Answer To 'should I Buy Now Or Rent' Questions

[Wurzel Of Highbridge]

I simply couldn't afford where I live, if I had to buy it.

EDIT: I worked out that Stamp Duty at the time of moving was the equivalent of the first 3 years' rent.

EDIT2: That little factoid - stamp duty - on its own mitigates against constantly buying and selling versus moving rental home to suit your circumstances looked at on a total system cost basis. The one involves constantly paying stamp duty, whereas the other has none.

Little unfair, agents fees of a few hundred quid must be factored in every couple of years or so.

BTW, Can land 'lords' claim back stamp duty? A simple yes/no will do

[edit] Yes they can http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013376

~this lowers the cost for the renters..

I wonder how many miles your landlord claims back visiting your property????

Edited April 20, 2012 by khards

[Georgia O'Keeffe]

Little unfair, agents fees of a few hundred quid must be factored in every couple of years or so.

BTW, Do can land 'lords' claim back stamp duty? A simple yes/no will do

isnt it offset against prima nocta?

Edited April 20, 2012 by Georgia O'Keeffe

[bmf]

√-1

keep it rational

[thombleached]

To do the calculations based on a 75k deposit would also means taking into account all of the opportunity costs too, which is impossible

Just because you didn't understand and are a bit overly pleased with yourself doesn't mean you have to act like a tit

As to the quality of my maths.. I think you will find the maths was dead on, why don't you try and provide a concrete example with your 75k deposit if you think you are so clever, obviously you wont as you quite simply don't understand do you

On the subject of maths...I'm consistently told that the previous generations had great education and current standards are shit etc etc.

Why is it that anyone older than me cant construct the most basic of formulas in excel (which are fundamentally based on BIMDAS). I'm sure there's a bit of fear of "computers" but it's just basic algebra at the end of the day?

Sorry to go OT.

[Ash4781]

Halifax newbuy rates are at over 6% without a product fee. Also they are very short term fixes, and bang in two years you are on the svr with little to no equity (considering buying costs, newbuild premiums, etc).

http://www.communities.gov.uk/newsstories/housing/2130835

Edited April 20, 2012 by Ash4781

[Bland Unsight]

When it comes down to it it's cheaper to buy a £100,000 house than it is to rent one. and it's cheaper to rent a £300,000 house than it is to buy one. some where between these prices it costs the same.

Unless house prices drop 20% during the considered period in which case it is cheaper to rent for all considered cases.

keep it rational

+ i*i*i*i

[zebbedee]

Just thought I'd add this, only rough and not very sophisticated but takes into account savings interest in either the case of buying or renting using exactly the same capital and allows a deposit. Rent does not vary in it. Slight discrepancy between banks repayment calcs and mine but like I said not very sophisticated.

Apparently I am not allowed to upload excel files

https://rapidshare.com/files/2690705812/interest.xls

Comments welcome

Edited April 21, 2012 by zebbedee

[bmf]

Just thought I'd add this, only rough and not very sophisticated but takes into account savings interest in either the case of buying or renting using exactly the same capital and allows a deposit. Rent does not vary in it. Slight discrepancy between banks repayment calcs and mine but like I said not very sophisticated.

Apparently I am not allowed to upload excel files

https://rapidshare.com/files/2690705812/interest.xls

Comments welcome

You might consider uploading to google documents and then making it public. The reason why you can't upload xls is because it's ripe for malware.

After reading this thread I did something similar only in a python program. My thought was that if you made an assumption that the mortgage rate was fixed for the term at 5% then the monthly payment was constant. This would be higher than my rent but would be paying off the principal so I'd be £X worse off per month so X*12*NYEARS worse off over that time. But on the other hand I'd have a house at the other side of the term. I guess my rent would increase with inflation over 25 years which would decay the gap between repayment and rent over time. Then also factor in ownership costs.

[zebbedee]

You might consider uploading to google documents and then making it public. The reason why you can't upload xls is because it's ripe for malware.

After reading this thread I did something similar only in a python program. My thought was that if you made an assumption that the mortgage rate was fixed for the term at 5% then the monthly payment was constant. This would be higher than my rent but would be paying off the principal so I'd be £X worse off per month so X*12*NYEARS worse off over that time. But on the other hand I'd have a house at the other side of the term. I guess my rent would increase with inflation over 25 years which would decay the gap between repayment and rent over time. Then also factor in ownership costs.

I can't figure out how to use google docs so that some fields can be edited but not the formulae

I was more trying to guesstimate whether you would be better off after x years buying verses renting making guesses for HPI +ve or -ve in that time frame. No rent increases are accounted but then neither is house maintenance. I ran it for my mates house with actual numbers for what he could rent it at and what he paid along with his mortgage deal. Came out after 30 months he's £4k worse off but thats not counting the £10k of work they have done nor he moved from a place paying 70% the rent that he'd have to fork for his 'own' house. For me with the size of my deposit (on the price I'd pay for what I want over the term I'd go for in a 2 year time window) it actually only works out cheaper to rent than buy if house prices actually fall by 8% or more in that time :angry: (remove the flucking props!!!)

