Rent Forever Losers

[Venger]

Older first-time buyers who spend their twenties renting could have lost out on more than £270,000, according to analysis by The Model Works.

Mortgage Solutions | 26 Apr 2013 | 11:01

Julia Rampen

The research compared rising rent expectations with mortgage repayments pegged to the original purchase price.

Those buying at the average first-time buyer age of 37 would lose over a quarter of a million compared to those who bought at 24. However, they would still save £866,000 compared to those who never bought a home, the model found.

TMW founder Brian Hall said: "That is a lot of money. You can save the cost of a house through your lifetime by buying earlier. Even today when property prices are falling or stagnant it is still better to buy.

"Brokers need to encourage young people to get off the fence, stop renting and somehow find a way of buying. If the Help to Buy scheme is the only option on the table they should consider it."

Rising rent was calculated using a Countrywide yield figure of 6.8% of the average property price. The cost of home ownership took into account a 20% deposit and a property price inflation figure of 6.5% against a background inflation of 5.6%.

According to the analysis, a homeowner who bought at 24 could accumulate wealth of £773,915 by the age of 67. By contrast, one who bought at 35 would accumulate £565,525.

http://www.mortgages...gbp270-000-hall

Yay I'm a rent-for-ever loser, but if I buy now I could stop myself being priced out fully as HPI continues at a pace into the future.

These calcs possible thanks to mortgage rescue, forbearance, SMI eased, 0.5% base rates, QE hundreds of billions, FLS pushing, and soon Help-To-Buy, preventing what would have been a crash. Only home-owners matter. When prices slide it's no end of hearing how those with big mortgages were tricked into it, only knew house prices going up, couldn't have expected it, 'only wanted a home', with such claims suiting older owners who have stacks of equity or even own outright for intervention.

Edited April 26, 2013 by Venger

[Doesn't Commute Anymore]

http://www.mortgagesolutions.co.uk/mortgage-solutions/news/2264356/delayed-firsttime-buyers-lose-gbp270-000-hall

Yay I'm a 38 year old rent-for-ever loser, but if I buy now I could stop myself being priced out fully as HPI continues at a pace into the future.

These calcs possible thanks to mortgage rescue, forbearance, SMI eased, 0.5% base rates, QE hundreds of billions, FLS pushing, and soon Help-To-Buy, preventing what would have been a crash. Only home-owners matter. When prices slide it's no end of hearing how those with big mortgages were tricked into it, only knew house prices going up, couldn't have expected it, 'only wanted a home', with such claims suiting older owners who have stacks of equity or even own outright for intervention.

It can take 2 or 3 moves across the country to find a decent job with career prospects, also moves associated with partners and lifestyle choice. A large number of job promotions come from moving employers after all. Someone in their 20s is going to struggle to find a job that is stable with good prospects and in a place that life can be happy for them and their partner from the offset.

Is the cost of moving factored in? Also, renting enables one to live more optimally for transport to work, is that cost factored in? I'm bored of hearing from people who bought in a poor location for work and have huge transport costs.

[Venger]

Is the cost of moving factored in? Also, renting enables one to live more optimally for transport to work, is that cost factored in? I'm bored of hearing from people who bought in a poor location for work and have huge transport costs.

I thought all home-owners were doing Let-To-Buy when they need to move to a new area. That way you're double the money in when you reach 67.

23 April 2013

Increasing numbers of homeowners opted last year to let their main residence and buy a new place to live in response to strong rental demand and tax breaks, mortgage brokers have reported.

Let-to-buy - where a borrower keeps their existing home to rent to tenants and buys a new main residence – has continued to see a surge in popularity this year as well, according to John Charcol.

http://www.dailymail.co.uk/money/mortgageshome/article-2313430/Increasing-numbers-opt-existing-home-let-buy-new-main-residence.html

[Bruce Banner]

Article written by, wait for it.........

Julia Rampen

[zugzwang]

The author's surname is Rampen! Her figures only make sense because George Osborne is doubling the national debt every five years to hold up the market.

