Answer To 'should I Buy Now Or Rent' Questions

[Si1]

I did my first independent trip abroad (also organized by myself and paid from my own pocket money) at the age of just 14,

you must have got nice pocket money! not sure my 50p a week would have covered that

fair play anyway

[Lion]

you must have got nice pocket money! not sure my 50p a week would have covered that

fair play anyway

At that time my family lived in Austria, and the trip was to Germany and back - 650 miles in 10 days by bicycle, mainly through the mountains of the Alps. We did not use hotels or restaurants, but had a tent, and slept mainly "in the wild", where we cooked ourselves on a gas cooker in the evening (my brother cooked, and his passion still is cooking), and repaired our bikes ourselves. This independence - like in the "wild west" - is what we kids loved more than anything else. The only hickup was when we lost each other in a town in Germany and my brother started to cry and was picked up by a nice couple who involved the police who re-united us. We learned from this and introduced a few safeguards and I never lost anyone on my expeditions ever again.

The whole trip just cost us just the equivalent of £50, believe it or not, but we also had to pay £500 for equipment (half was for the bikes, the other half for camping equipment and tools) which we used for many more years. My parents have six children and were not rich (now they are very wealthy due to several inherited fortunes, but this is a different story). My pocket money was the equivalent of £5 a month, so was my brother's, plus occasionally a bit from other relatives, and the costs of this one trip (incl. equipment) wiped out all our savings of the previous years. But it was what we wanted, and we got it. I still love such trips - the last trip like that I made a few years ago when I cycled from London to Land's End in five days, only sleeping in a tent I had with me. But as my wife does not share this interest there is not much opportunity for me anymore (we made only one cycle trip together, around the Isle of Wight, which she hated). However, the other interests we share more than make up for this.

[Mrs Bear]

I think you're being a bit harsh Si, but you make a good point. The stupidly low interest rates made a lot of lucky people feel smart with their property investments.

The other thing to say is that this person is probably high income and should tell us what income multiples he was using.

And finally, £1k pcm market rent for a 2bed flat? Only in la la land, which 99% of us don't live in.

Are you somewhere in the murkier depths of Oop North? £1K pcm around here (cheaper parts of SW London) will get you a pretty bog-standard 2 bed flat. I've seen pretty bog-standard ex LAs for £1200 and more.

[ArthurHon]

There are potential worse downsides to renting;

eg. have 100k in bank ready to spend on house. You lose job, firm failing, too ill too work or accident whatever. Spend 1500pcm on rent plus 1000 pcm on housekeeping etc. after 3 years, and your funds are almost exhausted you start getting help. Net wealth after 3 years potentially 6k.

eg. Have 200k house (on the day you bought it) 100K mortgage, no significant savings, say only enough to cover 3 months mortgage payments. as you have spent it all on a house. Lose job for whatever reason. After 13 weeks mortgage paid and provided with money to meet basic needs. Net wealth after 3 years = what your house is worth - what your mortgage has been reduced by. Likely to be significantly more than 6k

Unless you are smart enough to make your wealth invisible you are likely to be better off buying somewhere so you can fall hook line and sinker into the arms of the welfare state.

[plums]

Just had a quick look at HPC, as had nothing better to do, and fancied a bit of a giggle, after a few months not having visited the site. Anyway, I see nothing much has changed, since I last had a look! Looks like Si1 is still up to his usual, albeit eloquently worded, relentless shenanigans. Also, looking at a few of the threads on HPC, it also seems that the same old characters are still making the same old jibes, taking the same old cheap shots at anyone they can and the 'system'. I find it all rather amusing, as well as unashamedly hypocritical, because it's really not hard to decipher some of the posts of the usual suspects at HPC thinly veiled comments. I will would eat my hat, and everyone's for good measure, if a significant percentage of the 'haters of property owner' types posting here, are NOT themselves actually VIs/ landlords, despite their continually carefully worded comments.

As for this 'Lion' fella: I must say, he seems a sensible and rounded individual, using his brain and logic in his risk analysis, a calculated decision re participating in the the heavily overvalued and inflated UK property market, compared to most of the 'orrible HPC whiner/ramper types?

