Quick Mortgage Payoff Vs Renting

[Twilkes]

We are renting a flat in a second location due to our jobs not being near our own flat - rent is £400 a month. It's very likely we will be there for the medium-term, and we could buy a flat for £50k which we could pay off in 5 years at £550 a month. So only £150 a month extra and in 5 years we would own a small flat outright.

What are the financial pros and cons of doing this? It would take all of our savings initially, but in a year they'd be looking pretty healthy again, and there would even be scope for overpayment if interest rates started rising.

Cheers,

[porca misèria]

Wow! Those look like 1980s prices (except for the low interest rate implied)!

Are you happy in the £400 flat? If yes, that's probably worth sticking with. If no, base your calculations on either renting or buying something better.

Flat prices rise (in your area), you gain by buying (unless you get hit for crippling service charges). They fall, you gain by renting.

How much are those savings worth? You need to make them work for you. Buying a house traditionally does that, but so does investing it in the productive economy. The house has the higher risk/reward profile, on the grounds of being leveraged (and illiquid).

[Twilkes]

Wow! Those look like 1980s prices (except for the low interest rate implied)!

Are you happy in the £400 flat? If yes, that's probably worth sticking with. If no, base your calculations on either renting or buying something better.

Flat prices rise (in your area), you gain by buying (unless you get hit for crippling service charges). They fall, you gain by renting.

How much are those savings worth? You need to make them work for you. Buying a house traditionally does that, but so does investing it in the productive economy. The house has the higher risk/reward profile, on the grounds of being leveraged (and illiquid).

Thanks for that - I think the risk of interest rates rising, the property value falling or us wanting to move away within the 5 years outweigh any benefits we could get.

It's in Perth, which although it was named Scotland's newest city it's kind of an extinct volcano of a place, hence the prices. Although a £50k flat would be a shoebox.

[trevor_1977]

You never really ever own a flat .

[Bruce Banner]

You never really ever own a flat .

Or a house. Even freehold houses can be subject to compulsory purchase orders.

[porca misèria]

Or a house. Even freehold houses can be subject to compulsory purchase orders.

Or, possibly worse, blighted by things happening locally leaving the owner-occupier trapped and without compensation.

[catmandu]

If you're only spending 50k on a house, I wouldn't worry so much about house price fluctuations. The actual amounts to be gained or lost are pretty small. If you can buy a house you'd be happy living in for some time, then get the best you can buy and enjoy it. You'll have security of tenure with no rent rises.

[disenfranchised]

If its 400 a month to rent but 550 to buy on a 5 year deal...

Is the 'third way' to buy on 25 year mortgage with minimum deposit, paying a lot less than either of the above and pumping the difference into an ISA? Can't be arsed to do the numbers, but could work perhaps?