Answer To 'should I Buy Now Or Rent' Questions

[moonriver]

Don't forget depreciation.

Don't know why, but still most people seem to ignore the depreciaton factor.

How many times do we hear on HUTH, "I'll rent it until the market recovers".

I even heard someone say on "Wanted Down Under", that favourite saying after their house had been valued a lot lower than they anticipated, "I am not selling it for that price, we will rent it until the market picks up again".

I don't think these sort of people have really considered exactly how long it could take for the market to "pick up again".

[zebbedee]

Why is it cheaper? Because it is being propped up. And when the prop is taken away by market forces, which it will be, house prices will collapse. What would you rather?

Hence I'm really sick of it. Thieving barstewards.

[dustbinlidsid]

They know it's desperate BS, we know it's desperate BS - they're just trying to catch out some sleepy FTBs, or generate some pressure in the media so that parents can nag potential FTBs.

Two main questions to this:

- what happens when interest rates move up from their current 'denial' levels? (anybody who thinks these levels are normal is beyond help)

- what happens to the deposit when houses drop by even a small amount (say 5%)?

Also, there's the question of Stamp Duty. I've moved (out of choice) three times in the last 6 years. My Stamp Duty bill would have been over £30000 if I had bought instead of renting. That covers over 40 months rental where I currently live. I appreciate this only really becomes an issue for larger/family houses.

Buckers

Don't forget if you rent and have a deposit you can 'invest' the deposit

even with crappy bank rates you can still get 3% instant access so for a £60K deposit that is £150/month towards the rent.

was this mentioned, sorry if I missed it?

[Bruce Banner]

Don't forget if you rent and have a deposit you can 'invest' the deposit

even with crappy bank rates you can still get 3% instant access so for a £60K deposit that is £150/month towards the rent.

was this mentioned, sorry if I missed it?

I believe that I may have mentioned it a few times .

[zebbedee]

On a repayment mortgage we'd be £200 worse of a month at 90% ltv and require 80% ltv to break even and thats not taking account of lost interest on the deposit sum (must trot up a spread sheet). On the other hand we'd be £300 better of if we paid the deposit we can afford. All done on a 25 year term. The whole buyers bailout of the banks and the medias spin and massaging of data is getting me seriously down.

On an aside, someone at work has been looking to buy and she got really annoyed with me when I made it clear I thought it was a very very bad idea, tried to tell her that at this time thier jobs aren't secure-'My jobs secure, no chance of me losing it' etc. So they had an offer accepted 2 weeks ago, this week she found out she was being made redundant (lucky fookin escape for her, unless of course they don't let the bank in on that gem and just continue with buying because 'I want to have kids and a place to call my own'

Edited January 28, 2012 by zebbedee

[@contradevian]

Declan Curry running with this on BBC News now .

Where has that fat fck been hiding?

[Lion]

'Owning a home has become more than £100 a month cheaper than renting, with a widening gap emerging, research suggests.'

That'll be the subsidy I'm giving the feckless wonkers then!!!

http://uk.news.yahoo.com/homeowners-pay-less-tenants-000457045.html

For us buying was and still is a lot cheaper than renting. My wife and I were in a difficult situation in 2003 - we had been renting for 3 years in North London and did no longer want to pay £750 rent for our tiny 1 bed flat, which did not allow us to save much for a deposit. So we decided to buy - but prices were too high and we waited, as we were sure a correction was overdue. It did not come. In 2004 we ran out of patience and bought a larger £180k flat with just £4k cash. There was no help from any relatives. Our cash just covered the fees. The 5% deposit was covered by a credit card. Instead of our £750 rent we now had to pay £1k mortgage and had £ 171k mortgage debt and £ 9k credit card debt and no savings whatsoever. The first year was a bit of a struggle.

Our wages increased (which we anticipated when we bought it) and we paid off the credit card debt within 1 year and over the next seven years repaid additionally £30k of our mortgage debt and invested another £15k in a complete refurbishment - from income, not borrowings as the interest part on our mortgage went down to just £130 per month (we had a 0.6% above BOE rate lifetime tracker). Then - in 2011 - we wanted something bigger as we got a child. We put our flat on the market and sold it to a FTB for £240k after just two days on the market. We then had enough deposit to buy a nice £475k semi with 20% deposit and could even port our fantastic BOE+0.6% lifetime tracker to the new property. Now the interest part of our repayment tracker is just a few hundred pounds, a fraction of the rent (the rent would be in the region of £1,800 for this house or more than £150k for 7 years).

