Answer To 'should I Buy Now Or Rent' Questions

[Si1]

do you mind, LION, if I ask even broadly, what area you work in to get such a good income?

[Guest tbatst2000]

'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...-000457045.html

As an analogy, if the association of chiropractors published a report that said people that go to a chiropractor once a month fart less than those that don't would you believe it?

[Bloo Loo]

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:

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)

I think he's saying sometimes its cheaper to buy.

I wonder if he would have done the self same thing TODAY if he started from TODAY.?

[Redcellar]

I think he's saying sometimes its cheaper to buy.

I wonder if he would have done the self same thing TODAY if he started from TODAY.?

Job security = 0

Likelihood of a formal recession being avoided, nil

Europe to tell banks that allowing 6 months late payments rather than 3 before it impacts their bottom line is not legal, is happening

Eurozone to suffer collapse or catastrophic defaults of countries, inevitable

Banks to retrench and further reduce credit lines from an already all time low, inevitable

Banks laying off staff in order to save money, happening

Tax increases to pay off public debt, likely

Significantly above 2% inflation, continuing

Salaries to receive low or zero increase

House price falls last year of approx 10% reported in my area, to continue to fall

Now is a great time to buy. Renting is a mugs game.

[winkie]

Replying to I'm Really Sick Of This-Buying Cheaper Than Renting,

It depends:

What you buy.

(and how much needs spending on it)

Where you buy.

What you pay for it.

What you are charged to buy it.

How long you are planing to live in it...important that.

Could you easily rent it if you were forced to for whatever reason?

[Lion]

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.

Well, even for £475k we had to make compromises and bought a house in urgent need of maintenance, with only one bathroom and an old kitchen. We spent already a bit on insulating and boarding the loft for storage (incl. repositioning the loft hatch and installing light in the loft), a new alarm, and rewiring some of the electrics. In spring we will spend £10 k for overdue repairs to roof, chimneys, pointings, soffits etc (this is what it costs if you use appropriate materials and a good builder). Next year (after some saving) we want to build an extension into the garden to have a new kitchen in the extended area and a shower room where part of the kitchen was. This will be another £50k. A few 1000 pounds are needed for wooden floors (not the cheap laminate ones). Our garden is quite large (100') and needs new fences and we want to install a summer house and play area at the end of the garden - another few 1000 pounds.

The price of our flat only increased a third in 7 years or 4.1% per year which was more than we expected as prices were already high in 2004. The risk was small as my income and job security was good. We would also have accepted a 15% nominal drop in the houseprice over 7 years without being worse off than renting.

[bear call spread]

In the mail as well with 90 comments so far...

http://www.dailymail.co.uk/news/article-2092970/Plunging-mortgage-charges-house-prices-mean-owning-home-cheaper-renting--1-400-year.html

love the comments from Barry.....

Does this mean I don't have to listen to every smoker, drinker and party animal banging on about how they can't afford a deposit? What some people need to realise is that no one can have everything. If you want to climb on to the property ladder, you must make sacrifices. £7 a day spent on ciggies adds up to over £2500 a year. Curry night, probably cost you £30 a week, that's £1500 a year. Just three bottles of wine drunk at home a week runs to almost a grand a year and is obviously cheaper than a night out clubbing every week. And it's not just you that has to sacrifice, so do your kids. Designer trainers, the latest games consols and games at £40 a pop, flat screen TVs in every bedroom, Ugg boots, etc, etc the list is endless. Most of us normal people (not rich) and our families have made these sacrifices in the past and fought our way on to the ladder. If you give up smoking and drinking, you can have that deposit in four years, maybe only two years if both of you give up.

- Barry, United Kingdom, 28/1/2012 13:02

[Lion]

do you mind, LION, if I ask even broadly, what area you work in to get such a good income?

I am a material scientist with a master degree, PhD and MBA., and a director and small shareholer of a British company manufacturing parts for aerospace and defence. We export more than 50%, and our largest export market is Germany. Which proves that UK manufacturing can compete with German manufacturing, at least in some areas.

[Redcellar]

In the mail as well with 90 comments so far...

http://www.dailymail.co.uk/news/article-2092970/Plunging-mortgage-charges-house-prices-mean-owning-home-cheaper-renting--1-400-year.html

love the comments from Barry.....

