Buying A Home Now £120 Cheaper P\m Than Renting

[bigkid]

A continued fall is my prediction. Whether you define that as a 'crash' or not doesn't matter too much in my view, if you take a reasonable assumption for your interest rate over the lifetime of your potential mortgage, make a reasonable estimate as to the rate of capital value decline you can compare the costs of buying versus renting. It will vary depending on whether you need to borrow at all, and will be influenced by other needs such as security of tenure.

There is plainly no rush to get into this market, but if now is the right time for you to buy then go ahead.

If you're talking about the BOE set base rate, then I can see a case for it staying low, however there have been recent rumblings about an increase to at least look like they give a damn about the inflation they have stoked with QE.

Others have been rumbling about rises since they started reducing in 2008-2009. The only opinions that matter are the MPC and George Osborne.

But that doesn't matter all that much, the cost of borrowing is what sets mortgage costs and that has had little to do with the base rate for some time now.

I agree but look what happened as soon as borrowing costs started rising despite record low base rates - funding for lending cheap money to force down borrowing costs again. They will always introduce something different if it looks like getting out of their control.

For as long as prices continue to fall I see no reason to take on such a commitment, particularly in times such as these. Peoples needs vary so for some it might make sense to buy now, do what you want.

[dances with sheeple]

Declan Curry is, along with his mate Ray Boulger, trying his best to convince the masses to BUY NOW, on his weekly "Your Money" program on BBC News .

If they can`t buy jeans at Republic, how are they going to afford big lumpy things like houses? These blokes don`t get paid to "get it" and tell the truth do they?

[Giordano Bruno]

The figures quoted in the article seem to me to only include interest as the cost of buying. Correct me if I'm wrong.

So that would be Interest Only mortgage which, as most of us know, is not buying really but renting from the bank with the added commitment to the property:- At the end of term you need to be able to pay up the principal.

The article is misleading, I would say.

[Guest_FaFa!_*]

Cost of renting > cost of buying is an early indicator of the start of a new uptrend.

Whether their numbers are correct or not is moot, but since the nominal low was in March/April '09 (4 years ago now) and owning appears to be moving towards being cheaper than renting this will in due course signal the end of the downtrend and the turn into an uptrend again, overall. Irrespective of individuals own circumstances/liquidity preferences.

Just saying fellas.

It is irrelevant if the mortgage is 500quid a month and the rent 600quid a month if you cannot get a mortgage due to needing a five figure deposit. To me best case scenario real terms falls to a point where FTBs rejoin the market, worse case scenario rent seekers are able to price out FTBs and we return to the early 20th century. I assume you think it'll be the latter, but I don't agree with you that this entails price rises - yields are extremely poor, dividend yielding shares would surely be a better bet.

[The Knimbies who say No]

The figures quoted in the article seem to me to only include interest as the cost of buying. Correct me if I'm wrong.

So that would be Interest Only mortgage which, as most of us know, is not buying really but renting from the bank with the added commitment to the property:- At the end of term you need to be able to pay up the principal.

The article is misleading, I would say.

Not quite, it's a mix of both IO and repayment, (but crucially, which makes your point perfectly valid imo), not completely on a capital repayment basis:

Mortgage payments:

Mortgage payments are the weighted average of repayment (capital and interest) and interest-only mortgage payments. They refer to the average for a new borrower – either first-time buyer or home mover. Weights have been constructed using FSA regulated mortgage statistics on advances by mortgage type. Average mortgage payments (both repayment and interest-only) have been calculated using house price data from the Halifax's own extensive housing statistics database and Bank of England series on the average of UK resident banks' sterling weighted average interest rate loans secured on dwellings to households for new borrowers only. It is assumed that the average advance is 73% of the purchase price and is based on CML data. UK mortgage payments figures are a weighted average of the regional data. Weights have been calculated using regional housing tenure data from the CLG. Mortgage payments refer to the average for a three bedroom house over 12 months to December.

