It's Cheaper To Buy Than It Is To Rent...

[Bloo Loo]

I'm renting rather than buying outright because I get more in interest on the money I'd have to draw out of the bank to buy the house I'm renting than I pay in rent and my cash is not tied up in an illiquid, depreciating, asset.

sorry, its not always the case, you are right...most times it should be as there are finance costs in the price of purchase.

It is the main reason I would advocate the banning of mortgages for the purpose of purchasing resdidential property.

[InlikeFlynn]

The proof is in the pudding.

. We should all learn from history and history shows that over the longer term property ownership beats renting hands down.

Another similar adage is that shares always beat cash over the longterm.

The problem with both is that thorough examination demonstrates that they are NOT always true. Cash has outperformed shares over the past 30 years for the first 30 year period since the mid 1800s!

Japanese residential property has fallen steadily over the past 15 years or so, so that renters have done better.

I don't think anyone on this site will argue that one should NEVER buy property to live in, the point we are all making is that now is, in purely financial terms, a very bad time to do so in many parts of the country.

[UrWntr]

To buy:

http://www.rightmove.co.uk/property-for-sale/property-19633791.html

4 bedroom semi-detached house for sale£640,000

Stoke Goldington

From the nationwide mortgage site... £540K mortgage + £100K deposit....

5 years 4.84% 3.99% 4.6% APR £99 £3,106.65

cheapest deal;

2 years 3.79% 3.99% 4.2% APR £999 £2,788.07

Or rent...have all the maintenance done, no worry about interest rates taking that payment up to 6K a month, no house insurance, no ties, trash the joint if you so desire.....all for:

http://www.rightmove.co.uk/property-to-rent/property-35520347.html

4 bedroom semi-detached house to rent

£1,850pcm

Maybe 12K better off per year renting....not to mention the stress above worrying you property might half invalue.

Bargain.

I have a genuine question - I'm new to this so go easy on me.

It may be possible to show that over a fixed period of time, renting is cheaper than buying, but isn't that missing the point? People live longer than 2, 5.... 25 years, so shouldn't we be doing the comparison over a much longer timescale?

- If Mr Buyer buys a house at the age of 30 he'll have paid off their mortgage over 25 years. Life expectancy in the UK is around 80, so the real cost of the property should be spread over 50 years because he lives mortgage free for the last 25 years of his life.

- If Mr Renter rents the same property for 50 years, the total cost is likely to be far greater than Mr Buyer's.

What am I missing?

Thanks,

-UrWntr

[porca misèria]

- If Mr Buyer buys a house at the age of 30 he'll have paid off their mortgage over 25 years. Life expectancy in the UK is around 80, so the real cost of the property should be spread over 50 years because he lives mortgage free for the last 25 years of his life.

- If Mr Renter rents the same property for 50 years, the total cost is likely to be far greater than Mr Buyer's.

What am I missing?

Nothing wrong with that. In the long term, buying beats renting - at least if you're living long-term at the same place. What's more, those rents will rise over 50 years, even as the mortgage diminishes.

Short-term though, it's different. If you'd bought a once-only-in-a-lifetime house in 1989 you'd probably pay more over that lifetime than renting for five years and buying in 1994. We're into another such period now in much of the market.

[libspero]

I have a genuine question - I'm new to this so go easy on me.

It may be possible to show that over a fixed period of time, renting is cheaper than buying, but isn't that missing the point? People live longer than 2, 5.... 25 years, so shouldn't we be doing the comparison over a much longer timescale?

- If Mr Buyer buys a house at the age of 30 he'll have paid off their mortgage over 25 years. Life expectancy in the UK is around 80, so the real cost of the property should be spread over 50 years because he lives mortgage free for the last 25 years of his life.

- If Mr Renter rents the same property for 50 years, the total cost is likely to be far greater than Mr Buyer's.

What am I missing?

Thanks,

-UrWntr

Nothing wrong with your analysis provided you are comparing the cost of a repayment mortgage against the cost of renting.

The only presumption you have made is that after 25 years a renter hasn't saved/invested the difference and is then in a position to purchase outright. It also excludes the costs of any home moves in the mean time.. agents fees, solicitors fees, stamp duty etc. Then maintenance on top (just because your landlord skimps, you will find when you buy a house you are tempted/coerced into buying a new kitchen, bathroom.. fixing the leaking roof, having the fence done, re-lining the chimney etc).

It could still work out cheaper to buy.. but don't forget that we could still see another 5-10% nominal drops. I have a relative who is about to move after 4 years living at the current address. She is expecting to sell for around £20k less than she paid (admittedly the house she will be moving into will be cheaper as well). But that's £5k per year before you factor in the rest of the costs!