- Barry, United Kingdom, 28/1/2012 13:02

Barry is full of BS.

He fails to recognise that house prices are at multiple of salaries never seen before and that deposits are also at an all time high. The two together does not mean a deposit can be saved in four years in the way he claims to demonstrate. Complete numpty.

[Bloo Loo]

In the mail as well with 90 comments so far...

http://www.dailymail...1-400-year.html

love the comments from Barry.....

- Barry, United Kingdom, 28/1/2012 13:02

trouble is Barry, not spending on those things bring down the very salaries you say are going to cover the mortgage.

You should be spending, not 100% on the shelter, low rates are meant to stimulate the Economy, by allowing people spare cash...but no...barry says give it all to the banks.

[zebbedee]

Well, even for £475k we had to make compromises and bought a house in urgent need of maintenance, with only one bathroom and an old kitchen. We spent already a bit on insulating and boarding the loft for storage (incl. repositioning the loft hatch and installing light in the loft), a new alarm, and rewiring some of the electrics. In spring we will spend £10 k for overdue repairs to roof, chimneys, pointings, soffits etc (this is what it costs if you use appropriate materials and a good builder). Next year (after some saving) we want to build an extension into the garden to have a new kitchen in the extended area and a shower room where part of the kitchen was. This will be another £50k. A few 1000 pounds are needed for wooden floors (not the cheap laminate ones). Our garden is quite large (100') and needs new fences and we want to install a summer house and play area at the end of the garden - another few 1000 pounds.

The price of our flat only increased a third in 7 years or 4.1% per year which was more than we expected as prices were already high in 2004. The risk was small as my income and job security was good. We would also have accepted a 15% nominal drop in the houseprice over 7 years without being worse off than renting.

You're an mp on the second homes allowance and I claim my £5

[Si1]

I am a material scientist with a master degree, PhD and MBA., and a director and small shareholer of a British company manufacturing parts for aerospace and defence. We export more than 50%, and our largest export market is Germany. Which proves that UK manufacturing can compete with German manufacturing, at least in some areas.

you sound like an entrepreneurial risk taker type, can I ask, have any of your punts (presumably PhD moving onto MBA and then fully bought-in entrepreneurial career in exporting/engineeringy) NOT come off?

[Lion]

you sound like an entrepreneurial risk taker type, can I ask, have any of your punts (presumably PhD moving onto MBA and then fully bought-in entrepreneurial career in exporting/engineeringy) NOT come off?

There was less risk taking involved than it sounds. I did a master with excellent results from a good uni, which opend the doors to a PhD fully funded by an EU project - the project paid me even a £20k per year salary for doing the project, co-ordination and PhD for 4 years. The company I work now for was one of my 8 project partners. When I finished my PhD in 2000 I got offers from several project partners in several EU countries, and the one from my current company was most interesting. I started as development manager, and then got promoted to become a director a few years later following some retirements. Apart from being one of the directors with various general functions, they needed me to look after their German customers (their most important market), which suited me as my mother tongue is German (although I am not German). I felt I needed more education for this new challenge and pursuaded my company to support and fund an MBA, which they did and I completed the MBA in 2010. I became a small shareholder due to our share bonus scheme for directors. I did not buy these shares myself. Our company expanded, our turnover and profits increased and we did not experience any recession so far.

Looking back, I do not think I took significant punts with my jobs or houses. Not like moving to Barcelona and opening a restaurant or so (which my wife and I briefly considered but we decided that the risks were too high). The most significant risk I took was probably marrying a girl from a completely different cultural background (a Persian). However, she and the little boy we have togather turned out the best punt of my life, but this is a different story.

[winkie]

[Sumsio]

trouble is Barry, not spending on those things bring down the very salaries you say are going to cover the mortgage.

You should be spending, not 100% on the shelter, low rates are meant to stimulate the Economy, by allowing people spare cash...but no...barry says give it all to the banks.

Sorry but thinking about this more logicaly Barry is correct.

25% of people may stimulate the economy by drinking, smoking and buying luxury plasma TVs etc... but then another 25% will be saving their hard earned pennys for a deposit and not buying the rubbish aforementioned - hence the reason the UK will be entering a recession, despite the fact the everyone's disposable income wiil have sky-rocketed due to a reduction in mortgage payment (but suppose that is taking into account in GDP)!

