Answer To 'should I Buy Now Or Rent' Questions

[Scott]

OK, there seem to be lots of posts popping up asking 'should I buy now or rent'.

And as Paddles has stated they are always from recent new members with less than 10 posts to their name, but of course they have been looking at this site for years. And yes, they missed out on the opportunity to buy a few years ago.

Pllleeeaaasseee.

Anyway, I'd like to suggest the following as a stock answer to these posts:-

OK, I currently rent a property for £750 per month and similar properties in the area are advertised at £180,000 (notice I said advertised, not worth).

So, I'm going to work out some figures based on this property for someone with zilch savings to their name.

If they purchase the property at £180k and pay a repayment mortgage at 6% over 25 years they would be paying £1,159 per month as opposed to £750 a month rent. Now if that house price drops 30% over the next 4 years they will be down £19,641 having overpaid for the mortgage for 48 months and this property is now worth £126,000. So in reality they have lost £73,641. If the house goes down by 40% they will have lost £91,641.

On interest only, it works out that they will be down £7,200 on overpaying a mortgage as opposed to rent meaning on 30% downturn in property prices they have made a total loss of £61,200 and on 40% drop £79,200.

A STR with dosh in the bank can also pay some/all of the rent with the interest on their savings so they are effectively living rent free.

Take for example a friend of mine. She and her husband have a property which an estate agent would value at £380,000. The have a mortgage of £80k and pay £491/month (repayment). Now if they were to sell tomorrow for £380k they would net around £280k after costs. This would provide £1400 in net interest per month which would pay for the rent of an equivalent property. So they get to live rent free, save £491 per month and watch the house prices drop. Now working on 4 years again that would mean a 30% drop saves them £137,568 and a 40% drop £175,568.

It's a no brainer really!!!!!!!

Comments please - especially all you EA's out there with your first posts!

[Moderator: This thread is now pinned and any new threads started on the subject will be merged into this one]

[Telometer]

That second graph suggests that prices still have some way to rise on an affordability basis.

[DabHand]

F**k off and buy?

[OurDayWillCome]

That second graph suggests that prices still have some way to rise on an affordability basis.

There is no tax relief now – look at the graph again, affordability is as bad as the last peak.

It's also does not reflect this years hike in SVR's which have just made it worse.

Edited February 27, 2008 by OurDayWillCome

[Ursus Helvetica]

More emphasis should be given on leaving an expensive 1 bed rental for a house share.

- they're cheaper (enabling you to buy a better place at the botom)

- you meet new people

- the EAs lose commission on rentals

edit: another advantage is that, by reducing rental demand for 1 bed flats, your rent no longer enables a BTL to price FTB homes out of reach

Edited February 28, 2008 by Ursus Helvetica

[Paddles]

Can't we just kill them and then go after their children with rusty blades?

I miss PropertyGuru. He'd know what to do.

[starsign]

It's a no brainer really!!!!!!!

that's it then, house prices will definitely fall 30-40%.

[Guest The_Oldie]

that's it then, house prices will definitely fall 30-40%.

I think they will .

[Fence]

OK, there seem to be lots of posts popping up asking 'should I buy now or rent'.

And as Paddles has stated they are always from recent new members with less than 10 posts to their name, but of course they have been looking at this site for years. And yes, they missed out on the opportunity to buy a few years ago.

Pllleeeaaasseee.

Anyway, I'd like to suggest the following as a stock answer to these posts:-

OK, I currently rent a property for £750 per month and similar properties in the area are advertised at £180,000 (notice I said advertised, not worth).

So, I'm going to work out some figures based on this property for someone with zilch savings to their name.

If they purchase the property at £180k and pay a repayment mortgage at 6% over 25 years they would be paying £1,159 per month as opposed to £750 a month rent. Now if that house price drops 30% over the next 4 years they will be down £19,641 having overpaid for the mortgage for 48 months and this property is now worth £126,000. So in reality they have lost £73,641. If the house goes down by 40% they will have lost £91,641.

On interest only, it works out that they will be down £7,200 on overpaying a mortgage as opposed to rent meaning on 30% downturn in property prices they have made a total loss of £61,200 and on 40% drop £79,200.

A STR with dosh in the bank can also pay some/all of the rent with the interest on their savings so they are effectively living rent free.

Take for example a friend of mine. She and her husband have a property which an estate agent would value at £380,000. The have a mortgage of £80k and pay £491/month (repayment). Now if they were to sell tomorrow for £380k they would net around £280k after costs. This would provide £1400 in net interest per month which would pay for the rent of an equivalent property. So they get to live rent free, save £491 per month and watch the house prices drop. Now working on 4 years again that would mean a 30% drop saves them £137,568 and a 40% drop £175,568.

It's a no brainer really!!!!!!!

Comments please - especially all you EA's out there with your first posts!

Need to factor in tax on the savings interest and property maintenance costs. I like to work out the breakeven rate of house price growth that makes buying worth while. I did it the first time I bought in the 1980's and was shocked then how high it was.

[starsign]

I think they will .

well, that's settled then.

