daves mum Posted September 15, 2010 Share Posted September 15, 2010 Hi All I'm trying and failling to calculate whether it would be cheaper to rent, save, and invest my current deposit, or buy a house with a mortgage over 25 years. However, after a day at work, my brain isn't working.... Lets assume a deposit of 30k, and 6k per year going into saving. If I could get 10% return on investment (optimistic I know), would this be better than taking out a 25 year mortgage with an assumed 6% interest rate? What would a reasonable annual rate of HPI inflation to assume over this 25 year period? 3%, 5%???! As I said, I'm having a brain freeze, and can't see the wood for the trees.... any help appreciated. Cheers DM Quote Link to comment Share on other sites More sharing options...
easy2012 Posted September 15, 2010 Share Posted September 15, 2010 Hi All I'm trying and failling to calculate whether it would be cheaper to rent, save, and invest my current deposit, or buy a house with a mortgage over 25 years. However, after a day at work, my brain isn't working.... Lets assume a deposit of 30k, and 6k per year going into saving. If I could get 10% return on investment (optimistic I know), would this be better than taking out a 25 year mortgage with an assumed 6% interest rate? What would a reasonable annual rate of HPI inflation to assume over this 25 year period? 3%, 5%???! As I said, I'm having a brain freeze, and can't see the wood for the trees.... any help appreciated. Cheers DM I am afraid there are just too many assumptions to make a reasonable comparison. If you need somewhere to live and bring up family, then buy (perhaps wait 6 months for the cuts and VAT rise to comes in). I did a comparison before and an average UK house returned about 39x (nominal) between 1965 - 2010, which is about the same as S&P 500 (counting S&P points only, not taking into account £/$ exchange rate changes). On the other hand, the very top performing stocks like Berkshire Hathaway returned over 6000x over the same period, Microsoft returned over 250x since 1987 ( $0.10 1987, $25 today, plus dividends). An average house probably up from around £50k (just a guess) in 1987 to £170k today. My guess would be if you just buy the index, the probability of outperforming HPI is not favourable (Housing market is rigged to favour home owner). If you can do your research, you should be able to beat HP by miles. Also note that House 'investment' is leveraged initially (and the leveraged is normally reduced as mortgage is paid down) while stock investment is normally 100% down from day one. Of course, history is no guarantee of future performances. Quote Link to comment Share on other sites More sharing options...
The Masked Tulip Posted September 15, 2010 Share Posted September 15, 2010 Not related to this thread directly but... Over on the MSE house selling forum I have notice a reluctance by sellers to drop their asking prices and, when they do, they tend to drop by a few K and not tens of K... and then post how indignant they feel for having to drop their asking price... But at the same time they seem 'happy' to accept the lower valuation that the surveyor for the buyers' mortgage company brings in. So this, to me, says that if you are in a fortunate position of being a cash buyer you will probably have your low offer taken more seriously if, instead of offering cash, you actually go and get a mortgage and the bank's surveyor then says "Oi luv, ain't worth it!". Quote Link to comment Share on other sites More sharing options...
Speak&Spell Posted September 16, 2010 Share Posted September 16, 2010 Not related to this thread directly but... Over on the MSE house selling forum I have notice a reluctance by sellers to drop their asking prices and, when they do, they tend to drop by a few K and not tens of K... and then post how indignant they feel for having to drop their asking price... But at the same time they seem 'happy' to accept the lower valuation that the surveyor for the buyers' mortgage company brings in. So this, to me, says that if you are in a fortunate position of being a cash buyer you will probably have your low offer taken more seriously if, instead of offering cash, you actually go and get a mortgage and the bank's surveyor then says "Oi luv, ain't worth it!". A little off topic, but in my experience the banks aren't undervaluing properties in the area I'm looking at. Houses have completed between £340k to £350k, which is overpriced. I think if the bank can see that the potential buyers can make the repayments, they will value the property at the price the offer was accepted at. End of. Quote Link to comment Share on other sites More sharing options...
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