[Lagarde's Drift]

Are you somewhere in the murkier depths of Oop North? £1K pcm around here (cheaper parts of SW London) will get you a pretty bog-standard 2 bed flat. I've seen pretty bog-standard ex LAs for £1200 and more.

Nope. In Bristol, which has expensive living too, although not as bad as the worst of SW1. I rent a house for far less than 1k pcm. We also have 1.5k pcm flats here, and I think the increased rent does not confer any added value, but I understand the types who think it does. Fair enough, if you can make it work, enjoy it.

Myself, I'd much rather cut the costs right down and invest the capital saved and get rich that way. There is a time factor to this of course, but I'm doing very well at the moment.

[Lagarde's Drift]

plums, you make a few good points. But you are missing Si1s first thrust, which is about LIONS getting lucky but presenting it as de facto. Further posts seem to reveal him as a chap who is quite astute, depending on how much you wish to believe.

Quite frankly I'd like to see you substantiate your declaration to eat your hat, as I suspect you will.

[Si1]

...

Unless you are smart enough to make your wealth invisible you are likely to be better off buying somewhere so you can fall hook line and sinker into the arms of the welfare state.

that'll be a personal pension plan then, doesn't affect benefits

[Bloo Loo]

snip

As for this 'Lion' fella: I must say, he seems a sensible and rounded individual, using his brain and logic in his risk analysis, a calculated decision re participating in the the heavily overvalued and inflated UK property market, compared to most of the 'orrible HPC whiner/ramper types?

I see...so buying a house with a mortgage is a calculated decision.....anyone who does so therefore requires the "bonus" of a banker who has the same skills....and it comes from the same place..Ponzi finance.

Edited January 29, 2012 by Bloo Loo

[Bloo Loo]

There are potential worse downsides to renting;

eg. have 100k in bank ready to spend on house. You lose job, firm failing, too ill too work or accident whatever. Spend 1500pcm on rent plus 1000 pcm on housekeeping etc. after 3 years, and your funds are almost exhausted you start getting help. Net wealth after 3 years potentially 6k.

eg. Have 200k house (on the day you bought it) 100K mortgage, no significant savings, say only enough to cover 3 months mortgage payments. as you have spent it all on a house. Lose job for whatever reason. After 13 weeks mortgage paid and provided with money to meet basic needs. Net wealth after 3 years = what your house is worth - what your mortgage has been reduced by. Likely to be significantly more than 6k

Unless you are smart enough to make your wealth invisible you are likely to be better off buying somewhere so you can fall hook line and sinker into the arms of the welfare state.

this has been mentioned several times up thread, and is a theme of many threads.

And no, your mortgage ISNT paid in theory, the interest is. I say in theory because the Government is too darned lazy to make the adjustment and sets a blanket rate. Odd that as the benefit calculations for many benefits demand pages of questionaires to fill in.

[pie-eater]

At that time my family lived in Austria, and the trip was to Germany and back - 650 miles in 10 days by bicycle, mainly through the mountains of the Alps. We did not use hotels or restaurants, but had a tent, and slept mainly "in the wild", where we cooked ourselves on a gas cooker in the evening (my brother cooked, and his passion still is cooking), and repaired our bikes ourselves. This independence - like in the "wild west" - is what we kids loved more than anything else. The only hickup was when we lost each other in a town in Germany and my brother started to cry and was picked up by a nice couple who involved the police who re-united us. We learned from this and introduced a few safeguards and I never lost anyone on my expeditions ever again.

The whole trip just cost us just the equivalent of £50, believe it or not, but we also had to pay £500 for equipment (half was for the bikes, the other half for camping equipment and tools) which we used for many more years. My parents have six children and were not rich (now they are very wealthy due to several inherited fortunes, but this is a different story). My pocket money was the equivalent of £5 a month, so was my brother's, plus occasionally a bit from other relatives, and the costs of this one trip (incl. equipment) wiped out all our savings of the previous years. But it was what we wanted, and we got it. I still love such trips - the last trip like that I made a few years ago when I cycled from London to Land's End in five days, only sleeping in a tent I had with me. But as my wife does not share this interest there is not much opportunity for me anymore (we made only one cycle trip together, around the Isle of Wight, which she hated). However, the other interests we share more than make up for this.