[Scott]

that's it then, house prices will definitely fall 30-40%.

Well they aren't gonna keep going up, I think everyone agrees there, even the VI's.

How much they drop nobody knows, but even if they drop 10% you'll gain!

And yes, I think 30% minimum and a very good chance of 40%.

Check my first graph for the historic answer to that one. Oh, sorry, I forgot, it's different this time!!

[Scott]

Need to factor in tax on the savings interest and property maintenance costs. I like to work out the breakeven rate of house price growth that makes buying worth while. I did it the first time I bought in the 1980's and was shocked then how high it was.

The interest amount is net of tax at a rate of 25% on my figures so the tax has been factored in. And yes, it doesn't take into account wear and tear on the property that is purchased. Or the difference in the costs of buying now as opposed to buying when the property is less, which could mean being in a lower stamp duty banding and paying less anyway due to the reduced amount.

[starsign]

How much they drop nobody knows, but even if they drop 10% you'll gain!

And yes, I think 30% minimum and a very good chance of 40%.

the fact that nobody knows what will happen sort of makes your OP just a point of view. As you say, you think 30-40%, you are entitled to that view, others can agree, but that does not mean it will happen.

There are far too many factors that influence the size of any loss, so the no brainer is based on a certain set of strict assumptions, which may never come true.

[Scott]

the fact that nobody knows what will happen sort of makes your OP just a point of view. As you say, you think 30-40%, you are entitled to that view, others can agree, but that does not mean it will happen.

There are far too many factors that influence the size of any loss, so the no brainer is based on a certain set of strict assumptions, which may never come true.

I agree with you there. But even if prices stagnated for the next 4 years they still save £7,200. And that's without the worry of interest rates crippling you.

If you can't afford the £750 rent or the rent increases you just downgrade to the point where you can afford. If you can't sell your property you can't do that within a month, you are stuffed big time.

So yeah, still a no brainer.

It's only if house prices carry on rising above inflation that you lose out. If you have a lots of savings the house price has to rise not only above inflation but also above your savings (if you have an income that is).

But any reasoned person would honestly agree that house prices can only go down now - are you discounting that?

[AteMoose]

also depends what you think wage inflation/the currency will do....

[homeless]

how could anyone on this forum possibly be a neiver now?

even the vested intrests are bears now

[Scott]

how could anyone on this forum possibly be a neiver now?

even the vested intrests are bears now

There are still some with rose tinted specs on. That will change within a few months.

[Method Man]

I would like to point out that sometimes a new member like myself. When first entering thier details, and confronted with Bull Bear or neither, chooses neither due to personality. I considered I didnt want to be telling everyone which way I thought it was going, due to lack of insight. Not because thought it was going to flat. It never flats! LOL

I then wanted to ask some tricky questions about what was happening. and was accused of being a Bull. Anyone that knows me will tell you Im always worried about a turn in any market that Im playing. But it has to be said there is a lot of money to be made on a long Bull run of anything. Shorting is always riskier.

Anyway, I would like to say THANKS HPC.

I have now sold, exchanged, my 2 bed flat that I have owned since 1989. My brother that's been living there pretty much rent free for the last 7 years had to be coerced a bit. But I told him if things play out the way they might, I will give him a 50% deposit on any old flat in a couple of years. So hes staying at our Grans and getting his dinners done, bless her.

I read the quality papers and the FT, but the collective information on here beats it into a cocked hat. I dont mean the opinions so much, theres a lot of VI on here too. But the factual links and information. Ive learnt a lot on here and it gave me the courage to flog something ive had for all this time. Even if it wasnt my home.

im now left with a 3 bed semi, our joint marital home. Valued in December at 300k. Mortgage about 70 odd. But fixed a couple of years ago for 10 years at 4.9 I think. 10 years also being the full term of the loan.

Last summer, the wife was pushing me to upgrade to a bigger better house, but I dragged my heels somewhat. Saying that if prices come down we might be able to upgrade with the 50k we have saved rather than also have to borrow 50k more. This was pretty much all I was going to do , not sell, but refuse to buy or borrow more till it drops.

But thanks to the info on this site I may do rather better than just saving myself from upgrading at the top.

[Umaguma]

I would like to point out that sometimes a new member like myself. When first entering thier details, and confronted with Bull Bear or neither, chooses neither due to personality. I considered I didnt want to be telling everyone which way I thought it was going, due to lack of insight. Not because thought it was going to flat. It never flats! LOL

I then wanted to ask some tricky questions about what was happening. and was accused of being a Bull. Anyone that knows me will tell you Im always worried about a turn in any market that Im playing. But it has to be said there is a lot of money to be made on a long Bull run of anything. Shorting is always riskier.

Anyway, I would like to say THANKS HPC.

I have now sold, exchanged, my 2 bed flat that I have owned since 1989. My brother that's been living there pretty much rent free for the last 7 years had to be coerced a bit. But I told him if things play out the way they might, I will give him a 50% deposit on any old flat in a couple of years. So hes staying at our Grans and getting his dinners done, bless her.