Truth is there's no right or wrong answer, just luck, speculation and personal circumstance

Edit to add: Welcome to the forum btw!

Edited November 13, 2011 by libspero

[joe_]

Nothing wrong with that. In the long term, buying beats renting - at least if you're living long-term at the same place. What's more, those rents will rise over 50 years, even as the mortgage diminishes.

Short-term though, it's different. If you'd bought a once-only-in-a-lifetime house in 1989 you'd probably pay more over that lifetime than renting for five years and buying in 1994. We're into another such period now in much of the market.

Totally agree, timing is everything (especially for first time buyers) - and it all depends on what happens in the next few years.

I'm not totally sure what I should do - I could rent a 1bed for £500-£600 (£500 being a pretty tatty flat, £600 being something quite nice) or I could buy at around £110K for a nice 1 bed. I've got around £30K deposit, so could get a mortgage with payments a fair bit lower.

If I bought the place and prices drop or interest rates shot up, I would be gutted though and quite possibly be stuck if I wanted to move.

[JonoP]

The proof is in the pudding.

Ask anyone who has owned a house for 25years today how they have faired with regard to Renting V Owning and I am sure they would be enthusiastic about owning. We should all learn from history and history shows that over the longer term property ownership beats renting hands down.

Past Performance Is Not A Guarantee Of Future Returns .........

Past performance did not have to account for:

- A retiring population of boomers, all desperate to sell assets to fund their 'golden years'

- A banking system in distress, with interest rates a crazily low levels with only one direction to rise

- House prices 30 - 50% over valued

You see, you can plough your money in to a 50% mortgage on a BTL if you wish, and then try to rent it out. But in a few years time, similar properties will be cheaper, so other landlords will be able to undercut your rental prices. So you will get voids. And the capital value of your 'asset' will have fallen. So you will not be able to sell it....

All the people who post on the forum about it being a good time to buy due to interest rates being low have such a short term perspective. Yes, they are low now, but that will make you doubly screwed when they go up....

[jammo]

I'm considering waiting till the Euro collapses, then buy a house somewhere on the Med for a small fraction of what they cost now in Euros. Keeping my fingers crossed. It's not all doom and gloom is it?

[zebbedee]

I have a genuine question - I'm new to this so go easy on me.

It may be possible to show that over a fixed period of time, renting is cheaper than buying, but isn't that missing the point? People live longer than 2, 5.... 25 years, so shouldn't we be doing the comparison over a much longer timescale?

- If Mr Buyer buys a house at the age of 30 he'll have paid off their mortgage over 25 years. Life expectancy in the UK is around 80, so the real cost of the property should be spread over 50 years because he lives mortgage free for the last 25 years of his life.

- If Mr Renter rents the same property for 50 years, the total cost is likely to be far greater than Mr Buyer's.

What am I missing?

Thanks,

-UrWntr

Very very true, but it all depends on when you buy

http://www.finfacts.ie/irishfinancenews/article_1019261.shtml

and whether your money would be better put to work in other asset classes at that moment in time, you only know if you did right after its to late.

[Bobajob]

To buy:

http://www.rightmove.co.uk/property-for-sale/property-19633791.html

4 bedroom semi-detached house for sale£640,000

Stoke Goldington

From the nationwide mortgage site... £540K mortgage + £100K deposit....

5 years 4.84% 3.99% 4.6% APR £99 £3,106.65

cheapest deal;

2 years 3.79% 3.99% 4.2% APR £999 £2,788.07

Or rent...have all the maintenance done, no worry about interest rates taking that payment up to 6K a month, no house insurance, no ties, trash the joint if you so desire.....all for:

http://www.rightmove.co.uk/property-to-rent/property-35520347.html

4 bedroom semi-detached house to rent

£1,850pcm

Maybe 12K better off per year renting....not to mention the stress above worrying you property might half invalue.

Bargain.

Look at it a different way. You can get an absolute maximum of 3% interest in a no-notice account. £640,000 x 3% = £19,200

Rental income = £1850 x 12 = £22,200 (say £20k after EAs rental fees)

Not an overwhelming case for selling the house. IRs need to rise and then the sh1t with hit the rotating bit of metal.

[calmdowndear]

I don't think you can totally compare renting and buying purely on financials as its more of a lifestyle choice.

People often rent because they need to be flexible with work or need to get a feel for an area before committing to a purchase, these are often young people in the 22 - 30 age range trying to establish themselves in the jobs markets having left university etc etc.