Are you two going to get a room?

[easy2012]

One problem with risk assessments in private life is that one never has enough information, and the assessment is only as good as the infomation you put in. What helped me was to make decisions based on my interests and not based on an assessment what would bring me the highest returns at lowest risks. I chose my degree because I loved physics and chemistry, so I was very successful in it and liked doing it at the same time. I chose the PhD not because I wanted a PhD but because I was interested in the project and in being involved in the co-ordination, which allowed me to travel the world from China to America. The PhD was a by-product, but because I was very intersted in the subject I finished with the best possible results. Generally I think it would be sad if bright students avoid a PhD course they are REALLY interested in just because they fear lack of career opportunities afterwards, and therefore do a (finance?) degree without interest in (finance?) or whatever.

My PhD then led to the next opportunities, and again I decided based on interests. Siemens in Germany (who were among other offers) might have offered me a better career, but I went for the offer near London as I wanted to live in London for some time, and they also offered me to work some time in the US on a space shuttle project, which was interesting. That we would still live in London 11 years later was not predictable, but we made the best out of it, buying first our flat then our house, again not based on if we would make a profit with our purchase (this happend by accident) but if the property had the potential to become sth we liked living in (location etc.) as none of the properties we could afford to buy or rent were suitable as they were.

In my job I do risk assessments all the time and am the opposite of a reckless risk taker. My company could grow faster if we would take on debts for instance, but for the last 10 years it was company policy (which I supported) not to have ANY debts (apart from unavoidable short term debts to suppliers) - very unusual for a successful manufacturing company nowadays. Therefore we were not affected at all by the financial crisis - in the contrary, a main competitor went out of business in 2008 as they could not refinance their debt, and we got most of their business. We even own our buildings outright and have last year taken over a company in Wales, which we paid for from our cash. I learned a lot of useful techniques in my MBA, but I did not agree with everything and only put into practice what I agreed with, like motivation and empowerment of employees etc. I also learned that we could be more profitable with more debts. But we do not want to go down that route - I am happy with slow and safe growth without going into debts.

Interesting read about your story and congratulation. Not sure why the other poster keep trying to see if there is an 'easy ride/lucky encounters' in your achievements.

Risk assessment is about taking risk with sufficient built in margin of errors. So, taking a debt with, say 10x interest cover is probably acceptable. It is all about a delicate balancing act with built in margin for errors. By not taking some of the risks, you/your company may actually be exposed to more risks such as being out competed by your competitors,

While granted that we will never have all the information, game theory, behavioural financials/economics are also important considerations in making such assessments.

[the stig]

For us buying was and still is a lot cheaper than renting....

...I will then post here again with an updated calculation.

Yeah i think that example shows how timing and luck can make even the most risky gamble pay off.

However, we're in a period of financial turmoil, where the old rules don't apply. The downside risks of buying now are massive. My old mortgage was base rate + 0.17%, and that was offset and fee free. The best tracker rate now is about base rate + 2.4%, and the fees for offsetting through Barclays are £1500. If interest rates go up to historic normality of around 4%-5%, people are gonna be sunk.

You can't factor in that house prices are going to rise 5%-10% per year, and wages are going to steadily increase at 3%-4% per year (the stereotypical "ladder"). IMO all you can do is hope that you'll continue to earn what you earn now, but that living costs will go up, and that house prices will at best stay static.

I wonder what the figures would look like if you put those assumptions into your 2004 onwards calculations?

[Gary Wonka]

Surely Mortgage is £1100 CURRENTLY so it makes sense right now, but will it still make sense in 3 years time?

is this interest only or repayment? seems quite low for zone 2

Interest rates are at a historical low and the £1100 can only go up - only question is by how much and when

If you have a decent deposit, you can fix your rate for 7 to 10 years under / just above 4 pc.

