Answer To 'should I Buy Now Or Rent' Questions

[Now or never]

This is utter bollix, my HB would stop if i decided to buy a house!

[Damik]

http://www.telegraph...buying-one.html

Lovely VI spin.

yes, if you rent for ever

what about if you buy in 24 months?

[Si1]

why are all personal finance correspondants f*cking innumerate?

[small_stakes]

I have 100% cash and it's cheaper for me to rent than buy.

Same here ... probably 70pc cash vs value of house. Much cheaper to rent than buy.

[Flatdog]

What value does one place on flexibility?

An acceptable, and rather enjoyable 30 days notice when renting..

Fu8k knows how long when attempting to sell a home.

[Protect Rural England]

Buying

Pros when paid for in full, cheaper to live, security, rental income

Cons Static, easily and highly taxed, repair costs

Renting

Pros Highly mobile, approx same cost as purchase with mortgage, no repair costs

Cons No security of tenure

Seems to me that when times are good home ownership is great

When times are bad renting is better

[otters]

why are all personal finance correspondants f*cking innumerate?

Correct the quote below sums one up. How the hell can she put negative spin on falling prices for a FTB, does the silly cow not realise that it will be easier to raise a 20% deposit on 100k than 200k.

Quote

I am a first-time buyer – what do falling house prices mean for me?

The falling prices mean you might finally find a property you like within your price range but you could find it much more difficult to get a mortgage. Lenders and surveyors get very nervous when house prices start falling: surveyors tend to downvalue properties below the price you have agreed with the seller, and lenders start requiring bigger deposits. They are already under pressure from their regulator, the Financial Services Authority, to tighten their lending criteria.

[FreeTrader]

Just for info, these are the current weights in the RPI index for housing costs:

Depreciation and repairs & maintenance are significant costs for homeowners, but these factors seem to be ignored in discussions re renting vs owning (not here I should stress, as Protect Rural England's comment above shows).

[The mortgage interest payment weight may seem low, but this is because it is calculated to reflect the average household mortgage interest payment, not that of an average new mortgage.]

[Bruce Banner]

Buying

Pros when paid for in full, cheaper to live, security, rental income

Cons Static, easily and highly taxed, repair costs

Renting

Pros Highly mobile, approx same cost as purchase with mortgage, no repair costs

Cons No security of tenure

Seems to me that when times are good home ownership is great

When times are bad renting is better

It's not cheaper if paid for in full because your money is tied up in the house and not earning interest.

[Si1]

It's not cheaper if paid for in full because your money is tied up in the house and not earning interest.

indeed - that old chestnut - capital opportunity

[South Lorne]

http://www.telegraph.co.uk/finance/personalfinance/8140384/Renting-a-home-is-more-expensive-than-buying-one.html

Lovely VI spin.

...most of the comments slam her ....don't know why the Telegraph would put its name to such drivel......

[Dorkins]

It's not cheaper if paid for in full because your money is tied up in the house and not earning interest.

Owning your own home is extremely tax-efficient because there is no tax on imputed rent.

If you own a £100k house which could be rented out for £5k pa you are consuming £5k worth of housing, tax free.

If you sell your £100k house to rent an equivalent one and invest the cash elsewhere, your investments need to make £5k net of income tax in order to break even. If you are a 40% taxpayer, your investments need to outperform rental yields by 67%.

Of course this example ignores capital gains/losses, the cost of maintenance and transaction costs etc, but the fact remains that the tax system strongly favours homeowners over renter-investors by taxing every investment income except imputed rent.

[Bruce Banner]

Owning your own home is extremely tax-efficient because there is no tax on imputed rent.

If you own a £100k house which could be rented out for £5k pa you are consuming £5k worth of housing, tax free.

If you sell your £100k house to rent an equivalent one and invest the cash elsewhere, your investments need to make £5k net of income tax in order to break even. If you are a 40% taxpayer, your investments need to outperform rental yields by 67%.

Of course this example ignores capital gains/losses, the cost of maintenance and transaction costs etc, but the fact remains that the tax system strongly favours homeowners over renter-investors by taxing every investment income except imputed rent.

If I were to draw £350K out of the bank and buy the house I'm renting, I'd lose £11,200 per annum in interest after tax (I'm retired and no longer pay 40%), I pay less than that in rent and my money is sitting in the bank rather than being tied up in a depreciating, illiquid, asset.

Of course, if you factor in maintenance, falling house prices etc, I'm substantially better off renting.

[porca misèria]

In 80% of towns?

Couldn't tell you the proportion, but in my nearest city (Plymouth) it's certainly true: you can buy much cheaper than rent.

Different story out here in the sticks, though. Prices to buy are much higher than in town, while rents are relatively reasonable.

[gilf]

What value does one place on flexibility?

Possibly about the same as the value of stability. As somebody who has had to move because the Landlord wanted to sell and then a second time when the property was getting repossessed renting has it's down sides especially in this environment.

and before anybody mentions that owning is not stable as you technically don't own it, the bank do, that is no different to renting as if I fail to pay rent I would be out on my ear quicker than I might be if I stopped paying a mortgage*

I'd agree that in the current low interest environment buying might just be cheaper, but when the rates go up it's going to effect just as many landlords as it does home owners, as somebody who has been in that situation I can assure you it is not in any way fun. The banks have clearly been told to go easy on repossessions, when they time comes for payback I'm sure there will still be pressure to keep "hard working home owners" in their property and that may well come at the expense of the BTL types which will of course really effect the "Hard Working Renters".