Anyone who heeds her advice is indeed a

[MississippiJohnHurt]

Article written by, wait for it.........

Julia Rampen

The article is too light on detail to form a view on the underlying "analysis" but I'd like to see the "methodology". I'm sure it isn't overly optimisitc in favour of buying and doesn't exclude addional costs on homeowners ie buildings/life insurance, fixing the boiler etc .

Having said that, the article said I'd be a quarter of a million quid better off I buy a house now, and as it's Mortgage Solutions saying it, I'm taking it seriously. I'll probably put in an offer on somewhere this weekend.

[Bruce Banner]

The article is too light on detail to form a view on the underlying "analysis" but I'd like to see the "methodology". I'm sure it isn't overly optimisitc in favour of buying and doesn't exclude addional costs on homeowners ie buildings/life insurance, fixing the boiler etc .

Having said that, the article said I'd be a quarter of a million quid better off I buy a house now, and as it's Mortgage Solutions saying it, I'm taking it seriously. I'll probably put in an offer on somewhere this weekend.

Make sure it's an offer for at least 99% of the asking price, they won't give it away, you know.

[cashinmattress]

What horrible people this country is filled with.

Folk are crying on another thread about the complexities of Ryanair websites....

You've got completely shallow self serving kunts in politics and media actually threatening the population with financial horror stories in order to further their own positions.

And most dim-witted Brits eat it up. Horrible.

The saving grace of the continuing crash is the noted lack of braggarts ruining dinner with stories of their property riches.

[Reck B]

The author's surname is Rampen! Her figures only make sense because George Osborne is doubling the national debt every five years to hold up the market.

Anyone who heeds her advice is indeed a

Creepy paedo?

[MississippiJohnHurt]

Make sure it's an offer for at least 99% of the asking price, they won't give it away, you know.

99%? The owners would take that as an insult. Our area is prime residential housing you know, no time for chancers - these people I'll be dealing with have worked hard all their life. Guess I'll need to pay a premium - it doesn't matter anyway as I'm clearly going to be so much better off by buying than renting, I mean 250k is an awful lot of money.

[Dorkins]

property price inflation figure of 6.5%

Meanwhile back in Realityland, nominal UK house prices are back where they were almost a decade ago.

[erranta]

http://www.mortgages...gbp270-000-hall

Yay I'm a rent-for-ever loser, but if I buy now I could stop myself being priced out fully as HPI continues at a pace into the future.

These calcs possible thanks to mortgage rescue, forbearance, SMI eased, 0.5% base rates, QE hundreds of billions, FLS pushing, and soon Help-To-Buy, preventing what would have been a crash. Only home-owners matter. When prices slide it's no end of hearing how those with big mortgages were tricked into it, only knew house prices going up, couldn't have expected it, 'only wanted a home', with such claims suiting older owners who have stacks of equity or even own outright for intervention.

Bet all the recent BUYERS in Northern Ireland (which appears to be in freefall at more than 60% house price losses

are suicidal by now..

Down with troughing, BTL empire Govt leaders/politicians using taxpayer cash to manipulate the rest of UK house prices.

100% corrupt swine at Westminster

So true - the server put it on twice!

Edited April 26, 2013 by erranta

[winkie]

99%? The owners would take that as an insult. Our area is prime residential housing you know, no time for chancers - these people I'll be dealing with have worked hard all their life. Guess I'll need to pay a premium - it doesn't matter anyway as I'm clearly going to be so much better off by buying than renting, I mean 250k is an awful lot of money.

....can't have prices falling, don't want the riff raff affording these places and moving in now, it will only bring down the area.....there are special allocated places where they can live on top of each other down the road turn left then do a second right.....only ever passed through the place have never stopped to visit.

[Brian Hall]

I was responsible for the figures quoted by Julia Rampen in Mortgage Solutions and would like to cover some of the issues raised.

First of all there is no conspiracy. If you look at The Model Works website you will see I am in the camp of helping young people, whether this means buying or not.

