There’s Nothing Wrong With Renting

[Guest wrongmove]

A couple of days old, apologies if already posted, but it's rather good!

There’s nothing wrong with renting

"With interest rates heading upwards once more and further rises expected this year, it's not surprising that people are having a tough time getting onto and moving up the property ladder.

What is surprising is that more people do not choose to rent instead of going through the pain of trying to buy.

Being a tenant rather than a home owner used to be the norm in Britain and it's still the very popular in many countries around the world. It's only in the last couple of decades that home ownership has become a goal for most people in the UK.

These days, there is almost a stigma attached to renting rather than owning, particularly from your 30s and upwards. How many times have you heard it described as 'dead money'? ........."

[tackle2004]

Not if you sell your house

money made in interest every month covers rent

Happy days unitll the market sorts its self out this what I HAVE DONE.

[laurejon]

Not if you sell your house

money made in interest every month covers rent

Happy days unitll the market sorts its self out this what I HAVE DONE.

That is some investment you have got there.

You must have 200k invested just to get 500pcm in interest, and that would not cover the rent for anything other than a bedsit. Not sure I would trade my house, for life in a bedsit.

Also, with inflation running over the rate of interest on savings, its a mugs game and renting is not only dead money, its also a dead loss.

[tackle2004]

That is some investment you have got there.

You must have 200k invested just to get 500pcm in interest, and that would not cover the rent for anything other than a bedsit. Not sure I would trade my house, for life in a bedsit.

Also, with inflation running over the rate of interest on savings, its a mugs game and renting is not only dead money, its also a dead loss.

200,000 net 3.8% do the the maths

[Guest The_Oldie]

That is some investment you have got there.

You must have 200k invested just to get 500pcm in interest, and that would not cover the rent for anything other than a bedsit. Not sure I would trade my house, for life in a bedsit.

Also, with inflation running over the rate of interest on savings, its a mugs game and renting is not only dead money, its also a dead loss.

Value of house rented = £425K. Interest on £425K = £20.4k (after Tax). Cost to rent £10.7K, saving per year £9,700.

[tackle2004]

That is some investment you have got there.

You must have 200k invested just to get 500pcm in interest, and that would not cover the rent for anything other than a bedsit. Not sure I would trade my house, for life in a bedsit.

Also, with inflation running over the rate of interest on savings, its a mugs game and renting is not only dead money, its also a dead loss.

laurejon

I have an idea for you dont sell your house, borrow some equity put it down on a shoe box flat and join the other BTL`s and you can then benifit from renting is a dead loss (your gain)

[Fergie]

Also, with inflation running over the rate of interest on savings, its a mugs game and renting is not only dead money, its also a dead loss.

HPI has been running over interest on for the past ten years or so. But that's almost certainly a bubble, meaning that if you buy at the top, you'll likely see negative growth over several years. This is one risk of buying that you don't have with renting. You can always move on from a rented place, usually with a month's notice. If you end up in negative equity, you can be stuck for years. In any event - nagative equity or not - you have to wait for a buyer.

More usual HPI has tended to be around 7%pa (that was the average pre 1997). Over this time, interest rates averaged 8%, and went up as high as 15% at one point. Had you chosen other investments over cash/bank, such as the stock market, gold or oil, you'd have seen different and variable growth rates in each.

Another risk with buying is that you're responsible for all repairs and upkeep, which you often have no control over. Maintenance on a house over its lifetime can work out extremely costly. There are pros and cons to both buying and renting. To say one is always better over the other without taking the associated risks into account is plain daft. Over the past few years, no one has lost out buying and people have made remarkable gains: over the next 5-10 years, it may very well be a story of young people whose lives are severely on hold because they're saddled with debt and negative equity - and that's a far worse proposition than to be renting and missing out on HPI gains.

My theory is: buy if you're settled and find a place you'd be happy living in, and can afford easily. If not, rent. Absolutely do not stretch yourself to the limit to buy a shithole with the assumption that you'll be able to trade up in a year or two on the back of HPI.

Edited July 14, 2007 by Fergie

[Without_a_Paddle]

Value of house rented = £425K. Interest on £425K = £20.4k (after Tax). Cost to rent £10.7K, saving per year £9,700.

