rent or buy, rent or buy, rent or buy hm......
Discussion
So I understand current wisdom of selling a house and sitting on the equity until something suitable comes along, once can see that prices will drop no further. But is it worth doing this permanently?
Upsides:
- Rent the place you need/want now, and change or upgrade when you want/can afford it (we are two now, expect family in coming years), or when your lifestyle dictates
- Rent in the area you want to live, as there are currently more affordable and more choice of rental properties
- Currently higher chance of negotiable rents
- Possible first dibs on house if landlord wants to sell and you fancy staying put
- No costs on home improvements, or repairs that could cost thousands
- No stamp duty, estate agent (ok yes, but not huge), or solicitors fees when moving, so moving is cheaper and easier
- Big deposit can be spent on spanking new GT3 (ha ha) - actually I mean you have control over your investments and not have them locked into your property
- Lesser concerns and exposure to increasing interest rates
- Interest paid on mortgages of a few hundred £K over 20 years is a lot!
Downsides
- Paying a landlord four figures a month and never seeing a return on it
- Getting to 65 and not having a house as a pension
- Not having "your own home" to do what you want with it, decorate or making it how you want and your family home
- Loss of earnings by redundancy if already spent on GT3s and holidays etc means no financial backup if al goes t*ts up
- missing out on the "property elevator" if prices go up
- hassle of managing an investment portfolio and getting bad advice
- being forced to move if Landlord sells
- restrictions on lease - no pets, hanging paintings, noisy cars etc
- Landlord will, upgrades to kitchen, bathrooms, double glazing etc, so you might have to move to get a better kitchen etc
- overall cost of renting will always remain the same in real terms (£1500 a month currently x 12 months x 20 years= £360 000, then add rent increases to that, will be a big figure!), whereas repaying a mortgage should get relatively cheaper over the years
The way things are going, I am coming round to the idea that with some sensible investment, I can live in an affordable house I like in an area I like, and also have something significant to retire with.
Has anyone on here lived in rented accommodation over a long period of time and is it the better option for the long run?
Upsides:
- Rent the place you need/want now, and change or upgrade when you want/can afford it (we are two now, expect family in coming years), or when your lifestyle dictates
- Rent in the area you want to live, as there are currently more affordable and more choice of rental properties
- Currently higher chance of negotiable rents
- Possible first dibs on house if landlord wants to sell and you fancy staying put
- No costs on home improvements, or repairs that could cost thousands
- No stamp duty, estate agent (ok yes, but not huge), or solicitors fees when moving, so moving is cheaper and easier
- Big deposit can be spent on spanking new GT3 (ha ha) - actually I mean you have control over your investments and not have them locked into your property
- Lesser concerns and exposure to increasing interest rates
- Interest paid on mortgages of a few hundred £K over 20 years is a lot!
Downsides
- Paying a landlord four figures a month and never seeing a return on it
- Getting to 65 and not having a house as a pension
- Not having "your own home" to do what you want with it, decorate or making it how you want and your family home
- Loss of earnings by redundancy if already spent on GT3s and holidays etc means no financial backup if al goes t*ts up
- missing out on the "property elevator" if prices go up
- hassle of managing an investment portfolio and getting bad advice
- being forced to move if Landlord sells
- restrictions on lease - no pets, hanging paintings, noisy cars etc
- Landlord will, upgrades to kitchen, bathrooms, double glazing etc, so you might have to move to get a better kitchen etc
- overall cost of renting will always remain the same in real terms (£1500 a month currently x 12 months x 20 years= £360 000, then add rent increases to that, will be a big figure!), whereas repaying a mortgage should get relatively cheaper over the years
The way things are going, I am coming round to the idea that with some sensible investment, I can live in an affordable house I like in an area I like, and also have something significant to retire with.
Has anyone on here lived in rented accommodation over a long period of time and is it the better option for the long run?