Regarding the analysis. It represents weeks of work and builds on a number of other models which have been tested and verified. The press release was one page long and it is difficult to convey all this in a short document. But I have worked in the industry for over 30 years and I am not new to this sort of work. I approached the analysis with an open mind and the methodology was robust. It includes an allowance for maintenance etc of circa 1.25% of the property value per annum.

Regarding the data, I used house price inflation, background inflation, mortgage rates and savings rates averaged over the last 30 years, which includes booms and busts.

I felt this was better than using the current ultra low rates. The model tracks the options for a prospective homeowner buying at any age from 18 to 60 and expiring at 80 and over such a long period I needed sensible data. Yes, house price inflation was 6.5%, but properties were inflating on average at less than 1% over background inflation. As everything is based on discounted cashflow methods, this introduces some sanity back into the results. Over the same period the average savings rate was 6.4%, so house price inflation was only 1/10% higher than a deposit account. This equates to property price inflation now of circa 2.2% per annum.

With respect to the results. Well someone who buys at 24 is saving 13 years worth of renting over someone who buys at 37. With the data I used, buying was slightly more expensive than renting initially. But the mortgage repayments remain fixed over 25 years while rents increase (see attached graph) and I assumed the savings could be invested in a tax efficient scheme. Someone who buys at 24 will be mortgage free by the time they are 49 and they can spend the next 31 years living rent free. Again the savings could be paid into a tax efficient scheme. Factor in the magic of compound interest and the fact they will own a property at the end of the day and this is why buying still makes sense.

The average first time property price I used was £139,224. Now the IMF say that property prices are overvalued by around 15%. So let's say prices fall by circa £21,000. But this loss would be made good by the enormous benefits of buying over renting.

it might have been better if the government allowed property prices to go into free fall, as they did in Northern Ireland where first time buyers are reentering the market. But then again this might have taken the UK banking system down with it. Regardless, we find ourselves with the situation that now exists and first time buyers have to make a decision about whether to buy into an overinflated market or not. My numbers suggest they should consider doing so.

I see a lot of articles about how prices are going to boom over the coming years. Personally I don't think so, because, ultimately, they have to be pegged to affordability. Alternatively one could opt for the view that the system will still crash massively. Personally I don't see this either because of the shortage of properties.

Have a look at www.propertytribes.com to find out what the landlords make of their tenants. Better to buy I think.

[Bloo Loo]

Charles Ponzi justifies why austrian postage stamp investments are great.

In other news, tulips growers expect a shortage this season.

[Bruce Banner]

Better to buy I think.

[Agentimmo]

I was responsible for the figures quoted by Julia Rampen in Mortgage Solutions and would like to cover some of the issues raised.

.............

With respect Brian, your study misses one major point. Not many 24yr olds can buy a property in the UK today at the average price you quote. The deposit would respresent years of savings alone. So their "loss" is theoretical. Just like their house.

[Bloo Loo]

of course the model works...if the figures for inlfation are right, you choose the right year to buy and you dont move....or spend money at the nursery, paint it every year, decorate your rooms, start adding nik naks to every space, have a broken boiler, a flood or any other disaster.

It doesnt work if you need a 4 bed house ( we have one 4 double beds, and takes an hour to cut the lawn in the back and the double entry crescent drive helps parking off road, although we dont use the garage for the car) for £900 pcm...oh, and thenew double glazing in the lounge has been much appreciated, as well as the new carpet therein where the sun damaged it.

renting has spoiled me.

[Parkwell]

I like it when someone backs up their figures.

Re this - "The cost of home ownership took into account a 20% deposit"

Does the model take into account that the older person can save for 13 years and have a deposit 3 or 4 times larger than the 24 year old? Which would also allow flexibility with the mortgage length so as to pay less interest to the bank.

[Bloo Loo]

in addition you use these criteria

With respect to the results. Well someone who buys at 24 is saving 13 years worth of renting over someone who buys at 37. With the data I used, buying was slightly more expensive than renting initially. But the mortgage repayments remain fixed over 25 years while rents increase (see attached graph)

Thats a very bold proposition to make. try getting a 25 year fixed rate.

from the telegraph:

Zoopla's national calculation was to take the current average asking rent for two bedroom flats, at £669 per month, and comparing it to an average asking price of £140,692.