* The landlord in my second case hadn't paid any mortgage payments for nearly 18 months and come the end of it all he still hung on to the property, this was before the bank bailout. While going to court to get tenants out is a painful process it only takes a few months.

[Cinzano Bianco]

I have 100% cash and it's cheaper for me to rent than buy.

Hi Bruce,

Is this cash in the bank? If so, are you not shitting yourself a little?

[Democorruptcy]

Just for info, these are the current weights in the RPI index for housing costs:

Depreciation and repairs & maintenance are significant costs for homeowners, but these factors seem to be ignored in discussions re renting vs owning (not here I should stress, as Protect Rural England's comment above shows).

[The mortgage interest payment weight may seem low, but this is because it is calculated to reflect the average household mortgage interest payment, not that of an average new mortgage.]

So that is low because it includes mortgage interest on smaller mortgages that were taken out when houses were cheaper i.e. less to pay because some mortgages might be on houses bought 20+ years ago?

As older cheaper houses then become paid up and mortgage free the average then includes more newer purchases that are more expensive in relation to the mortgage free houses they replace? The double whammy is when interest rates rise it means more mortgage interest. So that figure is going to shoot up?

[Dr Renter]

I have 100% cash and it's cheaper for me to rent than buy.

Call me stupid but if you bought you'd have no mortgage, so unless you are being paid to rent the property you live in that statement isn't true.

Edited November 18, 2010 by Dr Renter

[Democorruptcy]

Call me stupid but if you bought you'd have no mortgage, so unless you are being paid to rent the property you're living in, that statement is not true.

He might mean the interest he is getting on the sum of money he intends to use for a house purchase could be more than his rent.

[Cinzano Bianco]

Call me stupid but if you bought you'd have no mortgage, so unless you are being paid to rent the property you're living in, that statement is not true.

He is talking about earning interest on his cash in the bank, as far as I can tell, and using that to pay the rent. It seems the interest is greater than the rent paid.

Of course, in this scenario, inflation is reducing the purchasing power of his money. However, if this is just a pot with which to eventually buy a house, whilst house prices are decreasing this is irrelevant.

Edited November 18, 2010 by the.ciscokid

[Dr Renter]

He is talking about earning interest on his cash in the bank, as far as I can tell, and using that to pay the rent. It seems the interest is greater than the rent paid.

Of course, in this scenario, inflation is reducing the purchasing power of his money. However, if this is just a pot with which to eventually buy a house, whilst house prices are decreasing this is irrelevant.

He'd need to be getting over 5% after tax on his cash for this to be the case. Not easy.

Edited November 18, 2010 by Dr Renter

[Democorruptcy]

He'd need to be getting over 5% after tax on his cash for this to be the case. Not easy.

Why 5%?

£300k at 4% = £12k minus 20% tax = £9.6k = £800 a month - if his rent is less than £800 then 4% is enough on £300k

[Dr Renter]

If I were to draw £350K out of the bank and buy the house I'm renting, I'd lose £11,200 per annum in interest after tax (I'm retired and no longer pay 40%), I pay less than that in rent and my money is sitting in the bank rather than being tied up in a depreciating, illiquid, asset.

Of course, if you factor in maintenance, falling house prices etc, I'm substantially better off renting.

So you're renting a £350,000 house for £550pcm? Where is this?

[Bruce Banner]

Hi Bruce,

Is this cash in the bank? If so, are you not shitting yourself a little?

Some is in banks, a lot is in NS&I.

Nothing is certain in life, but I'm very relaxed. I would certainly be 'shitting myself' if my money was tied up in an, illiquid, depreciating asset though.

Call me stupid but if you bought you'd have no mortgage, so unless you are being paid to rent the property you live in that statement isn't true.

You are stupid .

He'd need to be getting over 5% after tax on his cash for this to be the case. Not easy.

So you're renting a £350,000 house for £550pcm? Where is this?

Sums are not your strong point , are they .

[Dorkins]

If I were to draw £350K out of the bank and buy the house I'm renting, I'd lose £11,200 per annum in interest after tax (I'm retired and no longer pay 40%), I pay less than that in rent and my money is sitting in the bank rather than being tied up in a depreciating, illiquid, asset.

Of course, if you factor in maintenance, falling house prices etc, I'm substantially better off renting.

Yes, in your personal case you are able to overcome the tax efficiency of owning housing because your landlord has a very low rental yield and your income tax rate is low.

At the moment, rental prices in your area favour the approach you are taking.

In general (especially if houses return to 3x wages and rental yields go back to double digits), the tax system favours owning a house over renting one and investing elsewhere.

Edit: I seem to recall you saying your landlord is getting a 2% yield and you are earning 5%+ on NS&I certificates (which are no longer available of course). You must admit this is a very unusual situation and one which is not available to most of the population. The going rate is about 5% yields on rent and 3% on savings.

Edited November 18, 2010 by Dorkins