Leonard Hatred Posted March 28, 2007 Share Posted March 28, 2007 At the weekend, me and the missus stayed with a couple of her mates who rent an old (i.e. tiddly) terraced house in a pretty insignificant area of Derby. I don't know how much rent they pay but they've been there for about three years, and Rightmove shows identical places nearby (furnished) going for £450 pcm. Looking through houseprices.co.uk, the house next door to them sold in August 2006 for £120k. Assuming 20k deposit and even at 6% IR, this is £650 a month! Who, in their right mind, would pay a £200 a month premium over 25 years just to own one of these tossy old buildings? Is this going on up and down the country? Are there really BTLs out there earning -£200 a month? Have these people never heard of planet Earth? Quote Link to comment Share on other sites More sharing options...
Rakno Posted March 28, 2007 Share Posted March 28, 2007 At the weekend, me and the missus stayed with a couple of her mates who rent an old (i.e. tiddly) terraced house in a pretty insignificant area of Derby. I don't know how much rent they pay but they've been there for about three years, and Rightmove shows identical places nearby (furnished) going for £450 pcm.Looking through houseprices.co.uk, the house next door to them sold in August 2006 for £120k. Assuming 20k deposit and even at 6% IR, this is £650 a month! Who, in their right mind, would pay a £200 a month premium over 25 years just to own one of these tossy old buildings? Is this going on up and down the country? Are there really BTLs out there earning -£200 a month? Have these people never heard of planet Earth? I am renting a place which would cost £400k + stamp duty to buy. say £50k deposit would cost £1500 in IO mortgage. I pay £1200 to the agent, who takes off £120 to "manage" the place. The property was empty for some time before I took it on for rent. VOID periods are not included. However, if you think this guy is nuts, check out people that own properties in the same estate who don't bother renting out becuase they don't want to get the place dirty! Quote Link to comment Share on other sites More sharing options...
Goldfinger Posted March 28, 2007 Share Posted March 28, 2007 At the weekend, me and the missus stayed with a couple of her mates who rent an old (i.e. tiddly) terraced house in a pretty insignificant area of Derby. I don't know how much rent they pay but they've been there for about three years, and Rightmove shows identical places nearby (furnished) going for £450 pcm.Looking through houseprices.co.uk, the house next door to them sold in August 2006 for £120k. Assuming 20k deposit and even at 6% IR, this is £650 a month! Who, in their right mind, would pay a £200 a month premium over 25 years just to own one of these tossy old buildings? Is this going on up and down the country? Are there really BTLs out there earning -£200 a month? Have these people never heard of planet Earth? I am not at all surprised. At around 7% APR 25y (flexible offset), people in my area pay about 2-2.5 times my rent for a mortgage for a flat comparable to the one I am renting. I am not joking. Possibly, I have a particularly desperate landlord, and possibly my city is particularly expensive. Still, it makes me wonder every day. Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 my rent for a 2 bedroom flat in Aylesbury is £575/month. A flat down the road is on the market (so will probably go for less) for 140K. On 140K, thats £900 a month on a 25 year repayment mortgage at 6% interest (I think) and my mates still tell me that I'm throwing money away and tell me that my calculations must be wrong because they are paying much less than £900 a month. I tell them that they bought at lower IRs or that they might be on teaser rates etc etc. They won't listen. Quote Link to comment Share on other sites More sharing options...
19 year mortgage 8itch Posted March 28, 2007 Share Posted March 28, 2007 Please can you qualify the lunancy? Is it lunancy to pay the extra to live there yourself or lunacy to make an investment that costs you £200+ a month? Quote Link to comment Share on other sites More sharing options...
devslim Posted March 28, 2007 Share Posted March 28, 2007 25 years renting = nothing 25 year mortgage = house £200 a month for that seems a pretty good deal to me. Quote Link to comment Share on other sites More sharing options...