[Rozza]

Apologies if this rambles but i thought it was about time somebody worked out some real figures, so i will use my own actual case

The property i live in was bought for £250,000, So in order to square things off if we start with a mortgage for the full amount, no deposit and assume we can get a 5% interest rate on a mortgage with no deposit (which obviously you cannot) the real figures look like this

House price £250,000

deposit 0

interest 5%

monthly payment £1,461.48

Total Repayable £438,442.53

5 years payments £87,688.80 (as i plan to work out the financial position after 5 years)

I then rent this property for £890 a month, leaving my figures as follows (assuming i put the rest of the mortgage payment in the bank)

Monthly Rent £890

Saved per month £571.48

Paid out over 5 years £53,400

saved After 5 years £34,288.80

I have assumed the money has gone into an account which doesnt pay interest as it makes it all a lot easier

If after 5 years i now buy the property (its gone down in value, but i will still pay the full £250,000)

It would look like this

House price £250,000

deposit 34,288.80 (The amount i have saved from the mortgage payments)

interest 5% (Edit to add, ive left interest alone, it would be cheaper now you have a deposit)

monthly payment £1,261.03

Total Repayable £378,307.86

The difference between total mortgage costs is £60,134.67 and to achieve this I have paid out £53,400 in rent

Obviously you would then get a cheaper mortgage rate as you now have more than 10% deposit which skews the figures more towards renting and the £571.48 saved per month could have been put into an ISA earning worst case 3% tax free

Hope this is of some use to people!

Edited April 20, 2012 by Rozza

[DabHand]

I am in similar circs, except a rude rise of late means l pay £950pm for a house l could buy for maybe £250k.

On a 60%LTV taking 100k of my hard earned, l am paying approx £700 month in repayment @ 2.8% from HSBC. Also losing the 5% return on 100k which is 5k/12 = £416/month

TOTAL

= £1116/month mortgage vs £950 rent.

Uncosted additonals:

Interest rate risk - assymetric as is low and effectively can only go UP.

Maintenance and depreciation. You wont believe how much the landy has pent on that poxy boiler, and is currently looking at sinking the thick end of 3k on sorting out the en-suite.

Flexibility and mobility.

It wont take change much on either factor to make this a close call.

[888]

Apologies if this rambles but i thought it was about time somebody worked out some real figures, so i will use my own actual case

The property i live in was bought for £250,000, So in order to square things off if we start with a mortgage for the full amount, no deposit and assume we can get a 5% interest rate on a mortgage with no deposit (which obviously you cannot) the real figures look like this

House price £250,000

deposit 0

interest 5%

monthly payment £1,461.48

Total Repayable £438,442.53

5 years payments £87,688.80 (as i plan to work out the financial position after 5 years)

I then rent this property for £890 a month, leaving my figures as follows (assuming i put the rest of the mortgage payment in the bank)

Monthly Rent £890

Saved per month £571.48

Paid out over 5 years £53,400

saved After 5 years £34,288.80

I have assumed the money has gone into an account which doesnt pay interest as it makes it all a lot easier

If after 5 years i now buy the property (its gone down in value, but i will still pay the full £250,000)

It would look like this

House price £250,000

deposit 34,288.80 (The amount i have saved from the mortgage payments)

interest 5% (Edit to add, ive left interest alone, it would be cheaper now you have a deposit)

monthly payment £1,261.03

Total Repayable £378,307.86

The difference between total mortgage costs is £60,134.67 and to achieve this I have paid out £53,400 in rent

Obviously you would then get a cheaper mortgage rate as you now have more than 10% deposit which skews the figures more towards renting and the £571.48 saved per month could have been put into an ISA earning worst case 3% tax free

Hope this is of some use to people!

I am going to flame you here. How can you possibly think that you can buy a house WITHOUT a deposit.

No doubt you are under 35 and do not understand the world order. Until you wake up all you do will be feeding you cash to the rich.

With this kind of thinking (calculations) you deserve what you will end up with.

[888]

Thats a bit harsh.

All hes doing is showing its a close call.

No, not harsh at all. I might acturally save his butt.

You have to put down 30% minimum on a house. Any down turn in price and your in -ve equity.

Just another muppet to be used by the banks. Deserves what is coming to him, when will people wake up that you can't have something for nothing.

Do you seriously expect that someone will give you the keys to a property for NOTHING, except that you will be paying off debt on it for the next 20 years (the last 5 years is when you pay back the capital).