[Bloo Loo]

question

2 people are competing for a house.

one is a BTL...he gets to bid for the place expecting a rent....he gets tax relief on his mortgage repayments and therefore can outbid the renter because, WHATEVER the renter can bid, and that will be his potential rent, the BTL can always outbid.

The renter also bids to buy the place, but of course, has income Net OF TAX.

It must therefore, always be more expensive to buy than to rent, as a BTL can always outbid a prospect OO.

[ticket2ride]

question

2 people are competing for a house.

one is a BTL...he gets to bid for the place expecting a rent....he gets tax relief on his mortgage repayments and therefore can outbid the renter because, WHATEVER the renter can bid, and that will be his potential rent, the BTL can always outbid.

The renter also bids to buy the place, but of course, has income Net OF TAX.

It must therefore, always be more expensive to buy than to rent, as a BTL can always outbid a prospect OO.

anecdotal:this week I went to view a 3 bed house in an area of SE London where they go for around £300k. a few doors down I saw 3 ladies waiting to view a different property. a later search revealed that this property was for rent at £1500pcm.

my guess would be that these ladies were in receipt of housing benefit. whether they were or not, the family is priced out of buying and renting in the current set up. you need 2 or 3 wage "earners" to pay a mortgage on such a property.

still, it made reconsider if I'd want to own a property on a street full of BTL. I can only see it getting worse atm.

[bmf]

question

2 people are competing for a house.

one is a BTL...he gets to bid for the place expecting a rent....he gets tax relief on his mortgage repayments and therefore can outbid the renter because, WHATEVER the renter can bid, and that will be his potential rent, the BTL can always outbid.

The renter also bids to buy the place, but of course, has income Net OF TAX.

It must therefore, always be more expensive to buy than to rent, as a BTL can always outbid a prospect OO.

This is all part of the problem of not being able to self build at cost. If planning laws were not mental then building a new house would act as a pressure release.

Because mortgages are doled out on wage multiples and you are bidding in a market where there is more demand than supply the question changes from "how much would the same house cost to build" to "what's the most you can pledge of your future income in order to obtain this asset". The latter question is very different. House prices are detached from any productivity gains by wage multiples and pumped up to the maximum that can be handled by the buyer.

So you point is interesting in that BTL can afford to outbid, but this is all against the backdrop of not being able to build and having to bid in the first place against another party where the question is what's the biggest repayment you can afford monthly, not what is the house worth.

Edited April 22, 2012 by bmf

[bmf]

I can't figure out how to use google docs so that some fields can be edited but not the formulae

I was more trying to guesstimate whether you would be better off after x years buying verses renting making guesses for HPI +ve or -ve in that time frame. No rent increases are accounted but then neither is house maintenance. I ran it for my mates house with actual numbers for what he could rent it at and what he paid along with his mortgage deal. Came out after 30 months he's £4k worse off but thats not counting the £10k of work they have done nor he moved from a place paying 70% the rent that he'd have to fork for his 'own' house. For me with the size of my deposit (on the price I'd pay for what I want over the term I'd go for in a 2 year time window) it actually only works out cheaper to rent than buy if house prices actually fall by 8% or more in that time :angry: (remove the flucking props!!!)

The thing that strikes me when I did this calculation is that, given renting is cheaper per month than a mortgage on the same property (in London this is true), then the key figure is the principle paid off on the first month of the mortgage.

If you pay off £400 of the principal on the first month and your mortgage is £500 more than your rent then you are always better off not getting a mortgage whilst this is true. Because you could have waited a month, saved £500 and therefore had £100 more of the principal paid off. Because this only even looks one month ahead inflation isn't an issue.

[bmf]

I can't figure out how to use google docs so that some fields can be edited but not the formulae

I was more trying to guesstimate whether you would be better off after x years buying verses renting making guesses for HPI +ve or -ve in that time frame. No rent increases are accounted but then neither is house maintenance. I ran it for my mates house with actual numbers for what he could rent it at and what he paid along with his mortgage deal. Came out after 30 months he's £4k worse off but thats not counting the £10k of work they have done nor he moved from a place paying 70% the rent that he'd have to fork for his 'own' house. For me with the size of my deposit (on the price I'd pay for what I want over the term I'd go for in a 2 year time window) it actually only works out cheaper to rent than buy if house prices actually fall by 8% or more in that time :angry: (remove the flucking props!!!)

FYI you can complete the spreadsheet in excel then upload to google docs and it will convert it, then you can share it publicly. I had no problem uploading your xls. Intersting, thx.