I read the quality papers and the FT, but the collective information on here beats it into a cocked hat. I dont mean the opinions so much, theres a lot of VI on here too. But the factual links and information. Ive learnt a lot on here and it gave me the courage to flog something ive had for all this time. Even if it wasnt my home.

im now left with a 3 bed semi, our joint marital home. Valued in December at 300k. Mortgage about 70 odd. But fixed a couple of years ago for 10 years at 4.9 I think. 10 years also being the full term of the loan.

Last summer, the wife was pushing me to upgrade to a bigger better house, but I dragged my heels somewhat. Saying that if prices come down we might be able to upgrade with the 50k we have saved rather than also have to borrow 50k more. This was pretty much all I was going to do , not sell, but refuse to buy or borrow more till it drops.

But thanks to the info on this site I may do rather better than just saving myself from upgrading at the top.

Well said Method Man - I've been a follower of this site for years and regret not being able to match the input from the hard working contributers (please take that as a compliment guys). The info is outstanding and better than any newspaper. I may be a lurker but I'm a grateful one

[Disillusioned]

Comments please - especially all you EA's out there with your first posts!

Bingo:

That second graph suggests that prices still have some way to rise on an affordability basis.

Well they aren't gonna keep going up, I think everyone agrees there, even the VI's.

Although you would be luck to find any of them saying this 6 months ago - oh how people change their tune!

the fact that nobody knows what will happen sort of makes your OP just a point of view. As you say, you think 30-40%, you are entitled to that view, others can agree, but that does not mean it will happen.

Why don't you tell us what you think will happen, providing well-reasoned arguments backed up with information...

[jez123]

No no no, you miss the point about prices going up or down

they're in it for the long term

[Umaguma]

I just tried talking a close friend out of buying - 70K inheritance and a piddley sallary going for a hovel priced at about 120K (cheapest property in town) I made spreadsheet showing scenarios explained in this thread and pleaded for common sense but response is "I know what you're saying, I just need my own place".

She is giving her inheritance to the lucky burger who found her as a buyer - makes me weep.

I may be wrong, but I doubt it.

[Captain Cavey]

Just a cautionary note to this just to temper all us back slapping STR’s - renting may not be the stress free nirvana from where we can view the crash with schadenfreude detachment.

Lets say our LL’s have mortgages (on this and any other properties in their empire). In the worked example it won’t be long until the £400 per month per property begins to hurt and it may result in a letter marked “the occupier” landing on the doorstep with a carefully worded invite to get the feck out of this repossessed property.

I’m sure that this will become more common and is going to be very disruptive as we have to jump from one sinking ship to another (expensive too – think of the removal costs, changing phone lines/broadband connection, change of address notification, etc,,etc)

[Scott]

Just a cautionary note to this just to temper all us back slapping STR’s - renting may not be the stress free nirvana from where we can view the crash with schadenfreude detachment.

Lets say our LL’s have mortgages (on this and any other properties in their empire). In the worked example it won’t be long until the £400 per month per property begins to hurt and it may result in a letter marked “the occupier” landing on the doorstep with a carefully worded invite to get the feck out of this repossessed property.

I’m sure that this will become more common and is going to be very disruptive as we have to jump from one sinking ship to another (expensive too – think of the removal costs, changing phone lines/broadband connection, change of address notification, etc,,etc)

Removal costs can be done on a budget. Hire a van and pay a few mates a few pints for their hard labour. Broadband - easy - buy a T-Mobile USB broadband dongle for £15 per month over 24 months and you have unlimited internet access - and that is anywhere you wish to take your laptop!!!

[pablopatito]

Its all just speculation, yet some of you seem so sure of how the market will go. If you're so brilliant at predicting house prices in three or four years time I'm surprised you're not sunning yourself on some beach somewhere having retired at the age of 40, rather than spending all your time slagging of new posters on the interweb.

You make all these assumptions about future interest rates and future rental rates that you can't possibly know. My mate has just sold his house and is wondering whether to rent or buy. But he has no mortgage, just 200 grand sitting in the bank. He's paying tax on that money. So if he buys, he pays no mortgage AND no tax. So his situation is not the same as someone with an IO mortgage. There is no single answer that you seem to want.

What about all the shitty things that happen with renting, like crap landlords, or the fact that you can be kicked out of your home, a home that you might have lived in for years next to a school that your children are happy at, close to your friends and family, with barely any notice? Or the fact that you can't replace the horrible carpets. Or the fact that if the washing machine breaks you might have to wait days for it to be fixed or replaced.

You seem to imply that all houses in all areas will fall by roughly the same amount. That's obviously daft. Some properties will fall by 70%, some buy 10%, and some will actually increase.

What about someone that has seen his dream house, in a good area, with good schools, where his friends live. And he can afford it. If he waits, he can "probably" buy it in a couple of years time and save loads of money. But the word is "probably". We're all risk averse. Buy it now, and prices fall, he still has his dream house. Don't buy it now, and prices rise, he may never have it. Its a gamble. Does he want to gamble with his kid's education in order to make money? Not everyone does.