MarkG Posted March 28, 2007 Share Posted March 28, 2007 25 years renting = nothing25 year mortgage = house Going bankrupt after subsidising your tenant for five years in a crash = priceless Quote Link to comment Share on other sites More sharing options...
CareBearStare Posted March 28, 2007 Share Posted March 28, 2007 25 years renting = nothing25 year mortgage = house £200 a month for that seems a pretty good deal to me. OR...25 years IO Mortgage + Rising interest rates + negative equity = a whole smely pile of s***. Good luck with that £200 mate! Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 25 years renting = nothing25 year mortgage = house £200 a month for that seems a pretty good deal to me. £200 / month saved for 1 year = £2400 Saving £2400/year at 6% interest for 25 years - (This is not exact) but working with ((£2400 x 1.06) + £2400) x 1.06 for 25 years gives £150000. My workings may be a little bit out but its not bad. provided inflation doesn't eat away at it over those 25 years. Quote Link to comment Share on other sites More sharing options...
europbaron Posted March 28, 2007 Share Posted March 28, 2007 (edited) 25 years renting = nothing25 year mortgage = house £200 a month for that seems a pretty good deal to me. 25 years renting and saving £200 per month = ~£109000 savings (with compound interest @5.5% after tax) 25 year repayment mortgage of £650 per month (@6%) buys you a house worth ~£100000 + whatever house price inflation/deflation In the OP's example the final savings figure would be ~£170000 with that nice £20000 initial deposit tucked away in the bank. Edit: Correcting wording & I see Dr J has a similar opinion. Edited March 28, 2007 by europbaron Quote Link to comment Share on other sites More sharing options...
OverInflated Posted March 28, 2007 Share Posted March 28, 2007 25 years renting = nothing25 year mortgage = house £200 a month for that seems a pretty good deal to me. Yeah doesn't sound that bad, of course there are a lot of other costs with owning a house. At the moment the house I live in would cost about £900/pm more to buy on a mortgage,. Quote Link to comment Share on other sites More sharing options...
azogar Posted March 28, 2007 Share Posted March 28, 2007 this all revolves around the unknown variable of hpi; so for the converted bears here, it makes little sense, but for the prices only ever go up mindset this is a good trade off Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 25 years renting and saving £200 per month = ~£109000 compound interest @5.5% (after tax)25 year repayment mortgage of £650 per month (@6%) buys you a house worth ~£100000 In the OP's example the interest earned would be ~£170000 with that nice £20000 initial deposit tucked away in the bank. Edit: I see Dr J has a similar opinion. oh balls I forgot about tax. but I guess £2400 is still within the ISA limit. happy saving. I thought I would be out on the up side - well what the hell your numbers are better, we'll go with them Quote Link to comment Share on other sites More sharing options...
Casual Observer Posted March 28, 2007 Share Posted March 28, 2007 (edited) oh balls I forgot about tax. but I guess £2400 is still within the ISA limit. happy saving.I thought I would be out on the up side - well what the hell your numbers are better, we'll go with them One thing you haven't factored in is the increase in rent over the next 25 years. It's unlikely to remain static, whereas the mortgage repayment will only vary with the interest rate. And banks are now offering 25 yaer fixes. Edited March 28, 2007 by Casual Observer Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 One thing you haven't factored in is the increase in rent over the next 25 years. It's unlikely to remain static, whereas the mortgage repayment will only vary with the interest rate. And banks are now offering 25 yaer fixes. yes ok. fair enough. I was just making the point. I'll get into my time machine, go to 2032, and come back with a more precise answer. Back soon. Quote Link to comment Share on other sites More sharing options...
europbaron Posted March 28, 2007 Share Posted March 28, 2007 One thing you haven't factored in is the increase in rent over the next 25 years. It's unlikely to remain static, whereas the mortgage repayment will only vary with the interest rate. And banks are now offering 25 yaer fixes. There were many things not factored in (purchase fees, HPI/HPC, building insurance, repairs, interest rate changes to name a few), but I just wanted to dismiss the "25 years renting = nothing" argument. Quote Link to comment Share on other sites More sharing options...
