borrowed money on real estate assets.
Its an investment like anything else.
In a falling market you are leveraging your losses..
So capital preservation is one big advantage in renting. Your £20k stays earning you a return while others who have bought into housing watch their £20k deposit get wiped out in weeks.
So the question is do you want to bet on the direction of the housing market heading skywards at present!?
I dont.
Its an investment like anything else.
In a falling market you are leveraging your losses..
So capital preservation is one big advantage in renting. Your £20k stays earning you a return while others who have bought into housing watch their £20k deposit get wiped out in weeks.
So the question is do you want to bet on the direction of the housing market heading skywards at present!?
I dont.
walm said:
Quick reply:
They don't own it. The bank does.
Until you have paid your mortgage off. At which point you are probably near retirement age sitting on an asset worthmore or less than you paid into a mortagage. An asset worth a considerable amount non the less.They don't own it. The bank does.
I know a couple of people who, through poor decisions and bad luck, are still renting once retired. As you can imagine it's bloody hard to pay rent on a pension.
guffhoover said:
walm said:
Quick reply:
They don't own it. The bank does.
Until you have paid your mortgage off. At which point you are probably near retirement age sitting on an asset worthmore or less than you paid into a mortagage. An asset worth a considerable amount non the less.They don't own it. The bank does.
I know a couple of people who, through poor decisions and bad luck, are still renting once retired. As you can imagine it's bloody hard to pay rent on a pension.
The fundamental reason people get 100% confused about housing is that the financial community do themselves no favours by bundling interest and principal payments together. You need to separate those two into completely different arguments.
I AM TALKING ABOUT INTEREST vs. RENT.
NOT INTEREST+PRINCIPAL REPAYMENTS vs. RENT.
If you want to have an informed discussion about whether to invest money into paying off your mortgage vs. stocks, bonds, fx, cash and all the other investment options then by all means go for it.
That discussion has almost NO PLACE in this thread.
People who are renting when they retire must have done something else with the money (the extra money they had which their peers were using to pay off mortgage principal) which meant they lost or spent it.
Of course repayment mortgages are a good way to impose some savings discipline upon yourself but frankly that is an incredibly minor benefit for anyone thinking seriously about saving for retirement.
Some interesting replies, thanks. We wouldn't be able to afford to rent a place and keep saving for a mortgage deposit. I want to get onto the property ladder as soon as possible really.
Are these 90% mortgages that developers offer on new-builds worth a look at? Or do I just need to be patient and keep saving for a few more years and then take it from there?
Are these 90% mortgages that developers offer on new-builds worth a look at? Or do I just need to be patient and keep saving for a few more years and then take it from there?
Rented for years and can't see that changing for a long while yet.
I have more disposable income than I would if I had a mortgage, hence I enjoy and buy/do the things I like. I'll worry about houses much later in life (if ever!)
A few friends have mortgages and they're always skint, don't take many holidays etc. Sod that, I've no interest in being mortgage free at age 60 but having done very little with my life.
I have more disposable income than I would if I had a mortgage, hence I enjoy and buy/do the things I like. I'll worry about houses much later in life (if ever!)
A few friends have mortgages and they're always skint, don't take many holidays etc. Sod that, I've no interest in being mortgage free at age 60 but having done very little with my life.
Aside from all the costs talk, renting offers better flexibilty, but also worth considering is living with your girlfriend for the first time, do you really want that with a mortgage involved? I would rent for a year and see how it goes before jumping into a big financial commitment with her.
Hows about throwing shared ownership schemes into the mix. A friend of mine has one of these he could never afford a house on his own therefore his only option would have been to rent for years if not ever or shared ownership, he has a mortgage on 60% of the house and the housing association own the other 40% charging him rent.
Cheaper way to buy / get onto the property ladder.
Cheaper way to buy / get onto the property ladder.
Personally I'd always buy, I bought my first home when I was 23, and it gets paid off this year.
One of the biggest advantages is that you are more or less fixing property cost for the term. When I bought my first house the mortgage was £200 per month, and that was a huge proportion of my salary, in the past 10 to 15 years its been a very small proportion of my salary.
We're now buying a second house, which will pe paid off in 10 years, this will give us a retirement income.
Friends who are renting are paying 3 or 4 times what I pay in mortgage, for houses half the size. They will be paying this for the rest of their lives, including retirement.