Capital appreciation lost in last 12 months (assume typical UK HPI approx 8%) = £33k.

[Guest The_Oldie]

Capital appreciation lost in last 12 months (assume typical UK HPI approx 8%) = £33k.

Capital loss over next four years (assume UK House Price Deflation approx 35%) = £148.75K

[Guest happy?]

Capital appreciation lost in last 12 months (assume typical UK HPI approx 8%) = £33k.

Ah now you've spotted the one fatal flaw in my great STR theory.

But still I hear those siren voices cry "you don't lose by taking your money off the table, come and join us over here in the desperate-for-a-crash-corner".

Edited July 14, 2007 by happy?

[Thalia]

What's wrong with renting?

Nothing in theory. But in fact, we have terrible tenancy rights, and a lot of crap landlords. So in practise renting is a lot less pleasant than it could be.

Improving tenants rights would do two things - make renting more acceptable and also drive a certain proportion of BTLs out of the market - those who use tenants merely as pawns to pay their mortgage while they look for capital gains, and who aren't prepared to put the work in to provide a proper service to their tenants.

[Thalia]

My theory is: buy if you're settled and find a place you'd be happy living in, and can afford easily. If not, rent. Absolutely do not stretch yourself to the limit to buy a shithole with the assumption that you'll be able to trade up in a year or two on the back of HPI.

Sound advice.

[Guest happy?]

What's wrong with renting?

Nothing in theory. But in fact, we have terrible tenancy rights, and a lot of crap landlords. So in practise renting is a lot less pleasant than it could be.

Improving tenants rights would do two things - make renting more acceptable and also drive a certain proportion of BTLs out of the market - those who use tenants merely as pawns to pay their mortgage while they look for capital gains, and who aren't prepared to put the work in to provide a proper service to their tenants.

How would you sort the wheat from the chaff?

[TheSlump]

What's wrong with renting?

Nothing in theory. But in fact, we have terrible tenancy rights, and a lot of crap landlords. So in practise renting is a lot less pleasant than it could be.

Improving tenants rights would do two things - make renting more acceptable and also drive a certain proportion of BTLs out of the market - those who use tenants merely as pawns to pay their mortgage while they look for capital gains, and who aren't prepared to put the work in to provide a proper service to their tenants.

Exactly so. I would not wish to buy a house if it were otherwise. The Tenancy laws in the UK are offensive, as is the amount of money(and risk)needed to buy a house. Not a nice place to live.

[Without_a_Paddle]

Ah now you've spotted the one fatal flaw in my great STR theory.

But still I hear those siren voices cry "you don't lose by taking your money off the table, come and join us over here in the desperate-for-a-crash-corner".

In theory if a homeowner STRd two years ago at £350k (house now £425k)

They would need to borrow nearly £90k just to buy it back today if you include stamp duty and other costs. (at today's higher interest rates as well)

So the price would have to fall over 20% to £330k to make it even remotely worthwhile. (depends how badly you want to make a £10k profit)

[Without_a_Paddle]

Exactly so. I would not wish to buy a house if it were otherwise. The Tenancy laws in the UK are offensive, as is the amount of money(and risk)needed to buy a house. Not a nice place to live.

You can limit the risk of house purchase by fixing the IR.

Also, the amount of money may be large but it is secured on the property itself.

Sure, you may end up in negative equity if prices slump but as long as you keep paying the agreed (fixed) monthly payments then you will be unaffected on a monthly cashflow basis.

If the worst happens then the bankruptcy laws (usually) don't involve prison or having bits of your anatomy chopped off so I don't see the risk as being that bad.

[Guest The_Oldie]

If the worst happens then the bankruptcy laws (usually) don't involve prison or having bits of your anatomy chopped off so I don't see the risk as being that bad.

That just about sums up your attitude.

[Guest happy?]

In theory if a homeowner STRd two years ago at £350k (house now £425k)

They would need to borrow nearly £90k just to buy it back today if you include stamp duty and other costs. (at today's higher interest rates as well)

So the price would have to fall over 20% to £330k to make it even remotely worthwhile. (depends how badly you want to make a £10k profit)

You can also add-in that during the same period they would have repaid a modest amount on any capital repayment mortgage which they would have had, as well as the loss of security of tenure (which must count for something), and (although I'm the last person to recommend MEWing) the property could also have stood as collateral in a dire emergency. STR may well be worthwhile in particular circumstances e.g. relocating and unfamiliar with an area / taking your time in a buyers' market, otherwise it seems a foolish, and unnecessary risk to me.

