Anecdotal

[gasket37]

i lurk on this site far too much than is good for me,

but only post ocassionally when i feel **compelled**

to do so!

anyway, i was privy to some information which the forum

may or may not find interesting!

i was in the same room as a colleague and a client who

we shall call client X. they were going over figures for

a mortgage application.

this client is quite young and i wasn't initially 'tuned

in' to what they were saying, but it transpired that this

client has been offered a mortgage of, wait for it, 5 times

income over 40 years! client X has a modest income around the

national average and his trade is not a lucrative one nor

is it likely to turn into one, especially over the next 40

years.

to protect the guilty, i will not mention any names

but suffice it to say, the financial institution concerned

is one of the biggest in the country.

"5 times income over 40 years, why on earth doesn't

client X rent?!" i ask one of my colleagues when the client had

gone.

"nah", she replies, "renting is dead money, isn't it?"

honestly, you couldn't make any of this stuff up, could

you; and i haven't!

Edited August 2, 2005 by gasket37

[Warwickshire Lad]

honestly, you couldn't make any of this stuff up, could

you; and i haven't!

<{POST_SNAPBACK}>

Your story is totally believable. The "Renting Is Dead Money" myth is alive and well. It boils down in part to an numeric illiteracy which is rife throughout Britain.

I am in the process of creating a larger and wider section for this on FTBH.

When it's ready I'll be letting you all know, as I would like people from HPC to come over and put their own Renting vs Buying comments forward.

I think the maths of it does need to be made clearer to people.

[Jason]

I don't really think its worth taking a mortgage longer than 25 years. If you take £100k at 5% you pay £591.27. Over 40 years £485.65. A saving of £105 a month for an 15 years mortgage, is it worth it?

To give other examples:

20 years - £668.69

25 years - £591.27

30 years - £542.10

35 years - £508.93

50 years - £456.47

Look if you take a mortgage of 50 years you save £134 a month, and it will take you to the day you retire - how convenient (a Unique Selling Point?)!

Edited August 2, 2005 by Jason

[PrincessPatience]

Your story is totally believable.  The "Renting Is Dead Money" myth is alive and well.  It boils down in part to an numeric illiteracy which is rife throughout Britain.

I am in the process of creating a larger and wider section for this on FTBH.

When it's ready I'll be letting you all know, as I would like people from HPC to come over and put their own Renting vs Buying comments forward. 

I think the maths of it does need to be made clearer to people.

<{POST_SNAPBACK}>

HI Wl,

there is a good tool on the FT website for buying v renting might be worth putting a link in the section. Highlighted to me straight away that we were better off staying put in our lovely rented house!

[beerhunter]

I don't really think its worth taking a mortgage longer than 25 years.

I agree.. in fact a debt is a debt... the best solution is always to pay it off as quickly as possible.

If you take £100k at 5% you pay £591.27.  Over 40 years £485.65.  A saving of £105 a month for an 15 years mortgage, is it worth it?

But you not saving money.. you actually spending (a hell of a lot) more money!

To give other examples:

20 years - £668.69

25 years - £591.27

30 years - £542.10

35 years - £508.93

50 years - £456.47

From these figures I think your assuming 5% repayment mortgage.. hence I have assumed the same.

If you take £100k at 5% over N years how much do you pay in total

20 years - £160,485

25 years - £177,381

30 years - £195,154

35 years - £213,750

40 years - £233,112

50 years - £273,883

Look if you take a mortgage of 50 years you save £134 a month, and it will take you to the day you retire - how convenient (a Unique Selling Point?)!

But you pay an extra £95,502 in interest on a loan of £100,000 (compared to a 25 year term)... I'd say that isn't saving money

Edited August 2, 2005 by beerhunter

[Warwickshire Lad]

there is a good tool on the FT website for buying v renting might be worth putting a link in the section.

<{POST_SNAPBACK}>

'Ello Princess. What is the exact link can you post it here ?

[Red Baron]

'Renting is dead money' is a myth which should be replaced by the truism 'mortgage payments are dead money too'.

