Rent Or Buy Calculator

[tara747]

This would be a possible tactic if you could predict the market accurately. Unfortunately, the market is extremely bizarre and often does exactly the opposite as predicted.

I agree it is better to rent if buying costs a lot more. If buying is only a couple of hundred more I would still buy. In North London where I live rents seem more expensive than a 100% IO mortgage.

I am surprised anybody is buying in NI if rents are only 30% of IO mortgage rates. I would like to see proof of this but I suspect that you have overexaggerated a little. I am aware, however, that NI has an insane market at the moment.

I would also like to know how many people on this forum would to sell to rent if there was a crash and they bought at the bottom, owned for a while, then thought another crash was imminent.

If buying were only a couple of hundred more (in a comparable house/area) then I would buy too! If buying were the same cost as renting or cheaper, I would buy. At the moment, though, renting is so much cheaper that it would not even occur to me to p**s away money by buying.

As for NI... I rent a lovely flat in leafy Stranmillis in Belfast, the nicest part of the city (near Queen's University. city centre, Botanic Gardens on our doorstep etc etc) with my BF - £270pcm rent between us! To buy the flat would cost way over £200K. What would an IO mortgage on that be???

Actually, even £200K+ would be a conservative estimate for the value of our flat. I saw a programme last night about the Assembly election. To illustrate NI's new found 'prosperity' an EA was showing the reporter a 2-bed flat on the outskirts of Belfast. Asking price £335,000!!! And it'll probably go for far more - asking prices here are about 30% below what the seller expects to achieve. I'm sure you've heard the story about the house in East Belfast which was on at £395,000 - current bid £820,000. WTF!

NI is in the grip of pure madness. Believe me, everyone I know who is renting pays waaaay less than an IO mortgage would be on their abode.

Edited March 9, 2007 by tara747

[Kootenai Brown]

I've created a decent Buy vs. Rent excel spreadsheet which has evolved over time as a result of many discussion on this forum. I would share it with you if someone could let me know how to do it. (It is not read only...).

From the spreadsheet linked earlier in this thread.... What is rent maintenance? The odd lightbulb?

Edited March 9, 2007 by Burned Out

[me me me]

I did 200k at 6% with Hpi of 1% at £1000 rent per month

Its says I should buy now.

[OzzMosiz]

Designed by the big guns to ensure the masses by now, whilst they get out.

[Guest cash2burn]

You are considering buying a property for £590,000 with a deposit of £590,000 and a mortgage interest rate of 0.00%, as an alternative to renting a property for £2200 per month. You anticipate that property inflation will average 2.50% per year and retail price inflation will average 3.00% per year.

Results

Based on the above figures, after the 10 year period you will be £124,522 better off buying. You would be better off buying from the end of year3.

[nickd]

Very interesting calculator. And, to contradict earlier posts, it DOES take into account income you otherwise would have earned from your savings.

So assuming 3% return on savings (4-and-a-bit% minus tax) against 3% inflation, which is the most Joe-doesn't-know-how-to-play-finance-markets-Bloggs would get.

Assume property stagnation (0%), and 6.5% mortgage rate (tracker BOE+0.75-1%, discounted 1st 2 yrs)

Now, to look at the extremes is interesting.

If you've no deposit at all, this happens:

"You are considering buying a property for £110,000 with a deposit of £0 and a mortgage interest rate of 6.50%, as an alternative to renting a property for £500 per month. You anticipate that property inflation will average 0.00% per year and retail price inflation will average 3.00% per year.

Results

Based on the above figures, after the 25 year period you will be £8,832 better off buying. You would be better off buying from the end of year23."

If you've 100% deposit, this happens:

"You are considering buying a property for £110,000 with a deposit of £110,000 and a mortgage interest rate of 6.50%, as an alternative to renting a property for £500 per month. You anticipate that property inflation will average 0.00% per year and retail price inflation will average 3.00% per year.

Results

Based on the above figures, after the 25 year period you will be £62,184 better off buying. You would be better off buying from the end of year4."

In other words, if you assume stagnation, the more money you've got right now, the more sense to go ahead and buy a property. If you can overpay the mortgage this is along similar lines.

So STRs or people with big deposits are:

a) banking on real price falls

and/or

assuming that their investment income after tax will beat inflation.

and/or

c) assuming mortgage interest rates will rise significantly

Such assumptions are probably very sensible, but its a sobering thought and may explain why houses have failed to crash so far.....

Edited March 9, 2007 by nickd

[DabHand]

Well I would agree with this. I do see a lot of posts around here which seem to be anti ownership, but I doubt this forum would exist if people didn't actually want to buy (just at a lower price).

When I pop my numbers into the Mortgages Exposed sheet, buying is overwhelmingly more favourable - quicker than I thought actually. Even when I put some quite scary scenarios in its hard to make renting more favourable. I was FTB in 2005 and moved in 2009, middle earner, just over 30.

http://www.mortgagesexposed.com/Spreadsheets/Buy%20or%20Rent.xlsx

Good fun playing around with the different numbers, gives you a good idea of what things make up the costs.

I'm sure peeps will point out errors in the sheet (most likely ones that favour renting, although I can see one that favours buying!), can I suggest mailing your thoughts through to the author, I believe it is run by an independent chap and he does update them.

seems only to work with rising house price inflation.