When we decided to buy in 2004 we had worked out that there was almost no risk to pay more than for renting . The flat we bought in 2004 would have been £1,000 to rent a month, or £87,000 for the duration of our stay. It was not likely that interest plus possible reduction of house price would ever have cost us so much. In the end the flat cost us £30,000 in interest, £5,000 in service charges, £4,000 buying fees, £6,000 selling fees, £15,000 refurbishment - in total £60,000 costs (or £690/month). As the increase in value happened to be also £60,000, we lived for more than 7 years in a nice flat refurbished to our own taste for absolutely free, which allowed us to have (save) £120,000 in cash for our house purchase (for deposit, stamp duty and other fees).

We could have sold our flat for just £153,000 instead of £240,000 and would still not have been worse off than renting. Only below £153,000 we would have started to make a loss. This was barely a high risk. But of course everybody has to evaluate their circumstances - I was for instance very sure my salary would go up a lot and that my job would be secure for many years to come, which reduced risk on the income side. We were also sure we wanted to stay there for a number of years (it makes no sense to buy anything if you want / have to move after just a year or so).

Now we plan to do sth similar again: We plan to spend about £75,000 pounds to refurbish it (from income, not borrowings), pay down more than £12,000 of the capital per year and then, in about 7 years, possibly move again. Or maybe not, as it will be nice and big enough after the refurbishment for the rest of our lives. But I am confident we will have the option to sell it in 7 years with profit compared to renting it. I will then post here again with an updated calculation.

[Si1]

For us buying was and still is a lot cheaper than renting.

...yadda yadda lots of numbers to sound clever...

so what you are saying is that

(1) you took a big 100% leveraged punt that could have ruined you

(2) the unlikely chance actually happened - Greenspan dropped global interest rates in a never-before-tried experiment that failed and cast the world to penury for the next 15 years, an act that has never and will never be repeated in a global asset bubble, and you happened to do well out of it, despite the fact the rest of the western world is f*cked. Oh and you had your a55 saved for a second time by QE and ZIRP c/o Gordon Brown.

(3) therefore you have a globally relevant example and buying is cheaper thean renting

edit: to add:

That's great, hopefully also in the UK. The decision to go for a lifetime tracker (+0.6% above BOE rate) a few years ago when interest rates were at 5% was so far correct. I have been saving more than £500 per month for the last few years compared to what I expected to pay, and it seems this unexpected saving will continue for many more years. After that hyperinflation then hopefully eats the rest of my debt away. Debt seems to be not so bad after all....:-)

ah, so you also got a very very good tracker rate and admity you fluked it, err, so what point is your above post other than boasting that you took an enormous fraudulent risk and made out very very well out of it (illegal to get a deposit on a credit card AFAIK)

Edited January 28, 2012 by Si1

[Lagarde's Drift]

I think you're being a bit harsh Si, but you make a good point. The stupidly low interest rates made a lot of lucky people feel smart with their property investments.

The other thing to say is that this person is probably high income and should tell us what income multiples he was using.

And finally, £1k pcm market rent for a 2bed flat? Only in la la land, which 99% of us don't live in.

[Si1]

I think you're being a bit harsh Si, but you make a good point. The stupidly low interest rates made a lot of lucky people feel smart with their property investments.

The other thing to say is that this person is probably high income and should tell us what income multiples he was using.

And finally, £1k pcm market rent for a 2bed flat? Only in la la land, which 99% of us don't live in.

I am harsh but at the same time using flimsy and fluked justification to contribute to a general argument like this is just willy waving on the othjer posters' part

I would and could never had taken their risk because the likely bankruptcy and CCJ would have been extremely deleterious to me over the longer term, as I suspect it would have been to them. Any other period in history would not have seen borderline criminal irresponsibility rewarded and bailed out.

Edited January 28, 2012 by Si1

[Bruce Banner]

Any other period in history would not have seen borderline criminal irresponsibility rewarded and bailed out.

That just about sums it up.

[Lion]

I think you're being a bit harsh Si, but you make a good point. The stupidly low interest rates made a lot of lucky people feel smart with their property investments.

The other thing to say is that this person is probably high income and should tell us what income multiples he was using.

And finally, £1k pcm market rent for a 2bed flat? Only in la la land, which 99% of us don't live in.