Try expaining that to 95% of the population who hold these entrenched views. We are an amazingly illiterate nation, financially speaking.

Edited August 2, 2005 by Red Baron

[beerhunter]

'Renting is dead money' is a myth which should be replaced by the truism 'mortgage payments are dead money too'.

Try expaining that to 95% of the population who hold these entrenched views. We are an amazingly illiterate nation, financially speaking.

<{POST_SNAPBACK}>

Who said "the average person is stupid"... whoever it was, I think they were right

[NJP]

Your story is totally believable.  The "Renting Is Dead Money" myth is alive and well.  It boils down in part to an numeric illiteracy which is rife throughout Britain.

I am in the process of creating a larger and wider section for this on FTBH.

<{POST_SNAPBACK}>

When I speak to fellow potential FTBs, the reason they all give for wanting to buy is "because renting is dead money". My feeling is that this is now the main motivation for FTBs entering the market. Previously, the fear of prices rocketing further was a major motivation to buy, but I'd be surprised if that's still the case.

I think it's vital you get the point across on FTBH. The current article is good, but maybe a little too in-depth to grab the attention of casual readers.

The problem with explaining it well, is that it's not intuitive. When I go through the simple maths with friends, they generally reply "okay... so you're better off renting, but if you get a mortgage, surely you'll end up owning a house after 25 years?"

[Smell the Fear]

When I speak to fellow potential FTBs, the reason they all give for wanting to buy is "because renting is dead money". My feeling is that this is now the main motivation for FTBs entering the market. Previously, the fear of prices rocketing further was a major motivation to buy, but I'd be surprised if that's still the case.

I think it's vital you get the point across on FTBH. The current article is good, but maybe a little too in-depth to grab the attention of casual readers.

The problem with explaining it well, is that it's not intuitive. When I go through the simple maths with friends, they generally reply "okay... so you're better off renting, but if you get a mortgage, surely you'll end up owning a house after 25 years?" 

<{POST_SNAPBACK}>

One factor worth bearing in mind is that having a mortgage forces you to "save", in the sense that you are repaying the debt, increasing your equity in the property and will own a house if you stick it out for the 25 (or 40) years. Regardless of what happens to house prices, you will have something to show for it eventually.

Many people, due to their nature, would have spent the money they used to repay capital over the years if the mortgage didn't force them to use it for the purchase of an asset.

The rent vs. buy argument is in my opinion a tool for timing a purchase.

[Guest Bart of Darkness]

Who said "the average person is stupid"... whoever it was, I think they were right

Will Smith has a line in Men in Black, "A person is smart. People are stupid."

Not sure if that's the quotation you meant but it's pretty close (and accurate).

[NJP]

The rent vs. buy argument is in my opinion a tool for timing a purchase.

<{POST_SNAPBACK}>

Agreed. I don't think anyone would suggest that you'd be better off renting for the next 25 years!

[Fingers Crossed]

"there is a good tool on the FT website for buying v renting might be worth putting a link in the section"

I think this is the link princess was using.

http://news.ft.com/cms/f009ab82-0a2b-11d8-...20abe49a01.html

[Big_Al]

I seem to recall an article in the Mail recently which was saying that over a 25 year period it still works out cheaper to buy than rent - I think the difference was about £37k.

Anyone recall this and did the figures really stack up?

[beerhunter]

One factor worth bearing in mind is that having a mortgage forces you to "save", in the sense that you are repaying the debt, increasing your equity in the property and will own a house if you stick it out for the 25 (or 40) years. Regardless of what happens to house prices, you will have something to show for it eventually.

Yes that's true, assuming you can afford a repayment mortgage.

With the high prices I'm sure a lot of FTBer's are on interest only, which is not dissimilar too renting, but has some extra risks and costs involved... but also buying with an io mortgage, you could still say you have the option of buying (ie paying off the captial) after 25 years.