[laurejon]

You can also add-in that during the same period they would have repaid a modest amount on any capital repayment mortgage which they would have had, as well as the loss of security of tenure (which must count for something), and (although I'm the last person to recommend MEWing) the property could also have stood as collateral in a dire emergency. STR may well be worthwhile in particular circumstances e.g. relocating and unfamiliar with an area / taking your time in a buyers' market, otherwise it seems a foolish, and unnecessary risk to me.

Factor in inflation eating away at your equity, factor in the tax on the interest, factor in the rent you have to pay instead of a mortgage and what do you have.

You have a disaster waiting to happen. If rents continue to increase, those that STR in 2002 are going to have spend their equity in increased rental payments, and will shortly be signing onto the housing waiting lists.

[Guest The_Oldie]

You can also add-in that during the same period they would have repaid a modest amount on any capital repayment mortgage which they would have had, as well as the loss of security of tenure (which must count for something), and (although I'm the last person to recommend MEWing) the property could also have stood as collateral in a dire emergency. STR may well be worthwhile in particular circumstances e.g. relocating and unfamiliar with an area / taking your time in a buyers' market, otherwise it seems a foolish, and unnecessary risk to me.

"STR may well be worthwhile in particular circumstances e.g. relocating"

That's exactly what I did in 2005.

Since I'm renting at a cost of about half the interest on the capital that would be required to buy the house I'm living in and HPI in my immediate area is non existent, I shall continue to do so for the foreseeable future. Don't forget that with cash in the bank, you can buy back in at the drop of a hat if circumstances change.

[Without_a_Paddle]

Factor in inflation eating away at your equity, factor in the tax on the interest, factor in the rent you have to pay instead of a mortgage and what do you have.

You have a disaster waiting to happen. If rents continue to increase, those that STR in 2002 are going to have spend their equity in increased rental payments, and will shortly be signing onto the housing waiting lists.

Not sure many people STRd in 2002 but I wonder how many people listened to that prof Oswald 4 years ago when he urged people to STR in a paper he wrote on the state of the housing market.

http://www2.warwick.ac.uk/fac/soc/economic...ancynov2002.pdf

Edited July 14, 2007 by Without_a_Paddle

[laurejon]

"STR may well be worthwhile in particular circumstances e.g. relocating"

That's exactly what I did in 2005.

Since I'm renting at a cost of about half the interest on the capital that would be required to buy the house I'm living in and HPI in my immediate area is non existent, I shall continue to do so for the foreseeable future. Don't forget that with cash in the bank, you can buy back in at the drop of a hat if circumstances change.

That is the theory, however it can be a long time coming and things change.

If you will have the cash in the future then there is something in what you are saying. However if you are going to have to rely on a mortgage of a reasonable size then you have to factor in interest rates being much higher in the future so your gains in lower prices are lost when you come to finance.

Another thing that many people dont realise. The credit control since 2000 has been relaxed to the point of being non existent. Go back prior to 2000 to 1995 and you had to jump through hoops to get a mortgage of 50k on a salary of 24k.

So yes, cash will be king, but work it out.

Buy today and take the cheap rates, or buy tommorow and pay less for the house, and put more in the banks coffers in interest payments, and that is if they consider you a good risk and lend at all.

[Guest happy?]

That is the theory, however it can be a long time coming and things change.

If you will have the cash in the future then there is something in what you are saying. However if you are going to have to rely on a mortgage of a reasonable size then you have to factor in interest rates being much higher in the future so your gains in lower prices are lost when you come to finance.

Another thing that many people dont realise. The credit control since 2000 has been relaxed to the point of being non existent. Go back prior to 2000 to 1995 and you had to jump through hoops to get a mortgage of 50k on a salary of 24k.

So yes, cash will be king, but work it out.

Buy today and take the cheap rates, or buy tommorow and pay less for the house, and put more in the banks coffers in interest payments, and that is if they consider you a good risk and lend at all.