Halifax Buying vs. Renting Review being referred to:

http://www.lloydsbankinggroup.com/media/pdfs/halifax/2012/2801Buying_renting.pdf

Edited February 16, 2013 by cheeznbreed

[Ash4781]

Not quite, it's a mix of both IO and repayment, (but crucially, which makes your point perfectly valid imo), not completely on a capital repayment basis:

Halifax Buying vs. Renting Review being referred to:

http://www.lloydsbankinggroup.com/media/pdfs/halifax/2012/2801Buying_renting.pdf

The report refers to the average deposit required to buy a three bed home being £40,421 but I think the cost they include is just the lost monthly investment income of £39. So I guess this renter must have £40,421 in asset investments?

edit: I think the issue is most won't have an option of buy or rent. It'll be rent with friends, parents (both discounted) or alone.

Where's the bank of mum and dad when you need them?

Edited February 16, 2013 by Ash4781

[Si1]

the average house is losing more than £120 a month in market value

Edited February 16, 2013 by Si1

[the_duke_of_hazzard]

x + 2.75% is the rule of thumb I use i.e today's 10yr yield 2.15 + 2.75 = 4.9%.

The current average SVR is 4.88%.

What proportion of mortgagees are on SVRs?

[stormymonday_2011]

Indeed, and cost of borrowing has everything to do with the market rather than the politicos or BOE. £120 is obviously the maximum they could come up with, seeing as its from a mortgage lender, and even then is a small price to pay for an insurance policy against such an enormous and looming downside. You take this route and you'll be a looking at an interest payment increase of considerably more than £120 a month before long.

Indeed a mere 1% interest rate increase on a £150,000 mortgage would wipe out that £120 at a stroke. If the sums being borrowed in relation to average earnings are large in historical terms and the interest rates are low in historical terms then the potential for large numbers of borrowers to be wiped out by any reversion in rates to the norm is high. Personally I think the British housing buying market is still fraught with risk even if the current cost of renting is high

Edited February 16, 2013 by stormymonday_2011

[The Knimbies who say No]

Indeed a mere 1% interest rate increase on a £150,000 mortgage would wipe out that £120 at a stroke. If the sums being borrowed in relation to average earnings are large in historical terms and the interest rates are low in historical terms then the potential for large numbers of borrowers to be wiped out by any reversion in rates to the norm is high. Personally I think the British housing buying market is still fraught with risk even if the current cost of renting is high

Amply demonstrated by these regular "buying is cheaper than renting" articles which seem to be showing a marked trend increasingly in favour of buying on the criteria used, yet people(in many parts of the country if not all) are not filling their boots en masse with the apparent no-brainer value on offer. Funny that.

[Dorkins]

Is it not clear by now HPC IS AND WILL BE PREVENTED FROM HAPPENING (especially in the SE). Successive governments are hell bent on supporting prices using all the artificial tools at their disposal.

Even the government is not big enough to fight the stock, property, and bond markets simultaneously and forever. If it will not let these markets equilibrate, the government itself will be removed from the equation by the market (e.g. via hyperinflation).

[Giordano Bruno]

Not quite, it's a mix of both IO and repayment, (but crucially, which makes your point perfectly valid imo), not completely on a capital repayment basis:

Halifax Buying vs. Renting Review being referred to:

http://www.lloydsbankinggroup.com/media/pdfs/halifax/2012/2801Buying_renting.pdf

Thanks for that. OK. To argue my point a bit more, I look at the list of present interest rates for mortgages at

mortage rates

The rates seem to be from just below 4% to nearly 5%. Let's call it 4% to give the devil more than his fair share in the argument.

The average house price is presently over £160k as I recall.

Paying interest only of 4% on £160k is £160k X 0.04 = £6,400 p.a. = £533 per month for interest only, I emphasize.

Yet the table has cost per month, apart from Northern Ireland which, like London, is an 'outlier' statistically, to buy being between about £450 and £839.

That doesn't add up to me.