Edited by prand on Wednesday 27th May 17:21
The only people i know who rent have been renting since we purchased. I never understood it then, their rent was the same as our mortgage. Fast forward a few years and we have £50k equity that has now gone to a new property while they have ZERO savings and ZERO deposit as they must spend all their spare income. People argue that renting means they get a property that would normally be well out of their range, IMO you are better BUYING a property that IS in your range. I wouldn't want to be paying £1200 a month when i am retired(my mortgage will be a distant memory by then!). I think if you view it as a home and NOT an investement(although if you buy & sell at the "right" times & "right" price you can end up doing quite well) then it's a no brainer.
Dave_ST220 said:
The only people i know who rent have been renting since we purchased. I never understood it then, their rent was the same as our mortgage. Fast forward a few years and we have £50k equity that has now gone to a new property while they have ZERO savings and ZERO deposit as they must spend all their spare income. People argue that renting means they get a property that would normally be well out of their range, IMO you are better BUYING a property that IS in your range. I wouldn't want to be paying £1200 a month when i am retired(my mortgage will be a distant memory by then!). I think if you view it as a home and NOT an investement(although if you buy & sell at the "right" times & "right" price you can end up doing quite well) then it's a no brainer.
I think I’d disagree to some point there.At the moment we have some equity in our house, enough to maybe raise a 10% deposit on a bigger new house. Now we could buy with a 90% mortgage and that would be about £1500 per month. No problem for us to pay at all, well within our means. However, the same house to rent would be about £850 per month. Now in your example the renters spent the extra so that’s not so good, but if you save / invest the difference you’re going to have a lot of cash / shares to hand, whereas you have equity in a house which is not really worth anything unless you sell up and downsize is it?
Horses for courses I suppose, but right now I see a big advantage to renting over buying.
I would also add, and i'm not trying to shoot your argument down or anything i'm just mulling over options here myself, but if a house to live in shouldn't be viewed as an investment, why the obsession in the UK with gearing yourself up to buy?
Edited by marsred on Thursday 28th May 09:16
Like i said-it really depends on what the market is doing when you buy & sell, we purchased way before the peak (but could have saved more if i had purchased property rather than bloody cars!), and have sold at not the best time but certainly could have been worse, the falling market played into our hands in buying the new property-25% off what they sold for last August. Re:the house to buy would cost more-that was my point regarding buying what you can afford or renting what you couldn't afford to buy. I can't get out of my head that after 15 years i'll own something that will be worth more than i paid(dispite what some think) while the people who rented may have £50k in the bank but still need to pay out for somewhere to live. Maintenance costs on properties i have owned have been bugger all tbh.
Hmmm. good point about paying rent when retired. If I was retiring, I would like to be paying as little as possible on housing to offset a reduced income. Or at least have enough put aside to do so.
However, I am in a position now when I want to upsize with impending family growth, and like the last poster, my mortgage for the forseeable future would be significantly more than renting an equivalent 3/4 bedroom houses in the area I am looking.
If I, or a canny financial advisor put together a 25 year saving and investment model for me and my wife, I'm sure it could be done.
However, speaking to Mrs P last night, I think she would rather live in somewhere she owns, due to the emotional attachment and ability to change the curtains, bathroom etc when she feels like it. Promising to rent temporarily (maybe for a max of 1 year) might be the best way to work her around.
However, I am in a position now when I want to upsize with impending family growth, and like the last poster, my mortgage for the forseeable future would be significantly more than renting an equivalent 3/4 bedroom houses in the area I am looking.
If I, or a canny financial advisor put together a 25 year saving and investment model for me and my wife, I'm sure it could be done.
However, speaking to Mrs P last night, I think she would rather live in somewhere she owns, due to the emotional attachment and ability to change the curtains, bathroom etc when she feels like it. Promising to rent temporarily (maybe for a max of 1 year) might be the best way to work her around.
One thing about buying a house (over 25 years so it will be worth a lot more in the future) is that on a repayment mortgage it is a forced savings plan in essence.
Its all too easy for thosewho rent the same identical house x number of months Oh over spent here and there but never mind doesnt matter as we can afford it. 25 years later the one with the forced savings plan will be x months to the good & unless their investments have not increased at least inline with the house market they will be "out of pocket" relative to the buyer.