Casual Observer Posted March 28, 2007 Share Posted March 28, 2007 yes ok. fair enough. I was just making the point. I'll get into my time machine, go to 2032, and come back with a more precise answer.Back soon. It's a factor that can't be ignored. What you've done is to compare a mortgage which has interest added to reflect inflation, with rent which you haven't inflation-proofed. Not a good comparison! You're right, we don't knoiw what it will be, but you can bet your life it won't be zero Quote Link to comment Share on other sites More sharing options...
Casual Observer Posted March 28, 2007 Share Posted March 28, 2007 There were many things not factored in (purchase fees, HPI/HPC, building insurance, repairs, interest rate changes to name a few), but I just wanted to dismiss the "25 years renting = nothing" argument. That's right. There are many costs associated with owning - not least maintenance and repairs. Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 It's a factor that can't be ignored. What you've done is to compare a mortgage which has interest added to reflect inflation, with rent which you haven't inflation-proofed. Not a good comparison!You're right, we don't knoiw what it will be, but you can bet your life it won't be zero I agree. but I'm just making the point that renting in 'todays' market is not going to leave you with nothing. BTW if the market cycle is 18 years - does this mean that we will be in a brash or boom in 2032. hmm Quote Link to comment Share on other sites More sharing options...
Casual Observer Posted March 28, 2007 Share Posted March 28, 2007 I agree. but I'm just making the point that renting in 'todays' market is not going to leave you with nothing.BTW if the market cycle is 18 years - does this mean that we will be in a brash or boom in 2032. hmm Definitely a brash. Quote Link to comment Share on other sites More sharing options...
europbaron Posted March 28, 2007 Share Posted March 28, 2007 Definitely a brash. As long as it's not a coom I'll be happy. Quote Link to comment Share on other sites More sharing options...
DoctorJ Posted March 28, 2007 Share Posted March 28, 2007 HAHA ok wenoughs enouhg Quote Link to comment Share on other sites More sharing options...
AvidFan Posted March 28, 2007 Share Posted March 28, 2007 One of my most recent favourites: http://www.rightmove.co.uk/viewdetails-144...1&tr_t=rent How much would this be to buy? What the % yield on this as an outright BTL purchase? Rent covering mortgage costs??? Quote Link to comment Share on other sites More sharing options...
Peter & The Wolf Posted March 28, 2007 Share Posted March 28, 2007 At the weekend, me and the missus stayed with a couple of her mates who rent an old (i.e. tiddly) terraced house in a pretty insignificant area of Derby. I don't know how much rent they pay but they've been there for about three years, and Rightmove shows identical places nearby (furnished) going for £450 pcm.Looking through houseprices.co.uk, the house next door to them sold in August 2006 for £120k. Assuming 20k deposit and even at 6% IR, this is £650 a month! Who, in their right mind, would pay a £200 a month premium over 25 years just to own one of these tossy old buildings? Is this going on up and down the country? Are there really BTLs out there earning -£200 a month? Have these people never heard of planet Earth? The significance of this anecdote is not a discussion on whether it is better to buy or better to rent over the long term. The significance is that it is more evidence that the P/E ratio of property (mortgage V potential yield) is way out of kilter. More folk will realise that renting is a better financial decision than buying, this situation will be exacerbated as IRs rise again soon. This will bring a change of sentiment to the over heated property market and then Hey Presto, we have another trigger for HPC2 This was a significant factor in the 90's Quote Link to comment Share on other sites More sharing options...
MarkG Posted March 28, 2007 Share Posted March 28, 2007 The significance is that it is more evidence that the P/E ratio of property (mortgage V potential yield) is way out of kilter. Come on, it's normal for landlords to subsidise their tenants for decades. Isn't it? Quote Link to comment Share on other sites More sharing options...
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