[the_duke_of_hazzard]

Thanks for that. OK. To argue my point a bit more, I look at the list of present interest rates for mortgages at

mortage rates

The rates seem to be from just below 4% to nearly 5%. Let's call it 4% to give the devil more than his fair share in the argument.

The average house price is presently over £160k as I recall.

Paying interest only of 4% on £160k is £160k X 0.04 = £6,400 p.a. = £533 per month for interest only, I emphasize.

Yet the table has cost per month, apart from Northern Ireland which, like London, is an 'outlier' statistically, to buy being between about £450 and £839.

That doesn't add up to me.

Try here for more rates.

[plummet expert]

I think there is something wrong in the figure.

Only Greater London is more than £120 and yet the average is £120

It is not actually true atall! The cost of a mortgage on equivalent homes for rent are still actually more even though the interest rates are quite modest (at say 80% LTV). Only in the case of a very small overpriced rental of a flat or studio would there be any truth in it. It takes no account of repair/insurance/general maintenance costs etc. It is bunk in the South East for sure. It does not point out that the most likely scenario is a rise in interest rates at some point and that will bear down on any potential price rise and more likely cause stagnation and continued falls in property prices. Plenty of falls being noticed in my region - eg 'from £600-660k' house is now on for £550. Another was £475k and now on for £425k with one agent or £400-450 with another. etc etc. Another was £575k is now £525k. Another was a staggering £1,350,000 is now £800k and still too much. Another was £300-330k is now £280-£310k. Another was £730k, now £699: another £950k now £850K; another £325 now £299k. In fact I coud go on - there is very long list of reduced prices in the last 6 months in my area of Sussex. There have been very few rises, although perfectly positioned homes will always sell and may have competition amongst buyers.

[Bruce Banner]

I am moving towards the belief of rent if you want as that is your choice but understand that will put you and your children at a significant disadvantage in later life. I would love to be in a position where housing costs are near negligible (i.e. own outright having paid off a mortgage) and there is an asset to hand down making others lives easier in the future.

Housing costs are not "near negligible" if you own outright with no mortgage....... opportunity cost.

If you choose to rent but have sufficient cash to buy outright, your kids inherit the cash to make their lives easier.

[TheCountOfNowhere]

Cost of renting > cost of buying is an early indicator of the start of a new uptrend.

Just saying fellas.

I would agree...however, this is not what I see, especially if you take London out of thew equation for now.

I'd be a bit skeptical of figures from the government backed bank who basically need to encourage people to keep their balance sheet somewhere near manageable by keeping house prices high by taking out mortgages.

Then there is the economic reality....companies going bust all over....inflation eroding peoples spending power...people buying houses based on 0.5% interest rates.

There is no sense in their numbers or their statement...unless it's to gain something.....

Just saying.

[TheCountOfNowhere]

Zero rates on savings?

A quick Google search will reveal instant access savings accounts that pay over 2%.

As ever I'm with you on this Bruce.

a quick look at the graph on the front page shows that we have our HPC, in real terms. Our savings are going up and in relation prices are still coming down. This is FACT.

Wages aren't going up and I still expect a big nominal fall as more and more people realise they do actually HAVE to sell, THEY MARKET ISNT GOING TO MAGICALLY GET BETTER and THEY WONT MAKE A FORTUNE OUT OF HOUSING.

I'm happy to wait. I'm certainly better off renting versus buying and having already been at one company that shut down last year and know of 2 others that could go pop at any moment the ability to move for work is priceless.

[Bruce Banner]

As ever I'm with you on this Bruce.

a quick look at the graph on the front page shows that we have our HPC, in real terms. Our savings are going up and in relation prices are still coming down. This is FACT.

Wages aren't going up and I still expect a big nominal fall as more and more people realise they do actually HAVE to sell, THEY MARKET ISNT GOING TO MAGICALLY GET BETTER and THEY WONT MAKE A FORTUNE OUT OF HOUSING.