However you have to pay back the capital after 25 years;

In the past 25 years inflation (I think I don't have the figures to hand.. but the idea should be apparent) averaged about 5% / year... so affer 25 years each £1 used to buy is in affect repayed as 30p 25 years later.

Now with an independent BoE.. whats to say they keep inflation around the 2% goal? Buying now, and after 25 years of 2% inflation.. you have to pay back 62p for each pound.

Forget the endownment mis-selling, there's possibly another big issue in the years to come, when people haven't saved enough to cover the cost of paying off the capital of their home.

Many people, due to their nature, would have spent the money they used to repay capital over the years if the mortgage didn't force them to use it for the purchase of an asset.

True.. and my gut feeling is a lot of people with io mortgages aren't saving enough.

The rent vs. buy argument is in my opinion a tool for timing a purchase.

<{POST_SNAPBACK}>

I agree, its one of the (many) indications on when (or not) to buy.

[colonel faulkner]

This One Is Better

Wahey, 200 posts!

[Guest Charlie The Tramp]

I seem to recall an article in the Mail

<{POST_SNAPBACK}>

Dodgy mentioning the **** on this forum.

[beerhunter]

Wahey, 200 posts!

Congrats

This One Is Better

But it doesn't allow a property inflation rate value outside of 0.1 to 100%

[Big_Al]

Dodgy mentioning the **** on this forum. 

<{POST_SNAPBACK}>

As much as I'd like to deny it, I hang my head in shame and will flagellate myself with a wet copy of the Sun for my sins

[Smell the Fear]

This One Is Better

Wahey, 200 posts!

<{POST_SNAPBACK}>

Interesting - if the property I rent went up by only 0.1% for the next 5 years, I would be £5k better off by buying now. It seems then that the breakeven point is around the -0.5% house price inflation level, give or take a few hundred quid - i.e. the difference is fairly negligible.

This means I am effectively taking a punt on house prices decreasing by more than 0.5% a year for the next five years. It's good to know exactly where you stand, eh?

I'm surprised it's that clear cut - I would have thought I would be better off renting given current prices and assuming 0% house price inflation. Maybe the market still has further to rise!

[lewissheridan]

My friend told me he was looking at buying a house, and he asked me about what my plans were. i told him that i'm renting at the moment, and probably will do for the next 2 years until house prices sort themselves out. He said to me, that he'd rather pay a mortgage because renting is like chucking your money away. I didn't have the energy to explain it all to him. But i put it to him like this, your parents home has doubled in value in the last 5 years, what's to say houses won't half in value over the next 5 years. He didn't think it could happen. But it's feasible... i do'nt see where this optimism comes from.

And I think it's true of a lot of people, they scratch the surface and the intuitive feeling is that renting is a bad idea, best to get a mortgage now. But at over-inflated prices ? I said to him also you can't afford £130k, that's the average price of a 1-bed flat ?

I sincerely hope the prices fall out of the sky... houses aren't investment vehicles and assets, they're homes!! roofs over our heads!!! god what world do we live in

[theChuz]

Will Smith has a line in Men in Black, "A person is smart. People are stupid."

Not sure if that's the quotation you meant but it's pretty close (and accurate).

<{POST_SNAPBACK}>

He stole that off me.

[busta move]

Who said "the average person is stupid"... whoever it was, I think they were right 

<{POST_SNAPBACK}>

Half of the population are of below average intelligence!

[Ignorant Steve]

Half of the population are of below average intelligence!

<{POST_SNAPBACK}>

Rubbish - talk to anyone and they'll tell you they are smart.

Surely only about 10% of the population are below average intelligence.

"The public is shocked by the state of society" - Steve Ignorant (Crass) 1980.

[Mr_Sminty]

Anyone got a nifty excel spreadsheet that would proivde a more accurate model? That would be very useful to put onto your site

Im not bad with Excel so could have a go at it one day. Maybe have various scenarios over 10 years

Bull 1 20% HPI

Bull 2 10% HPI

Bull 3 5% HPI

Bear 1 -5%

Bear 2 -10% HPI

Bear 3 -20%

Or something like that?