If I pay £750 a month rent I pay £9,000 into a black hole every year.
If I have a mortgage of £100,000 at 4% over 15 years: I pay £750 a month on my mortgage, roughly £333 of that is INTEREST, £333 * 12 months = £4,000. I pay £4,000 into a black hole every year.
However - the £50,000 deposit sitting in my bank gains interest. I may be paying £5,000 more into that black hole every year but get this : If I'm smart and have that £50,000 in gold, silver, stocks, oil etc and have made a slightly better than ISA rate of 5% in a year my deposit is now worth £52,500!
So I've wasted £5,000 more than if I had a mortgage, but clawed £2,500 of that back. Still at a loss though.
But let's say prices drop by just 2% in the year. On the £150,000 house that is £3,000. And wham - there we have it - better value renting for the year than buying as I have saved myself roughly £500.
Now take that math and apply ~30-50% (easy!) gains on investments rather than 5%, and 10% drops in house prices rather than 2% and you're talking differences of tens of thousands of pounds every year you invest & rent while the markets fall.
Edited by fadeaway, 18 February 2011 - 05:27 PM.