[Si1]

There was less risk taking involved than it sounds. I did a master with excellent results from a good uni, which opend the doors to a PhD fully funded by an EU project - the project paid me even a £20k per year salary for doing the project, co-ordination and PhD for 4 years. The company I work now for was one of my 8 project partners. When I finished my PhD in 2000 I got offers from several project partners in several EU countries, and the one from my current company was most interesting. I started as development manager, and then got promoted to become a director a few years later following some retirements. Apart from being one of the directors with various general functions, they needed me to look after their German customers (their most important market), which suited me as my mother tongue is German (although I am not German). I felt I needed more education for this new challenge and pursuaded my company to support and fund an MBA, which they did and I completed the MBA in 2010. I became a small shareholder due to our share bonus scheme for directors. I did not buy these shares myself. Our company expanded, our turnover and profits increased and we did not experience any recession so far.

Looking back, I do not think I took significant punts with my jobs or houses.

you sound like a talented bloke, however even the highly talented that I know are more risk-sensitive than you, you maybe (or not) suffering your own confirmation bias, that is you (possbly) took risks and don't understand that you did - eg like a lot of people found out about a lot of IT jobs post y2k - unknown unknowns to quote Rumsfelt. A PhD (these can go terribly wrong for many people on many levels), a first job (ditto, even a very good one following on from a previous relationship), a whole industry, a leveraged property purchase, a lot of 'if's that you haven't acknowledged

[Lagarde's Drift]

Thank you for that, Si. I completely agree.

Little risk??? Blimey. I'm glad things work out for people who are willing to take a risk, perhaps there is something about such people that makes them blind to risk assessment, those who just go for it, sink or swim.

[24gray24]

My guess is that Barry bloke is exaggerating.

Most of those boomers had to save up for about 6 months before getting their first house aged 23. It was then paid off by 5-10% per year through wage inflation.

What they usually mean is: "We've got all the money, and we're going to have all the drinks in the pub, all the curry nights, all the holidays etc. You're getting nothing". Only that doesn't sound very nice, so they pretend they also suffered as an excuse for making the young suffer.

[Si1]

Thank you for that, Si. I completely agree.

Little risk??? Blimey. I'm glad things work out for people who are willing to take a risk, perhaps there is something about such people that makes them blind to risk assessment, those who just go for it, sink or swim.

I think, seriously, one of two things is at play - maybe he has done a zaphod beeblebrox, genuinely oblivious to the risks; normally everyone meets their nemesis at some point between the age of 20 and 35 and comes out much the wiser for it (except a low of baby boomers but that is another story)

OR/ he is genuinely a very very talented bloke and didn't take on something he couldn't handle/be insured for. This is a very real option, he does sound like it. But even then, all the people I have met like this have had a risk go wrong at some point, except baby boomers of course, or those with rich parents, but he doesn't sound like one of those either.

[Lion]

you sound like a talented bloke, however even the highly talented that I know are more risk-sensitive than you, you maybe (or not) suffering your own confirmation bias, that is you (possbly) took risks and don't understand that you did - eg like a lot of people found out about a lot of IT jobs post y2k - unknown unknowns to quote Rumsfelt. A PhD (these can go terribly wrong for many people on many levels), a first job (ditto, even a very good one following on from a previous relationship), a whole industry, a leveraged property purchase, a lot of 'if's that you haven't acknowledged

One problem with risk assessments in private life is that one never has enough information, and the assessment is only as good as the infomation you put in. What helped me was to make decisions based on my interests and not based on an assessment what would bring me the highest returns at lowest risks. I chose my degree because I loved physics and chemistry, so I was very successful in it and liked doing it at the same time. I chose the PhD not because I wanted a PhD but because I was interested in the project and in being involved in the co-ordination, which allowed me to travel the world from China to America. The PhD was a by-product, but because I was very intersted in the subject I finished with the best possible results. Generally I think it would be sad if bright students avoid a PhD course they are REALLY interested in just because they fear lack of career opportunities afterwards, and therefore do a (finance?) degree without interest in (finance?) or whatever.