[Bland Unsight]

question

2 people are competing for a house.

one is a BTL...he gets to bid for the place expecting a rent....he gets tax relief on his mortgage repayments and therefore can outbid the renter because, WHATEVER the renter can bid, and that will be his potential rent, the BTL can always outbid.

The renter also bids to buy the place, but of course, has income Net OF TAX.

It must therefore, always be more expensive to buy than to rent, as a BTL can always outbid a prospect OO.

This is a really important point, but it doesn't belong on this thread as such. The ability of BTLers to outbid everybody with high-LTV interest only mortgages is IMO a key to our current predicament. However, as I've argued in detail elsewhere that is because they are the last entrants to the bubble. They are the King Idiots in a long succession of idiots. They can bid and they can pay up when they win, but they will not see this money back. A re-normalisation of interest rates will kill them.

The willingness of a moron to destroy their financial future by gambling with debt on 2012 house prices cannot form a meaningful part of a discourse about renting vs buying.

Finally, your suggestion that it is always more expensive to buy than to rent is plainly wrong. Over a short enough timespan, renting will always be cheaper because of all the transaction charges associated with buying. And short time spans do matter for some housing market participants, as Keynes said in the long run we are all dead, but some people will be dead tomorrow, or in sixth months time. Certainly as the average age of a first time buyer creeps up towards retirement age, these time spans matter. Additionally, at the top of a bubble these time spans matter as any price falls will add costs which may only be offset by gradual HPI over longer time horizons.

Edited April 22, 2012 by ChairmanOfTheBored

[Bloo Loo]

If BTL was the way to millyons in the long term, then builders wouldnt be selling, theyd be renting and rebuilding....each and every refi being a BTL loan rather than a real investment in a build and sale.

Builders dont do this. Im sure there is a reason.

[Greg Bowman]

Start buying property with cash when the economy implodes. It is no longer about HPC, the world is in dire straits. But people will always need a roof over their heads.

In the meantime let the muppets continue just like the way Mervyn King has planned it.

And how will your victims be able to afford the rent? Because in your words the economy has imploded? You haven't really thought it through have your kermit?

This site was plagued a couple of years ago by nasty little contra investors who are just the ugly sisters of BTL and magnolia paint flippers.

Your no different.

[Bland Unsight]

And how will your victims be able to afford the rent? Because in your words the economy has imploded? You haven't really thought it through have your kermit?

This site was plagued a couple of years ago by nasty little contra investors who are just the ugly sisters of BTL and magnolia paint flippers.

Your no different.

+1

Harsh, but fair.

[goldbug9999]

This is a really important point, but it doesn't belong on this thread as such. The ability of BTLers to outbid everybody with high-LTV interest only mortgages is IMO a key to our current predicament. However, as I've argued in detail elsewhere that is because they are the last entrants to the bubble. They are the King Idiots in a long succession of idiots. They can bid and they can pay up when they win, but they will not see this money back. A re-normalisation of interest rates will kill them.

The willingness of a moron to destroy their financial future by gambling with debt on 2012 house prices cannot form a meaningful part of a discourse about renting vs buying.

Finally, your suggestion that it is always more expensive to buy than to rent is plainly wrong. Over a short enough timespan, renting will always be cheaper because of all the transaction charges associated with buying. And short time spans do matter for some housing market participants, as Keynes said in the long run we are all dead, but some people will be dead tomorrow, or in sixth months time. Certainly as the average age of a first time buyer creeps up towards retirement age, these time spans matter. Additionally, at the top of a bubble these time spans matter as any price falls will add costs which may only be offset by gradual HPI over longer time horizons.

We seem to making a simple situation very complex. Rent vs buy balances at a certain ratio of interest rate vs HPI. With effective rates at around 4% the point of equilibrium is HPI at about -2% i.e. at current rates your marginally better off buying if house prices are "flat".

Naturally only the interest part of the mortgage is relevant - I don't have to explain why to a financially sophisticated HPC crowd I hope.

[Bland Unsight]

We seem to making a simple situation very complex. Rent vs buy balances at a certain ratio of interest rate vs HPI. With effective rates at around 4% the point of equilibrium is HPI at about -2% i.e. at current rates your marginally better off buying if house prices are "flat".

Naturally only the interest part of the mortgage is relevant - I don't have to explain why to a financially sophisticated HPC crowd I hope.

I take your general point, but it really matters that part of your modelling assumption is all other things being equal. What I feel the BTLers and prospective owner occupiers are ignoring is the myriad additional information that is rapidly priced into rents in general and local rents in particular, (for example if Glaxo close a facility that is directly and indirectly providing half the jobs in the area).