Income multiples for both loans were about 4 (excluding bonus and my wifes income as we cannot be sure of that) for both purchases - higher than the recommend 3.5, but not overly risky.

It was a 3 bed flat, not a 2 bed flat, and our neighbour rented essentially an identical flat for £1k/month.

[Georgia O'Keeffe]

That just about sums it up.

Or in other words absolutely superb timing and reading of the market be it by dumb luck or forethought unless of course one carries a chip the size of the gibralta straits as some do

Edited January 28, 2012 by Tamara De Lempicka

[iamdamosuzuki]

Why is it cheaper? Because it is being propped up. And when the prop is taken away by market forces, which it will be, house prices will collapse. What would you rather?

Couldn't agree more.And I've had a mortgage since 2010.

Reality is being staved off, but eventually it will break through the pathetic barriers chucked up by King et all.I'm more convinced than ever.

The bubble was held up and is still being held as we are in the early part (still!) of the downward trend. Distressed sales are starting, and once the dam bursts, that's it.

[zebbedee]

I am harsh but at the same time using flimsy and fluked justification to contribute to a general argument like this is just willy waving on the othjer posters' part

I would and could never had taken their risk because the likely bankruptcy and CCJ would have been extremely deleterious to me over the longer term, as I suspect it would have been to them. Any other period in history would not have seen borderline criminal irresponsibility rewarded and bailed out.

Not harsh at all, the state they couldn't save for a deposit but by my reconing they managed to find an additional £1050pcm after buying (assuming 15% cc rate and £250 more mortgage than rent ). Is it illegal to fund the deposit from debt or did they just omit to inform the mortgage company of the outgoing

IMHO an incredibly stupid act only rescued by the incredible stupidity of TPTB

Edited January 28, 2012 by zebbedee

[zebbedee]

Couldn't agree more.And I've had a mortgage since 2010.

Reality is being staved off, but eventually it will break through the pathetic barriers chucked up by King et all.I'm more convinced than ever.

The bubble was held up and is still being held as we are in the early part (still!) of the downward trend. Distressed sales are starting, and once the dam bursts, that's it.

My fear is that although the market can normally stay irrational longer than you can stay solvent that doesn't really aplly when you own the printer.

[Si1]

Not harsh at all, the state they couldn't save for a deposit but by my reconing they managed to find an additional £1050pcm after buying (assuming 15% cc rate and £250 more mortgage than rent ). Is it illegal to fund the deposit from debt or did they just omit to inform the mortgage company of the outgoing

IMHO an incredibly stupid act only rescued by the incredible stupidity of TPTB

and it is not a positive sum game

LION's gain was at my loss

I am entitled for having a chip

[Georgia O'Keeffe]

and it is not a positive sum game

LION's gain was at my loss

I am entitled for having a chip

Sure bt not against LION who jst played by the rules, the chips rightful bile should be placed against govts of the last 30 years who have decided to drive forward an economy based almost entirely on Land Monopoly, its tax advantage bestowed, its social advantage and the continual loosening of state licensed banks to use their licensed monopoly to capture that advantage via private debt expansion

[Si1]

Sure bt not against LION who jst played by the rules, the chips rightful bile should be placed against govts of the last 30 years who have decided to drive forward an economy based almost entirely on Land Monopoly, its tax advantage bestowed, its social advantage and the continual loosening of state licensed banks to use their licensed monopoly to capture that advantage via private debt expansion

I part agree with your first point - LION is just a player in the game, but he/she did come in willy waving making a logically incorrect point - that because he did well in 2003 then buying is currently better than renting, it is a VERY qualified and logically poorly based point

i disagree with your latter opinion that it is a 30 year govt-derived credit phenomenon, the govt was merely directed by the demographic imperative

edit: on that last point, I despise Gordon Brown even more, he was just a pawn whose own vanity was used (1) against himself and (2) as a side-effect against everyone else, by the demographic power-brokers that be, ie not government

Edited January 28, 2012 by Si1

[Georgia O'Keeffe]

I part agree with your first point - LION is just a player in the game, but he/she did come in willy waving making a logically incorrect point - that because he did well in 2003 then buying is currently better than renting, it is a VERY qualified and logically poorly based point

i disagree with your latter opinion that it is a 30 year govt-derived credit phenomenon, the govt was merely directed by the demographic imperative

