[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]

Telometer, on Feb 27 2008, 05:28 PM, said:

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.

This post has been edited by OurDayWillCome: 27 February 2008 - 05:43 PM

[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

This post has been edited by Ursus Helvetica: 28 February 2008 - 09:40 AM

[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]

Scott, on Feb 27 2008, 05:23 PM, said:

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

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

[Fence]

Scott, on Feb 27 2008, 05:23 PM, said:

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]

The_Oldie, on Feb 27 2008, 05:49 PM, said:

I think they will .

well, that's settled then.

[Scott]

starsign, on Feb 27 2008, 05:47 PM, said:

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]

Fence, on Feb 27 2008, 05:51 PM, said:

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]

Scott, on Feb 27 2008, 05:54 PM, said:

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]

starsign, on Feb 27 2008, 06:02 PM, said:

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....