I think the problem of renting is when you start a family your in your mid 40s and still renting with no prospect of ever owning your own home, then it becomes a case of the kids (if you have them) will never be totally settled with Schools , Friends , Clubs , Community and never have a place they can really call home, with a bedroom the way they want it.

As you get older as already mentioned everyone would like to be in a position where the mortgage has already been paid off and you can retire from work having been mortgage free for 30 years plus allowing you to spend the money on holidays and a nice car whilst having the security of a home that you own outright where family can come round.

That is a big thing for me having 2 kids is not being in a position where you could be forced from a house because the landlord wants u out, personally don't think you can put a figure on having that security whereby you can do what you want when you want to your house, you only live once and being told that you cannot paint a room a certain colour or can't put a nice decking area in the garden is not the life I would want to live when spending a large part of my life in this one place. Even if someone today said worst case (as i don't know anyone worse off over 50 years) that over the next 50 years buying is going to cost you 20% more than renting I would still most definitely take the buying option just on the points raised above.

[the_duke_of_hazzard]

I think the problem of renting is when you start a family your in your mid 40s and still renting with no prospect of ever owning your own home, then it becomes a case of the kids (if you have them) will never be totally settled with Schools , Friends , Clubs , Community and never have a place they can really call home, with a bedroom the way they want it.

Rubbish. I remember feeling unsettled with my dad fearing not being able to pay the mortgage in my childhood, and having cash in the bank means we can stay in a certain area until the kids are in secondary and then see what our options are.

"A bedroom the way they want it"? You think people in rented places don't put pictures up on the walls?

[Lepista]

...The reason you decide to start abusing people who have this view is because you have VI in house prices falling...

I know I was going to ignore you, but...

When you stop and think about it, who doesn't have a vested interest in seeing house prices falling?

I'd be interested to hear from you who you think benefits from ever-rising house prices?

[Saver]

When people talk about "better off renting/buying", mostly they only consider the financial outgoings to service the mortgage / rental payments. As we know, it's a little more complicated than that.

For buying, there are significant other costs and risks, namely:

- Deposit

- Risks of depreciation on your house

- Tied in for 25 years

- House Insurance / Life insurance

- Stamp Duty, etc. for the purchase

- Household maintenance expenses

For renting, the downsides are

- Not being "your own place"

- Having to deal with a "landlord"

- Not having security of tenure

There really aren't that many downside cost risks - the monthly rent outgoing is prety much it.

Buying only makes sense when you have a decent HPI figure. When it is static, or slightly falling (as we have now) then it is a nonsense to even consider buying, even if nominally you are "better off renting"

you have not factored in the fact that once you pay off the mortgage you pay no mortgage each month, but with renting you have to pay monthly rent forever (unless you manage to save enough to buy a house outright at some point).

[Bruce Banner]

you have not factored in the fact that once you pay off the mortgage you pay no mortgage each month, but with renting you have to pay monthly rent forever (unless you manage to save enough to buy a house outright at some point).

[Guest]

The proof is in the pudding.

Ask anyone who has owned a house for 25years today how they have faired with regard to Renting V Owning and I am sure they would be enthusiastic about owning. We should all learn from history and history shows that over the longer term property ownership beats renting hands down.

I think I read something about Past Performance Is Not an Indication of Future Results once, but surely can't apply to property, I'm sure it'll keep doubling every 7 years until our great grandchildren have to pay 50x average income for a share of a 1 bed flat.

Edited November 18, 2011 by Guest

[winkie]

I have a genuine question - I'm new to this so go easy on me.

It may be possible to show that over a fixed period of time, renting is cheaper than buying, but isn't that missing the point? People live longer than 2, 5.... 25 years, so shouldn't we be doing the comparison over a much longer timescale?

- If Mr Buyer buys a house at the age of 30 he'll have paid off their mortgage over 25 years. Life expectancy in the UK is around 80, so the real cost of the property should be spread over 50 years because he lives mortgage free for the last 25 years of his life.

- If Mr Renter rents the same property for 50 years, the total cost is likely to be far greater than Mr Buyer's.

What am I missing?

Thanks,

-UrWntr

That was then, this is now in many cases:

Property £280,000 to buy Rent £1000 per month

Mortgage £250,000 plus costs, lending fees, estate agents fees, conveyancing fees, surveyors fees, stamp duty, moving costs, furniture, decoration....plus loss of deposit £30k plus fees approx £15k to £20k.

Monthly mortgage repayments over 25 years @ 3% todays prices if lucky = £1185 per month.