Another thing as time goes by assuming zero overpayment the % of the monthly payment increases on the capital side whereas if renting the rent will have increased in that time not decreased so your alternative investments would have to work even harder to counter this aspect of the repayment mortgage.
Finally tax on savings/dividends/capital gains. Now if you have a mortgage and opt for offset & put in your ISA's and dont lose their wrapper your killing the term of your mortgage and your savings tax liability is nil. If your renting your easily going to max out both ISA allowences for you & your partner so your savings & equity invesments are going to be taxed at 20% or 40% or 50% (for a tiny few) again you may simply look at the gross return and forget about the tax liability.
Remember if your mortgage is say 4% currently and your a higher tax payer you need a risk free return greater than 6.67% and when base rates rise to say 5% and your mortgage is around the 7% you'd need a risk free return of 11.67% which is very unlikely hence its better to pay off your mortgage as its tax efficient.
Its all too easy for thosewho rent the same identical house x number of months Oh over spent here and there but never mind doesnt matter as we can afford it. 25 years later the one with the forced savings plan will be x months to the good & unless their investments have not increased at least inline with the house market they will be "out of pocket" relative to the buyer.
Another thing as time goes by assuming zero overpayment the % of the monthly payment increases on the capital side whereas if renting the rent will have increased in that time not decreased so your alternative investments would have to work even harder to counter this aspect of the repayment mortgage.
Finally tax on savings/dividends/capital gains. Now if you have a mortgage and opt for offset & put in your ISA's and dont lose their wrapper your killing the term of your mortgage and your savings tax liability is nil. If your renting your easily going to max out both ISA allowences for you & your partner so your savings & equity invesments are going to be taxed at 20% or 40% or 50% (for a tiny few) again you may simply look at the gross return and forget about the tax liability.
Remember if your mortgage is say 4% currently and your a higher tax payer you need a risk free return greater than 6.67% and when base rates rise to say 5% and your mortgage is around the 7% you'd need a risk free return of 11.67% which is very unlikely hence its better to pay off your mortgage as its tax efficient.
Dave_ST220 said:
Like i said-it really depends on what the market is doing when you buy & sell, we purchased way before the peak (but could have saved more if i had purchased property rather than bloody cars!), and have sold at not the best time but certainly could have been worse, the falling market played into our hands in buying the new property-25% off what they sold for last August. Re:the house to buy would cost more-that was my point regarding buying what you can afford or renting what you couldn't afford to buy. I can't get out of my head that after 15 years i'll own something that will be worth more than i paid(dispite what some think) while the people who rented may have £50k in the bank but still need to pay out for somewhere to live. Maintenance costs on properties i have owned have been bugger all tbh.
Dave - don't forget after selling my current house I will have the equity, and other savings (a lot of which would have been spent on stamp duty and fees when buying a new house), so if I move into renting I will be sitting on a potentially large investment that theoretically could match the return on property for a long while yet if I am clever and get some good advice. I could always invest in property (commercial or B2L) if I wanted to get on the ladder too.Ok, here is what has happened thus far for me. First purchase was for £83K, mortgage at the time by memory was £450(£468 rings a bell), rent for the same area/same house was the same. We sold for £118k and with mortgage cleared ended up with about £50k. If we had rented we would have spent £37800 but walked away with nothing.
New house, mortgage will be £964 a month, to rent something similar you would be looking at £1200-£1300.
No brainer for me.
Now, if you had purchased much later than we did you would have paid £139k! imagine that you now want to sell-you'd get £118k, er oh!
Every situation will be different.
ETA-we currently RENT BACK the property while our new house in being built! Rent-£550 a month.
New house, mortgage will be £964 a month, to rent something similar you would be looking at £1200-£1300.
No brainer for me.
Now, if you had purchased much later than we did you would have paid £139k! imagine that you now want to sell-you'd get £118k, er oh!
Every situation will be different.