I'll shut up now, he may wake up and smell the coffe. I need more lemmings like this to ensure my furture retirement.

[Bruce Banner]

No, not harsh at all. I might acturally save his butt.

You have to put down 30% minimum on a house. Any down turn in price and your in -ve equity.

Just another muppet to be used by the banks. Deserves what is coming to him, when will people wake up that you can't have something for nothing.

Do you seriously expect that someone will give you the keys to a property for NOTHING, except that you will be paying off debt on it for the next 20 years (the last 5 years is when you pay back the capital).

I'll shut up now, he may wake up and smell the coffe. I need more lemmings like this to ensure my furture retirement.

I don't think he was looking to buy using those figures, he just simplified them to compare with the cost of renting.

[57percent]

I am going to flame you here. How can you possibly think that you can buy a house WITHOUT a deposit.

No doubt you are under 35 and do not understand the world order. Until you wake up all you do will be feeding you cash to the rich.

With this kind of thinking (calculations) you deserve what you will end up with.

As a way to compare to the costs, 100% interest only mortgage plus other costs is reasonable to compare to rent.

Yes, you'll never get a 100% mortgage, but you have an opportunity cost lost in the deposit you put down.

[888]

I don't think he was looking to buy using those figures, he just simplified them to compare with the cost of renting.

Even with his 'saved' 34,288.80 as deposit, that is only 15% deposit on a £250K house.

Crazy.

The more people that do maths like this the better off I'll be ROTFLMAO.

[kev-all-in]

Thats a bit harsh.

All hes doing is showing its a close call.

+1

He did point this out in his post too. If you break down every possible variable it quickly becomes so confusing with so many 'if's and 'but's that it's easy to lose sight of the bigger picture.

I did a similar 'back of a fag packet' overview of my similar situation and came to much the same conclusion - ie. even not allowing for significant nominal falls there's not a lot in it.

If we get only 5% pa nominal falls I'm MUCH better off renting. I can't see how this won't happen with sharply falling incomes (great chart yesterday from freetrader), rising mortgage rates, falling mortgage availability, no more IO / Liar loans, all this on the brink of a double dip recession.

Come on HPC get a farkin' move on! (FFS!)

[Bloo Loo]

No, not harsh at all. I might acturally save his butt.

You have to put down 30% minimum on a house. Any down turn in price and your in -ve equity.

Just another muppet to be used by the banks. Deserves what is coming to him, when will people wake up that you can't have something for nothing.

Do you seriously expect that someone will give you the keys to a property for NOTHING, except that you will be paying off debt on it for the next 20 years (the last 5 years is when you pay back the capital).

I'll shut up now, he may wake up and smell the coffe. I need more lemmings like this to ensure my furture retirement.

sure, 100% mortgages are available still...http://www.money.co.uk/mortgages/100-mortgages.htm

with some 120% ones in there for good measure.

[888]

+1

He did point this out in his post too. If you break down every possible variable it quickly becomes so confusing with so many 'if's and 'but's that it's easy to lose sight of the bigger picture.

I did a similar 'back of a fag packet' overview of my similar situation and came to much the same conclusion - ie. even not allowing for significant nominal falls there's not a lot in it.

If we get only 5% pa nominal falls I'm MUCH better off renting. I can't see how this won't happen with sharply falling incomes (great chart yesterday from freetrader), rising mortgage rates, falling mortgage availability, no more IO / Liar loans, all this on the brink of a double dip recession.

Come on HPC get a farkin' move on! (FFS!)

HE CAN'T AFFORD THE HOUSE.

He should be doing his calculations with a 75K deposit minimum. He also thinks BOE IR at 0.25% is normal.

I am waiting for IR to shot up to 10-15% before I start thinking of investing in cash. Muppets will simply allow me to profit from their mistakes.

[Bruce Banner]

Even with his 'saved' 34,288.80 as deposit, that is only 15% deposit on a £250K house.

Crazy.

The more people that do maths like this the better off I'll be ROTFLMAO.

You are missing the point completely.

He was merely pointing out that renting can be cheaper than buying, it certainly is for me, even without taking house price depreciation into account.