(from another more recent thread)

I think this has been addressed. I emailed Michael Kelly regarding decoupling the rent and HPI aspect, initially so l could model stagnation of HPI in a high inflation/high interest rate environment i.e. continuing rental increases. He very helpfully altered the model. Now you can put rent in separately for each year as well as HPI +/-. (yes you will overwrite the original cell calcs and lose them, but the model doesn't break as a result).

The website http://www.mortgagesexposed.com/Book_Contents/spreadsheet_summary.htm doesn't yet contain the updated version so l am going to attach the version Mr Kelly sent me in the interim.

few things l have noticed is that factors such as maintenance, mortgage term length, buying costs etc are all small beer compared to HPI (no surprise), net return on tenants capital and thirdly mortgage interest rates.

Over a 10 year time period @ 4% mortgage fix, rent inc at 3.5%/yr:

Assuming a good sized deposit of 40% any kind of HPI needs to be bettered by investment return of double to triple HPI. e.g. HPI 2% average, requires returns of 5% to keep renting for next 7yrs, otherwise you are nominally worse off after a few years only. Note however it only takes a return of 6% to make it never a better time to buy.

Any HPC from 15-50% over next 5 years knocks the calcs to 10-20 years respectively, even if followed by 6% per annum recovery. In these circumstance, investment return makes little difference..i.e. adding a year to these figures per 1% additional annual return over 3% on your invested deposit until you can beat the eventual recovery/long term HPI trend.

With next to no deposit its ALL ABOUT THE HPI with mortgage rate coming second.

A 100% cash buyer sits on a knife edge of needing to beat HPI in investment return by 2-3% to never need to buy. Anything less and they may as well do so within a few years.

A mild 15% correction over next 5 years followed by 6% growth, the cash buyer needs 5-6% annual return to never buy, with 3% giving a 10year horizon.

File attached is an XLSX. Knock the .doc off the end to use it, as the upload didnt like the xlsx filetype.

Buy or Rent_upd1.xlsx.doc

Buy or Rent_upd1.xlsx.doc

[mk1mini]

(from another more recent thread)

I think this has been addressed. I emailed Michael Kelly regarding decoupling the rent and HPI aspect, initially so l could model stagnation of HPI in a high inflation/high interest rate environment i.e. continuing rental increases. He very helpfully altered the model. Now you can put rent in separately for each year as well as HPI +/-. (yes you will overwrite the original cell calcs and lose them, but the model doesn't break as a result).

The website http://www.mortgagesexposed.com/Book_Contents/spreadsheet_summary.htm doesn't yet contain the updated version so l am going to attach the version Mr Kelly sent me in the interim.

few things l have noticed is that factors such as maintenance, mortgage term length, buying costs etc are all small beer compared to HPI (no surprise), net return on tenants capital and thirdly mortgage interest rates.

Over a 10 year time period @ 4% mortgage fix, rent inc at 3.5%/yr:

Assuming a good sized deposit of 40% any kind of HPI needs to be bettered by investment return of double to triple HPI. e.g. HPI 2% average, requires returns of 5% to keep renting for next 7yrs, otherwise you are nominally worse off after a few years only. Note however it only takes a return of 6% to make it never a better time to buy.

Any HPC from 15-50% over next 5 years knocks the calcs to 10-20 years respectively, even if followed by 6% per annum recovery. In these circumstance, investment return makes little difference..i.e. adding a year to these figures per 1% additional annual return over 3% on your invested deposit until you can beat the eventual recovery/long term HPI trend.

With next to no deposit its ALL ABOUT THE HPI with mortgage rate coming second.

A 100% cash buyer sits on a knife edge of needing to beat HPI in investment return by 2-3% to never need to buy. Anything less and they may as well do so within a few years.

A mild 15% correction over next 5 years followed by 6% growth, the cash buyer needs 5-6% annual return to never buy, with 3% giving a 10year horizon.

File attached is an XLSX. Knock the .doc off the end to use it, as the upload didnt like the xlsx filetype.

Interesting spreadsheet thank you.

For information I input a £275k property (mid price 1-bed in this area) with £220k mortgage (my personal circumstances) and input a rent of £1,400pcm (6% - typical for this area) and using a mortgage rate of 4%. it says I'm better to buy. Not sure whether this is true or not as it doen't allow for any additional costs for having to move when any babies join....

[DabHand]

Interesting spreadsheet thank you.

For information I input a £275k property (mid price 1-bed in this area) with £220k mortgage (my personal circumstances) and input a rent of £1,400pcm (6% - typical for this area) and using a mortgage rate of 4%. it says I'm better to buy. Not sure whether this is true or not as it doen't allow for any additional costs for having to move when any babies join....

When you are looking at the massive capital required, moving costs and stamp just don't really make a dent on the yes/no decision.

I would be interested to see effects of IO and offset mortgages.

Re your example, did you leave rent as a fixed % of HPI and thus inflation. If so then you will almost always be better to buy with any + HPI as your rent goes up whilst you are forgoing capital gains on a purchase, a double lose for renting.

[DabHand]

bump just the once