Total repayment £355,658 if the interest stays the same over 25 years.

Also you have to take into consideration, ground rent and maintenance costs if a flat, repairs and upkeep including buildings insurance......the loss of interest on the deposit and costs to buy money or add the cost on if another loan . You also have to take into consideration any fall both in real and nominal terms of the value of the property, and also the fact that it is hard and takes longer to get access to your money if you need it when it is all tied up in property especially if your commitments increase or your income, the value of the property or credit rating falls.

[Goat]

Look at it a different way. You can get an absolute maximum of 3% interest in a no-notice account. £640,000 x 3% = £19,200

Rental income = £1850 x 12 = £22,200 (say £20k after EAs rental fees)

Not an overwhelming case for selling the house. IRs need to rise and then the sh1t with hit the rotating bit of metal.

Repairs, voids etc. Factor those in and you can quickly knock another £4,000 off the bottom line.

[Saver]

whatever

[Bruce Banner]

whatever

[Goat]

I'm not totally sure what I should do - I could rent a 1bed for £500-£600 (£500 being a pretty tatty flat, £600 being something quite nice) or I could buy at around £110K for a nice 1 bed.

Lucky you, £600/month equals £150k+ in my area, at £110k I'd start to be interested.

[the_duke_of_hazzard]

Look at it a different way. You can get an absolute maximum of 3% interest in a no-notice account. £640,000 x 3% = £19,200

Rental income = £1850 x 12 = £22,200 (say £20k after EAs rental fees)

Not an overwhelming case for selling the house. IRs need to rise and then the sh1t with hit the rotating bit of metal.

Voids, maintenance costs, legal costs (gas certs etc), hassle.

Also, you can lock up a proportion of it, spread it over different investments to maximise yield. Whereas a house is just one big illiquid asset. I'd say it's pretty compelling myself.

Edited November 18, 2011 by the_duke_of_hazzard

[levoleurdefruits]

Either rent the money to own the property eventually.

Or rent the property to own the money immediately.

Can't say I would want to own much money at the moment given the QE.

But either-way, ownership of capital is the ultimate aim. The question is whether you want to own capital in the land you live on, or invest it elsewhere. Whether it is cheaper to rent or buy is a mute point as they have different outcomes.

Damn right

[lid]

Can't be arsed paying £1 to read the Times - but they're now planning 50% discount on right to buy

Exclusive: council houses for sale at

50% off

Jill Sherman, Deirdre Hipwell

1 minute ago

Millions of council house tenants will be entitled to a discount of up to 50 per cent if they want to buy their homes under plans to extend the right-to-buy scheme, The Times has learnt. The new discount, twice the existing amount, forms part of the Government’s strategy to build 450,000 new homes. David Cameron and Nick Clegg will reveal the details on Monday. The average £26,000 discount for a council home would jump to about £52,000. But tenants in London and the South East would save larger sums under the scheme, initiated in 1980 by Margaret Thatcher. The current right-to-buy scheme has a cap of £38,000 but this is expected to rise to £76,000 in areas with the highest house prices. The average price for a London council home was £162,630 last year. Councils will have discretion over the discounts but must spend the…

[MRMX9]

Can't be arsed paying £1 to read the Times - but they're now planning 50% discount on right to buy

Exclusive: council houses for sale at

50% off

Jill Sherman, Deirdre Hipwell

1 minute ago

Millions of council house tenants will be entitled to a discount of up to 50 per cent if they want to buy their homes under plans to extend the right-to-buy scheme, The Times has learnt. The new discount, twice the existing amount, forms part of the Government’s strategy to build 450,000 new homes. David Cameron and Nick Clegg will reveal the details on Monday. The average £26,000 discount for a council home would jump to about £52,000. But tenants in London and the South East would save larger sums under the scheme, initiated in 1980 by Margaret Thatcher. The current right-to-buy scheme has a cap of £38,000 but this is expected to rise to £76,000 in areas with the highest house prices. The average price for a London council home was £162,630 last year. Councils will have discretion over the discounts but must spend the…

So they are going to build more social homes - by flogging off existing social homes at half price. Where is the logic here.

This just might be about acceptable in cheap areas - but this scheme will apparently also apply in London. So someone will be able to buy a £400,000 council flat in Westminster for £200,000 - and shortly thereafter be able to flog said flat for an immediate £200k profit or rent it out for £400 a week?

It surely is the economics of the madhouse. Why should anyone have the right to buy an asset which belongs to the community - at half its market value (unless its Richard Branson I admit!)?