One of the biggest advantages is that you are more or less fixing property cost for the term. When I bought my first house the mortgage was £200 per month, and that was a huge proportion of my salary, in the past 10 to 15 years its been a very small proportion of my salary.
We're now buying a second house, which will pe paid off in 10 years, this will give us a retirement income.
Friends who are renting are paying 3 or 4 times what I pay in mortgage, for houses half the size. They will be paying this for the rest of their lives, including retirement.
There are possibly other considerations such as the OP's and his GF's age - it may be best to rent for a year or two before committing to a join mortgage - to be sure that living together does not cause any "friction" 
I have been renting now for about 5 years because it suits my circumstances and reflects my bearish view of the property market currently. Having said that I do put aside a modest mortgage-sized payment every month so am building pot for future use regardless. Most of my investments have increased by over 12% each year for the last 3-4 years so it has been a good time to be without property.
A couple of things to consider apart from the age thing:
1. Interest rates will be increasing over the next few years - if the rate goes from 4% to 7% mortgagewise - will you be in trouble?
2. If the property prices drop say 15% over the next 3 years in conjunction with the rate rise above will you be able to sell?
It is a risky time to leverage imho, just do some risk evaluation carefully before you commit.
Good luck!
I have been renting now for about 5 years because it suits my circumstances and reflects my bearish view of the property market currently. Having said that I do put aside a modest mortgage-sized payment every month so am building pot for future use regardless. Most of my investments have increased by over 12% each year for the last 3-4 years so it has been a good time to be without property.
A couple of things to consider apart from the age thing:
1. Interest rates will be increasing over the next few years - if the rate goes from 4% to 7% mortgagewise - will you be in trouble?
2. If the property prices drop say 15% over the next 3 years in conjunction with the rate rise above will you be able to sell?
It is a risky time to leverage imho, just do some risk evaluation carefully before you commit.
Good luck!
98elise said:
Personally I'd always buy, I bought my first home when I was 23, and it gets paid off this year.
One of the biggest advantages is that you are more or less fixing property cost for the term. When I bought my first house the mortgage was £200 per month, and that was a huge proportion of my salary, in the past 10 to 15 years its been a very small proportion of my salary.
We're now buying a second house, which will pe paid off in 10 years, this will give us a retirement income.
Friends who are renting are paying 3 or 4 times what I pay in mortgage, for houses half the size. They will be paying this for the rest of their lives, including retirement.
^^ This.One of the biggest advantages is that you are more or less fixing property cost for the term. When I bought my first house the mortgage was £200 per month, and that was a huge proportion of my salary, in the past 10 to 15 years its been a very small proportion of my salary.
We're now buying a second house, which will pe paid off in 10 years, this will give us a retirement income.
Friends who are renting are paying 3 or 4 times what I pay in mortgage, for houses half the size. They will be paying this for the rest of their lives, including retirement.
Although I bought when I was 21, 31 now and only two years left on my mortgage due to a 15 year deal and some crafty overpayments.
My brother lives next door in an almost identical house and pays three times my mortgage in rent.
Buy to let here we come!
I very much doubt we could afford to rent and be able to save a decent ammount each month. I imagine we would be looking at ~£600-£800 a month for rent, plus all the bills etc.
Between the 2 of us we probably bring in around £44-45k before tax basic. If we were to buy I very much doubt we could get a half decent flat for less than £135k.
After looking at a feq mortgage calculators online we would need a minimum of £20k for a deposit and repayments would be circa £800 a month over a 25 year basis.
I wouldn't mind renting for a while until things stabilise but I'm not sure we can afford to rent and keep saving towards a house deposit.
Between the 2 of us we probably bring in around £44-45k before tax basic. If we were to buy I very much doubt we could get a half decent flat for less than £135k.
After looking at a feq mortgage calculators online we would need a minimum of £20k for a deposit and repayments would be circa £800 a month over a 25 year basis.
I wouldn't mind renting for a while until things stabilise but I'm not sure we can afford to rent and keep saving towards a house deposit.
Easty-5 said:
After looking at a feq mortgage calculators online we would need a minimum of £20k for a deposit and repayments would be circa £800 a month over a 25 year basis.
You don't have to set up a mortgage over 25 years (although there are warnings that come with a longer term)You don't need a 15% deposit, you can get away with 10%, however that does have an impact on rates.
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