Servicing an interest-only mortgage at 5 per cent would cost £7,035 a year, 14 per cent less than the £8,028 paid by the average tenant for such a home. At 4.39pc, the current best buy mortgage rate for those with a 10 per cent deposit, the annual cost drops to £5,565.

again, they use an odd comparison...rent v IO mortgage...IO soon to be outlawed I understand. and note they are at pains to show the average ASKING PRICE...some 20% higher than what they might acheive....no-one knows what actual rents are acheived v asking rents..I have NEVER paid the asking rent.

I agree that there ARE periods where buying is cheaper...but really, the only thing that has made it very worthwhile was the bubble of the last 18 years....now on its bull trap, and I fear, brian and his team have fallen for this particular bull trap hook loan and stinger.

[“Nasty Piece of work”]

I originally saw a mortgage broker in the late 80's.

He showed me loads of charts showing the long term rewards from an Endowment policy linked to the Stock Market, and the inevitable rise of shares.

Thank gosh I then took out a Repayment mortgage. Numbers can make you a fool.

[Dorkins]

I used house price inflation, background inflation, mortgage rates and savings rates averaged over the last 30 years, which includes booms and busts.

The last 30 years contains two house price booms (late 1980s, 1995-2007) and one bust (1989-early 90s). The current cycle is not finished as we have not yet had the corresponding bust to the 1995-2007 boom. This biases your house price inflation figures to the high side.

[Habeas Domus]

The problem with this analysis is that it assumes these people wait for 13 years but don't bother to save any money.

For someone who saves a reasonable chunk of their income and then buys later in life either for cash or with a mortgage they pay off within 10 years its going to be a very different comparison.

It is often said that the big advantage of owning property is that its a way of forcing people to save money they otherwise wouldn't.

The big danger that I see now is young people are looking at stratospheric house prices and just thinking "whats the point, I'll never save that much if I live to 150"

Theres a solution to that but it's not "buy now before you're too late"

[cybernoid]

I've not seen rent increases for 10 years, which is what you would expect since rent is affordability based and wages have been stagnant over that period also. House prices are credit availability based, yields have been falling as house prices have been rising, the higher house prices go the more sense it makes to rent.

I have found in my real world experience that the interest you would pay on a mortgage is the same as the rent you pay for a property of that mortgage value. When buying you pay the interest plus an additional amount to pay down the loan. When renting you pay the same 'interest' but are free to put any additional money into another asset rather than housing. You can then choose to use those savings to buy at a later date when your mortgage rate would be that much lower due to borrowing at a more favourable loan to value.

It's pretty much the same thing as buying, except you have the flexibility of moving for work which also of course affects how well off you are. So, eh? is my response to this.

[Bloo Loo]

I originally saw a mortgage broker in the late 80's.

He showed me loads of charts showing the long term rewards from an Endowment policy linked to the Stock Market, and the inevitable rise of shares.

Thank gosh I then took out a Repayment mortgage. Numbers can make you a fool.

when I was young, I bought a bery nice newbuild for £215,000.

Inflation in housing was running wild...the mortgage was rather large, so we made up some extra with a business loan ( bank managers help).

from the time we placed the deposit to moving in, other houses on the estate had gone up 10%....wow, I was rich...I even spent some time doing a spreadsheet on the wealth, where I would be in 10 years time....wow...I was going to be very very rich.

I didnt realise that the price was based on what people could borrow...like most, I focused on the price, the press and the indexes...in other words, I regarded the effect as the important issue, and not the CAUSE..

The CAUSE of course, is lending.....infinite rising prices need infinite rising lending....and that would mean ponzi rising assets paid for by newer entrants able to borrow more....

I went bust and lost my house after 7 years... it sold for £125K....currently it has rotting windowframes and is very overgrown...its not that old. It is not as big and impressive as my current rental.