My PhD then led to the next opportunities, and again I decided based on interests. Siemens in Germany (who were among other offers) might have offered me a better career, but I went for the offer near London as I wanted to live in London for some time, and they also offered me to work some time in the US on a space shuttle project, which was interesting. That we would still live in London 11 years later was not predictable, but we made the best out of it, buying first our flat then our house, again not based on if we would make a profit with our purchase (this happend by accident) but if the property had the potential to become sth we liked living in (location etc.) as none of the properties we could afford to buy or rent were suitable as they were.

In my job I do risk assessments all the time and am the opposite of a reckless risk taker. My company could grow faster if we would take on debts for instance, but for the last 10 years it was company policy (which I supported) not to have ANY debts (apart from unavoidable short term debts to suppliers) - very unusual for a successful manufacturing company nowadays. Therefore we were not affected at all by the financial crisis - in the contrary, a main competitor went out of business in 2008 as they could not refinance their debt, and we got most of their business. We even own our buildings outright and have last year taken over a company in Wales, which we paid for from our cash. I learned a lot of useful techniques in my MBA, but I did not agree with everything and only put into practice what I agreed with, like motivation and empowerment of employees etc. I also learned that we could be more profitable with more debts. But we do not want to go down that route - I am happy with slow and safe growth without going into debts.

[Si1]

The PhD was a by-product, but because I was very intersted in the subject I finished with the best possible results. Generally I think it would be sad if bright students avoid a PhD course they are REALLY interested in just because they fear lack of career opportunities

there are legions of sad PhD stories from people with bad supervision (or a good supervisor leaving for another institution), or who find themselves in a sub-field they didn't want; it can be luck or skill to get one that works for you, but plenty of good people have had a very bad time with one, followed by depression and a big life dip

(edit: various latterly famous scientists had real problems getting their phds, Einstein (tried several times), Openheimer (I think), it's not uncommon)

there are also plenty with science backgrounds who have not found the field they are interested in financially strong, I agree you should try to do what you want, and then, irrespective of remuneration, you can be happy with the day job anyway, but even then there can be no day jobs in it sometimes, or with very limited career ops

...I learned a lot of useful techniques in my MBA, but I did not agree with everything and only put into practice what I agreed with, like motivation and empowerment of employees etc. I also learned that we could be more profitable with more debts. But we do not want to go down that route - I am happy with slow and safe growth without going into debts.

this latter bit does indicate to me you are a very bright chap, a failing I have and also common amongst others is not to see thru the spiel the way you seem to, to your advantage

Edited January 28, 2012 by Si1

[Lion]

I think, seriously, one of two things is at play - maybe he has done a zaphod beeblebrox, genuinely oblivious to the risks; normally everyone meets their nemesis at some point between the age of 20 and 35 and comes out much the wiser for it (except a low of baby boomers but that is another story)

OR/ he is genuinely a very very talented bloke and didn't take on something he couldn't handle/be insured for. This is a very real option, he does sound like it. But even then, all the people I have met like this have had a risk go wrong at some point, except baby boomers of course, or those with rich parents, but he doesn't sound like one of those either.

What I forgot to add it that my career was and still is not so straight forward and smooth as it seems. When I was young, I was involved in all sorts of things that could have lead to completely different careers. I was a decent sportsman, but realised I was not good enough to do it profesionally. I organized and lead several months long expeditions by mountainbike with some of my uni friends through Africa and Southamerica (financed by ourselves with hard work) and considered starting a travel agency for exotic adventure travels. I joined the military and started a career there, wanting to become an officer, only to leave after a year as I realised it was not for me as I did not like the strict command structure. I studied for one year a different subject, before deciding that material science was what I wanted. All of these starts did not lead to careers, but I learned from all these experiences and still can use stuff I learned on my expeditions or at the military and sport and exotic travels are still very much part of my life - but now just as a hobby. With hindsight, doing a PhD in material science was probably the least risky of all these choices anyway, although I did it because I liked the project and the fact that it paid some money - and not in order to have a good career that eventually allowed me to buy an overpriced flat and then semi in North London, which were probably one of the lower risks of all life risks I ever took.

One of the greatest risks in life is not taking any risks just because of fear of failure. Those people often have a terrible midlife crisis...