Id agree the credit phenomenon is demographic/CB driven, but finding its way primarily into property at the expense of alternative investment is almost entirely state driven via taxation and artificial shortage policy. This tax issue however is not a UK phenomena, it is pretty much global save a handful of developed countries, the tax system has driven and will continue to drive the investment credit into Land Monopoly every expansion all other things being equal until taxation is changed

Further to your edit i believe there were about 500 MPS happily building up additional property portfolios across all parties on the back of this policy and taxpayers, that is exactly what govt is and always will be, give special advantage then inevitably reap the consequences

Edited January 28, 2012 by Tamara De Lempicka

[Lion]

ah, so you also got a very very good tracker rate and admity you fluked it, err, so what point is your above post other than boasting that you took an enormous fraudulent risk and made out very very well out of it (illegal to get a deposit on a credit card AFAIK)

Well, even in my long post it was impossible to mention all the facts. We just had £4k in cash when we bought, but we also had some savings in shares we wanted to keep. As we were offered an interest free deal from our credit card, we took this deal - it was even without transfer fee. There was no risk that we would not have been able to repay the credit card in full after 12 months. The £9,000 we borrowed ion a credit card did not cost us anythjing in interest. Our solicitor and bank were fully aware of this and had no problem, with this as we had sufficient (share) assets to cover the credit card loan if needed.

Secondly, we did not take a tracker mortgage immediately. To reduce our risk we had for the first 2 years a 5.25% fixed rate from Nationwide and then a 4.5% fixed rate from Nationwide, then we moved to a 0.6% above BOE lifetime tracker from HSBC just before the BOE started to reduce rates. This was a bit of luck, I admit. But there was little risk and no fraud in the whole story.

[Lion]

I part agree with your first point - LION is just a player in the game, but he/she did come in willy waving making a logically incorrect point - that because he did well in 2003 then buying is currently better than renting, it is a VERY qualified and logically poorly based point

i disagree with your latter opinion that it is a 30 year govt-derived credit phenomenon, the govt was merely directed by the demographic imperative

edit: on that last point, I despise Gordon Brown even more, he was just a pawn whose own vanity was used (1) against himself and (2) as a side-effect against everyone else, by the demographic power-brokers that be, ie not government

I have been a member on this site since 2004, and read it since 2003.

We did not buy in 2003, but in 2004. Not that it makes much difference, but a lot of people on this site called the peak then. The arguments were essentially the same: Houseprices would go down a lot within a few years, and interest rates might go up. In fact, exactly the opposite happened. 9 years have passed since then, a long time for any family. We were just not prepared to put our lives on hold for so long. We also like to decorate and improve places - it is a bit of a hobby which is not easy if you are in rented accommodation. Often you only realise after you move in what needs changing - in a rented place you cannot change most things, if you own it you can.

By the way, I do NOT feel that I am really a winner in this game anyway. On my salary (£100k+) and in my profession I should have been able to buy a significantly better house. The winners are those who bought in the mid 90s. It is not fair that the time of purchase defines where you live more than your contribution to the economy and society (i.e. your salary or savings). What we did would only be suitable for people on quite a high income. I really feel sorry for anyone on an average salary trying to buy for the first time - and I agree the current situation should not be sustainable.

[zebbedee]

Fair enough, I sometimes feel like sayin fluck it and buying and keep coming back to the 'surely they cannot keep the plates spinning'. God I'd love to have somewhere I can treat as my own but not at any cost. There is something very very wrong if someone well into the top 1% cannot buy better than an average joe who bought in the 90's.

[Lagarde's Drift]

This was a bit of luck, I admit. But there was little risk and no fraud in the whole story.

You take a massive leveraged punt with limited upside* and significant downside - little risk? And you believe that spending £75k on improvements (building a folly? a nuclear bunker?) is money well spent? Let me guess, at your salary, do you work in the financial sector?

*Unless, of course, you believe that prices do double every 7 years.

Maybe Si1 wasn't too harsh after all.

[Si1]

9 years have passed since then, a long time for any family. We were just not prepared to put our lives on hold for so long. We also like to decorate and improve places - it is a bit of a hobby which is not easy if you are in rented accommodation. Often you only realise after you move in what needs changing - in a rented place you cannot change most things, if you own it you can.

yes, this bothers me to a degree, but I am pretty cool with renting largely, however my biggest problem is the lower social and professional status renters get, which is an additional unstated cost