ETA-we currently RENT BACK the property while our new house in being built! Rent-£550 a month.
Edited by Dave_ST220 on Thursday 28th May 09:40
Welshbeef said:
Another thing as time goes by assuming zero overpayment the % of the monthly payment increases on the capital side whereas if renting the rent will have increased in that time not decreased so your alternative investments would have to work even harder to counter this aspect of the repayment mortgage.
That seems like a very good point. House owning as forced, but tax free savings. prand said:
Welshbeef said:
Another thing as time goes by assuming zero overpayment the % of the monthly payment increases on the capital side whereas if renting the rent will have increased in that time not decreased so your alternative investments would have to work even harder to counter this aspect of the repayment mortgage.
That seems like a very good point. House owning as forced, but tax free savings. Ofcouse i have calculated what will happen if we 10% rates, we are still OK.
My feeling is we won't get anything higher than 8% & probably more like 6%.
Some good points here.
One thing i might add though in favour of renting (i'm not renting at the moment nor am I trying to say its the best thing to do but...) you potentially have no debt at all, only savings (if you are disciplined enough to save that is). That must be a nice feeling?
Come retirement you should have more than enough cash to buy a house outright anyway, without ever having paid a bank 6% per annum interest for the priveledge.
I think I have always prefered the idea of buying but i've never really considered the benefits of renting. It does seem to work very well for most of Europe though (old argument i know).
One thing i might add though in favour of renting (i'm not renting at the moment nor am I trying to say its the best thing to do but...) you potentially have no debt at all, only savings (if you are disciplined enough to save that is). That must be a nice feeling?
Come retirement you should have more than enough cash to buy a house outright anyway, without ever having paid a bank 6% per annum interest for the priveledge.
I think I have always prefered the idea of buying but i've never really considered the benefits of renting. It does seem to work very well for most of Europe though (old argument i know).
marsred said:
Some good points here.
One thing i might add though in favour of renting (i'm not renting at the moment nor am I trying to say its the best thing to do but...) you potentially have no debt at all, only savings (if you are disciplined enough to save that is). That must be a nice feeling?
Come retirement you should have more than enough cash to buy a house outright anyway, without ever having paid a bank 6% per annum interest for the priveledge.
I think I have always prefered the idea of buying but i've never really considered the benefits of renting. It does seem to work very well for most of Europe though (old argument i know).
Would the savings from renting be enough to buy a property come retirement? What IF when you retire we are in the peak of a bubble again? Your savings may not buy much, however IF you had purchased at the right time you would be laughing-sell & downsize.One thing i might add though in favour of renting (i'm not renting at the moment nor am I trying to say its the best thing to do but...) you potentially have no debt at all, only savings (if you are disciplined enough to save that is). That must be a nice feeling?
Come retirement you should have more than enough cash to buy a house outright anyway, without ever having paid a bank 6% per annum interest for the priveledge.
I think I have always prefered the idea of buying but i've never really considered the benefits of renting. It does seem to work very well for most of Europe though (old argument i know).
Not such an easy decision eh??!!
Would they indeed 
By my calculations they would, but my calculations are as much use as anyone elses, i.e. not very!
I think for us renting for maybe 3 to 5 years at half the monthly cost of a mortgage by today's rates means we can save up a substantial deposit on a big house we can live in for ever. I don't see huge house price increases over that timescale anyway.
Long term it might not work out so well but short term it means our little one gets a bigger house to play in and goes to a nice school in the right area while Mummy and Daddy save to buy later. Oh to be 8 months old again!
By my calculations they would, but my calculations are as much use as anyone elses, i.e. not very!
I think for us renting for maybe 3 to 5 years at half the monthly cost of a mortgage by today's rates means we can save up a substantial deposit on a big house we can live in for ever. I don't see huge house price increases over that timescale anyway.
Long term it might not work out so well but short term it means our little one gets a bigger house to play in and goes to a nice school in the right area while Mummy and Daddy save to buy later. Oh to be 8 months old again!
Edited by marsred on Thursday 28th May 10:36
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