I'm happy to wait. I'm certainly better off renting versus buying and having already been at one company that shut down last year and know of 2 others that could go pop at any moment the ability to move for work is priceless.

It's just another attempt to get people buying, we get it every year at this time.

"What can we do this year to instigate a spring bounce? I know, lets try and convince them that rents are going up and it's cheaper to buy. If we keep telling them, perhaps some of them will believe it, worth a try".

The thing is that short term comparisons, even if true, are meaningless, because a mortgage typically lasts for twenty five years with very little of the principal being paid off in the early years. Anyone who takes out the biggest mortgage they can get their hands on, to buy a depreciating asset, is likely to be in trouble when interest rates, inevitably, rise.

[TheCountOfNowhere]

Interest rates will rise but MSM are saying that it will not be for years ... in the meantime (other thread) the HSBC BOE tracker plus 2.49% has been reduced to 2.29% so a mortgage rate of 2.79% with no fees so if you are paying rent of say 3% then many will jump in. Anyway if it all goes wrong the banks will not repossess and there is always SMI. The government seems to do everything it can to protect 'home owners'.

What were the MSM saying at the start of 2007 ?

I found the

HSBC Tracker, 2.38% -

Lifetime Tracker Special

Your Loan to Value (LTV) ratio is 50%

So with average house prices at 160K...that would be an 80K deposit.

[Si1]

Housing costs are not "near negligible" if you own outright with no mortgage....... opportunity cost.

If you choose to rent but have sufficient cash to buy outright, your kids inherit the cash to make their lives easier.

goddamit man you know they never listen!

[Bruce Banner]

goddamit man you know they never listen!

But their target audience might.

[crash2006]

I think there is something wrong in the figure.

Only Greater London is more than £120 and yet the average is £120

rubbish because the average London home is 400k the average mortgage time in 15-20 years this does not even come close unless they are suggesting interest only payments with a 2 % interest and no fees.

267000 pound home with an interest only payment of 4% is 1112 per month payment, this is not the average price.

Edited February 17, 2013 by crash2006

[motch]

I'd say a cheap property in a cheap area would be - well - cheaper to buy than rent with say a 40% deposit on a low rate at the moment.

eg 80k house - 32k put down, 48k mortgage £120 per month interest on the 48k at 3%, £60 approx per month risk free lost interest from the 32k deposit. £20 or so per month building insurance, about £200 per month, + a few other bits to pay for, + maintenance etc, so cheaper in the long run to buy

the other end, a nice sought after house in a sought after area might only cost double the rent of the above, but could cost many times the price of the above to buy, so cheaper to rent

[Giordano Bruno]

I'd say a cheap property in a cheap area would be - well - cheaper to buy than rent with say a 40% deposit on a low rate at the moment.

eg 80k house - 32k put down, 48k mortgage £120 per month interest on the 48k at 3%, £60 approx per month risk free lost interest from the 32k deposit. £20 or so per month building insurance, about £200 per month, + a few other bits to pay for, + maintenance etc, so cheaper in the long run to buy

the other end, a nice sought after house in a sought after area might only cost double the rent of the above, but could cost many times the price of the above to buy, so cheaper to rent

Mmm. Assuming interest rates will stay the same throughout the term of the mortgage and perhaps no mishaps such as losing a job or unexpected catastrophe.

[Timak]

Interest rates will rise but MSM are saying that it will not be for years ... in the meantime (other thread) the HSBC BOE tracker plus 2.49% has been reduced to 2.29% so a mortgage rate of 2.79% with no fees so if you are paying rent of say 3% then many will jump in. Anyway if it all goes wrong the banks will not repossess and there is always SMI. The government seems to do everything it can to protect 'home owners'.

Just used the HSBC mortgage calculator.

With me on £35k and the wife on £10k plus 2 kids we can still borrow £180k.

One massive caveat to that this is on a 40% LTV morgage (so a £250k deposit) but still seems a heck of a lot to be willing to lend.