[Si1]

What I forgot to add it that my career was and still is not so straight forward and smooth as it seems. When I was young, I was involved in all sorts of things that could have lead to completely different careers. I was a decent sportsman, but realised I was not good enough to do it profesionally. I organized and lead several months long expeditions by mountainbike with some of my uni friends through Africa and Southamerica (financed by ourselves with hard work) and considered starting a travel agency for exotic adventure travels. I joined the military and started a career there, wanting to become an officer, only to leave after a year as I realised it was not for me as I did not like the strict command structure. I studied for one year a different subject, before deciding that material science was what I wanted. All of these starts did not lead to careers, but I learned from all these experiences and still can use stuff I learned on my expeditions or at the military and sport and exotic travels are still very much part of my life - but now just as a hobby.

your confidence and age-beyond-years is something often comes from an excellent public school education - is this the case?

[Lion]

your confidence and age-beyond-years is something often comes from an excellent public school education - is this the case?

No, but I had good teachers nevertheless. And both of my parents were teachers themselves. Two of my brothers and sisters then also became teachers - another career I briefly considered. My interest in various sports for instance came from my father who was a sports teacher and skiing instructor. His stories about the history of foreign countries (he also was a history teacher) inspired my travels to foreign countries. I did my first independent trip abroad (also organized by myself and paid from my own pocket money) at the age of just 14, with my brother who then was 13. And so it continued, and at the age of 22 I was organizer and leader of an eight weeks 1,800 miles mountain bike tour through Africa during my summer holidays at uni, and two years later I led a similar three months 3,300 miles mountain bike tour through several South American countries - all organized by myself. To see how people live in these parts of the world made me probably realise how blessed we are in Europe and how insignificant our materialistic worries generally are, and that happiness (we met a lot of happy people on these trips) is not linked to money but comes from within and a good social life (family, friends).

Our son has last year started a public preparatory school, but only because we can relatively easily afford it and because there are only up to 15 kids per class and we like the attention we get there as parents - we feel as welcome customers, which is not always the case in state schools. It is a good school he is very happy in, but it is not sth I think is necessary to be happy or successful. If money becomes tight I would have no hesitation to send him to a good state school - I am sure he will be fine there as well.

[markyh]

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.

Show's how getting in the market late (2004) worked out but was still worse than only 8 years earlier! This is based in the South East with the right timing. When buying was truely cheaper than rent, on a full repayment mortgage, even with 7% interest rates.

left home in 1992 (aged 23). Rented 3 bed house with 2 mates having a great time for 3 years for about £550 month in total. Then in 1995 went out seprerate ways and I moved in with long term girlfriend , rented a 2 bed house for about £475 a month.

Shortly after moving in we decided to save a deposit to look at buying a place sometime. 12 months later in Q3 1996 we had saved £5k deposit. So when went house hunting and was suprised at the huge choice of 2 bed houses.

Eventually settled on a cute 2 bed semi deatched with garage next to it and a 3 car long drive. Negotiated the vendor down to £55k from £60k, so took a £50k FTB mortgage from the Halifax at an interest rate of 7% , had to pay £700 mortgage indemnity premium (they swere still smarting from the 88 peak to 94 bust),

So moved in December 1996 with an interest and repayment monthly total of £360 a month. £115 cheaper a month than renting.

Sold same house for £194k in august 2007, rented 3 beds for 18 months then bought a newbuild 5 bed in March 2009 for £230k.

Even a redundency in 2010 didn't scare us as we had taken a First direct 1.49% over base offset lifetime tracker so could make capital payments as when we saw fit and I/O payments was under £200 p/m for a 5 bed house. BTW the mortage and capital payments on our 5 bed are cheaper than the monthly rent of the 3 beds we rented in 2007-2009.

Same houses as ours on the estate rent out @ £1200 to £1500 p/m! So "renting from the bank" is a very cheap option to ride out going to 1 wage (we have small children so they need an parent around anyway).

Prices must come down, I worry about when my kids get to the stage i was in 20 years time so would welcome the price of my house dropping to £20k above the equity we have in it.

There certainly was a time from 1994 to 2002 when it certainly was true as long as you could scrape up 5% deposit it was always better to buy, but each year after 1996 it got slightly less of a benefit, and after 2004 it was cheaper to rent than buy.

M