Wrong on several points.

Prior to 1988 and the Lawson boom 105 - 125 % mortgages were common, liar-loans were common 5x salary and more were also common. Indeed the period we're now living through is remarkable for its similarity to previous period immediately prior to a housing bust.

Credit controls were relaxed right throughout the 1980's firstly building societies were permitted to loan much higher against their book values, and then started lending much higher multiples - both as a result of legislation brought in.

The notion that easy credit is a new phenomenon is just plain daft - indeed one of the main characteristics of many of your postings is that they are demonstrably untrue.

It's equally perfectly possible that we can have a property crash with rates no higher than they are now. So someone who has already STR could gain in such circumstances, highly liquid with cash in hand they may have lower overall mortgage and be better off - even with higher interest rates.

The problem with your rationale is that you see everything following one another like night and day, reality is much more complex with any number of alternative scenarios playing-out and often simultaneously. Life is provisional, a work in progress, with our capacity to influence conditional. It is a process of risk management - likelihood versus impact

[laurejon]

Wrong on several points.

Prior to 1988 and the Lawson boom 105 - 125 % mortgages were common, liar-loans were common 5x salary and more were also common. Indeed the period we're now living through is remarkable for its similarity to previous period immediately prior to a housing bust.

Credit controls were relaxed right throughout the 1980's firstly building societies were permitted to loan much higher against their book values, and then started lending much higher multiples - both as a result of legislation brought in.

The notion that easy credit is a new phenomenon is just plain daft - indeed one of the main characteristics of many of your postings is that they are demonstrably untrue.

It's equally perfectly possible that we can have a property crash with rates no higher than they are now. So someone who has already STR could gain in such circumstances, highly liquid with cash in hand they may have lower overall mortgage and be better off - even with higher interest rates.

The problem with your rationale is that you see everything following one another like night and day, reality is much more complex with any number of alternative scenarios playing-out and often simultaneously. Life is provisional, a work in progress, with our capacity to influence conditional. It is a process of risk management - likelihood versus impact

Interesting theory, and worthy of a credit should you submit it to your course.

However mine has somewhat more relevence, as its factual and it happened to me in real life, not on a TV programme or indeed chalked up in a GCSE economics class.

If you had walked into your bank after the last recession and asked for a mortgage, they would most likely had wet themselves laughing. There were thousands of bargains available at Auctions, and in Agents Windows, however the average Joe in the street could not get the money to buy them. Not because they didnt have enough money, but simply because the lending criteria was very strict.

Unemployment was high, and job security was very low, so Banks saw most people as a serious risk. Mortgage defaults were high, and banks were having to put up with people with six months arrrears and growing.

Not sure how old you are, but I suspect you were not of buying age in 1995. If you were ask yourself why on earth people did not snap up the bargains in every street. Most houses were for sale at less than cost to build them let alone the land value they stood on.

The reason was simple, banks and building societies had caught such a cold from lendind during the boom, they closed the doors on new borrowing.

If you need any further FACTS please do not hessitate to ask.

===========================================================================

By the way, 125% loans (Named Negative Equity Loans) were not available until after the crash. They were invented to allow people with negative equity to move home in an attempt to get the housing market into motion, as those in negative equity were stuck.

Edited July 14, 2007 by laurejon

[Without_a_Paddle]

That is the theory, however it can be a long time coming and things change.

If you will have the cash in the future then there is something in what you are saying. However if you are going to have to rely on a mortgage of a reasonable size then you have to factor in interest rates being much higher in the future so your gains in lower prices are lost when you come to finance.

Another thing that many people dont realise. The credit control since 2000 has been relaxed to the point of being non existent. Go back prior to 2000 to 1995 and you had to jump through hoops to get a mortgage of 50k on a salary of 24k.

FWIW that's about when I FTBd and I can assure you it was very easy to get a mortgage.

I also had a car loan on a sports car and my salary was around £16k. I borrowed just under £50k (£49k 95% LTV IIRC) and they gave me 1.8% off the SVR for 2 yrs and £1500 cashback. (pretty sure those figures are correct, but it was a long time ago)

I bought the biggest house they would let me borrow against and there was no problem at all.