Additionally a renter is paying a premium for a wealth of intangible benefits - the price at which the market clears can reflect all of these even though they would be the devil's own job to model. For example, I might be considering going to work abroad in 18 months time, hence I will pay some kind of premium to rent. It's going to bake your noodle trying to model the that, but price mechanism will speak loud and clear. Similarly, if rents get too high people will forego independence and privacy in order to avoid penury. A sod to model, but the price mechanism will give you the answer once the market has cleared.

That's the invisible hand.

To paraphrase a much, much smarter man, a model should be as simple as possible but no simpler. All these latest vintage BTLers have the wrong model and are going to get their faces ripped off. In a gentler society where an element of paternalism protected mugs from themselves someone would be stopping all this BTL lending as a matter of urgency. IMO your model is too simple.

[winkie]

anecdotal:this week I went to view a 3 bed house in an area of SE London where they go for around £300k. a few doors down I saw 3 ladies waiting to view a different property. a later search revealed that this property was for rent at £1500pcm.

my guess would be that these ladies were in receipt of housing benefit. whether they were or not, the family is priced out of buying and renting in the current set up. you need 2 or 3 wage "earners" to pay a mortgage on such a property.

still, it made reconsider if I'd want to own a property on a street full of BTL. I can only see it getting worse atm.

.....good point the BTLers could be devaluing the price of their own street......

Edit to say: Not being funny but when people hold a stake in something they value and they own, living in a close nit community with low turnover of people coming and going they have more respect for their neighbours, they all hold a stake in their own future success......

Edited April 22, 2012 by winkie

[MrB]

.....good point the BTLers could be devaluing the price of their own street......

Edit to say: Not being funny but when people hold a stake in something they value and they own, living in a close nit community with low turnover of people coming and going they have more respect for their neighbours, they all hold a stake in their own future success......

An often overlooked point, the degeneration of the 'capital' part of the house over time. Tight LLs tend to not like spending money on their asset, and the value of the house (as opposed to the land) will, over time, head to zero. Rented properties often look drab and shabby places.

[bmf]

I take your general point, but it really matters that part of your modelling assumption is all other things being equal. What I feel the BTLers and prospective owner occupiers are ignoring is the myriad additional information that is rapidly priced into rents in general and local rents in particular, (for example if Glaxo close a facility that is directly and indirectly providing half the jobs in the area).

Additionally a renter is paying a premium for a wealth of intangible benefits - the price at which the market clears can reflect all of these even though they would be the devil's own job to model. For example, I might be considering going to work abroad in 18 months time, hence I will pay some kind of premium to rent. It's going to bake your noodle trying to model the that, but price mechanism will speak loud and clear. Similarly, if rents get too high people will forego independence and privacy in order to avoid penury. A sod to model, but the price mechanism will give you the answer once the market has cleared.

That's the invisible hand.

To paraphrase a much, much smarter man, a model should be as simple as possible but no simpler. All these latest vintage BTLers have the wrong model and are going to get their faces ripped off. In a gentler society where an element of paternalism protected mugs from themselves someone would be stopping all this BTL lending as a matter of urgency. IMO your model is too simple.

Agreed. This is straight out of an economics text book. What about the fact that prices are falling? Repairs? Changes in interest rates during the term? Labour mobility? Inflation? Building insurance?

[Venger]

All these latest vintage BTLers have the wrong model and are going to get their faces ripped off.

From questioning why there was so much venom towards an over-indebted mortgaged home owner in a thread last week, you're getting more into the HPC spirit of things now.

I guess my rent would increase with inflation over 25 years which would decay the gap between repayment and rent over time. Then also factor in ownership costs.

Relative who owns a house wasn't happy when I told last week it probably needs circa £5K of work + scaffolding, as maintenance not covered by house insurance. Including some urgent work to fix, repoint, renew and repair the damage caused by a failing roof with thin and worn roof tiles. It was raining hard so as as temp fix I wrapped and rolled some old shirts at the top end of their soaking beams in the loft dripping water onto the loft floor, which were covered in some form of fungus, to channel the water away into a bucket via capillary action.

Rents are falling at the moment despite this inflation everyone is yacking on about when we're on the cusp of deflation. http://www.myintrodu...iew.asp?ID=9768

Rising inflation in March may be a sign that strengthening demand is allowing retailers to pass on rising costs to their customers. But if, instead, it simply shows the knock-on effect of high commodity prices and rising taxes, then it will eat into consumers' spending power and force them to tighten their belts yet further.

http://www.guardian....ion-gdp-figures

[winkie]

Rising inflation in March may be a sign that strengthening demand is allowing retailers to pass on rising costs to their customers. But if, instead, it simply shows the knock-on effect of high commodity prices and rising taxes, then it will eat into consumers' spending power and force them to tighten their belts yet further

Can't pay won't pay.......either they lower the costs or import more people from overseas that can pay the price.