Tuesday, October 4, 2011

Well, what are you waiting for, the good ship Titanic leaves in five minutes.

Ignore the doomsayers, first timers, it's easier than you think

News that it is now cheaper to buy rather than rent across 90 per cent of Britain may rub salt into the wounds of many frustrated first-time buyers (FTBs). But are things really as tough as they seem for those wanting to get that first foot on the property ladder? New figures from property website Zoopla show that falling house prices and a jump in rental demand have meant that the average renter in Britain is currently paying 13 per cent more than the average owner.

Posted by sibley's b'stard child @ 10:00 AM (3855 views)
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18 thoughts on “Well, what are you waiting for, the good ship Titanic leaves in five minutes.

  • Not me,

    I am currently paying £850 per month for a 3 bed detached house in the country which are currently PRICED at £250k+

    If I actually had a £100k deposit then I might save some money in the short term (2 years) however long term (25/30 years) I am sure I would lose.

    I believe that those holding out are well informed on the current situation and are thinking about the longer term, specially those in their late 20’s to mid 30’s.

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  • mark wadsworth says:

    Those Zoopla calculations are based on heroic assumptions.

    Broadly speaking, the cash cost of renting and buying are always very close together, that’s not the point. What people are thinking about is whether prices are going to fall or rise, that’s the bit missing from the equation and upmost on people’s minds.

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  • sibley's b'stard child says:

    Well, it’s all academic really MW as Zoopla’s ‘methodology’ is based on the assumption of a 100% LTV mortgage which is sneaky to say the least.

    In any event, a quick google shows that Zoopla have released a number of these ‘buying is cheaper than renting’ farticles over the last couple of years.

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  • In the capital, average rents stand at an eye-watering £2,291 while the average asking price for a two-bedroom flat is £430,608.”

    Are those figures correct? I know London is expensive, but I’ve never seen figures like that before. According to Land Registry the average price for all property in London is £348,686. Equally most people I know in London aren’t paying anything like £2,291 a month in rent.

    Looking at fashionable hipster hangout Shoreditch, I found a large block of modern warehouse-conversion flats where rents are £550pw (£2,383pcm) and asking prices are £550,000 for identical apartments. Assuming you have a £50,000 deposit, a 25-year mortgage at 4.04% (as per the article) will cost you £2,678 per month. On top of that there are service charges; and it probably comes with a 99-year lease so after 25 years when you’ve paid off the mortgage you’ll only have 75 years left. Finally there’s the 4% stamp duty, a cool £22,000.

    Looking at a less salubrious area, Stoke Newington, a typical two-bed flat rents for £360pw (£1,560pcm). A similar flat sells for £330,000. Assuming you have a £30,000 deposit, a mortgage costs £1,607pcm. Stamp duty is another £9,900.

    Scraping the barrel, an ex-council flat in Peckham will set you back £170,000 to buy or £1,100pcm to rent. A mortgage on that costs £820 a month. Stamp duty for is £0 for FTBs, others £1,700.

    In conclusion, if you live in a cheap area and you have a decent deposit then it might well be cheaper to buy than to rent. If you live in a nice area, renting is cheaper. Also, stamp duty is a huge rip-off.

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  • Oh and if you live in Milton Keynes then yes, buying rather than renting is a no-brainer. But I don’t live in Milton Keynes.

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  • MW: It’s where interest rates will go as well!

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  • MW: It’s where interest rates will go as well!

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  • The Zoopla computations are utter rubbish..

    – Where is the cost of maintenance, that a freeholder has to pay, but not a tenant?

    – Note the assumption of a 5% interest rate on a 100% LTV – where, pray, can one get such a deal?

    – Where is the stamp duty, that a freeholder has to pay every time he needs to re-locate, but not a tenant?

    – And of course, where is the risk element – the risk of personal bankruptcy – that an FTB has to bear in the current market, but not a tenant..?

    Only an idiot would buy into this market…

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  • Uncle Tom

    How safe is money in UK banks do you feel?

    I’m tempted to put my money into property even if it still falls further, I just don’t trust the banks!

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  • drewster – why is it a no brainer for people living in MK? (obviously I don’t!)

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  • Northern Bear says:

    Someone please confirm this – I have checked Rightmove through Property Bee and all the properties which were ‘sold’ or ‘under offer’ in the three areas I watch are now ‘available’. Have the banks all simultaneously pulled their mortgage offers? What is going on?

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  • Ha ha ha Zooopla, I laugh in your face.

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  • watchman,

    The article states that “Milton Keynes topped the list, with average rents at £760 for two-bed flats – over 39 per cent higher than the cost of owning – meaning that renters are forking out an extra £2,544 per year.

    On Rightmove the median rent for a two-bedroom property is £725/mo and the median purchase price is £145,000.
    A 40% deposit (£58,000) with variable-rate mortgage at 2.49% costs £393/mo for 25 years. That’s 45% cheaper than renting.
    A 25% deposit (£36,250) with 5-year fixed-rate mortgage at 3.39% costs £543/mo for 25 years. That’s 25% cheaper than renting.
    A 10% deposit (£14,500) with 5-year fixed-rate mortgage at 4.99% costs £767/mo for 25 years. That’s 5% dearer than renting.
    A 10% deposit (£14,500) with 2-year fixed-rate mortgage at 4.19% costs £707/mo for 25 years. That’s 2% cheaper than renting.

    Available mortgage rates sourced from MoneySupermarket.com mortgages. Clearly I was mistaken to take the article’s figures at face value.

    It’s only a no-brainer in certain strictly-defined conditions. If you’re living with your parents, keep doing so and save up longer for a larger deposit. Mortgage rates are much lower if you have a large deposit. If you’re already renting and you only have a 5% or 10% deposit, and you can’t get your parents to co-sign on the mortgage papers, then it might be better to continue renting and saving up for longer.

    However if you have a large deposit – perhaps an inheritance – then it’s worth considering buying. If you know you’re going to stay in the area for the foreseeable future, if your job is relatively secure, and if you’d like the freedom to paint your walls a different colour, then it makes sense to buy. Those conditions apply to most people – they want to stay in the same area, most jobs are secure, and most people prefer home ownership to renting (even with the odd boiler repair bill).

    There are two obvious risks: house prices might fall, and/or interest rates might rise. I simply can’t see rates rising; Japan’s rates are still near 0% twenty years after its bubble burst. If house prices fall there are two problems: (a) you won’t be able to sell and move up the ladder because you’ll be trapped in negative equity; and (b) you’ll kick yourself because you missed out on the opportunity to buy somewhere bigger. If you had a large deposit then you’ll kick yourself more because you missed the chance to leverage it more. So if you do buy somewhere, make sure it’s a house you like in an area you like. Don’t buy in the hope of flipping your way up the ladder: you’ll be living there for quite a while.

    One more alternative suggestion. If you know you want to stay in the same area long-term then try negotiating a long-term rent with a landlord at a discounted rate.

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  • sibley's b'stard child says:

    “If house prices fall there are two problems: (a) you won’t be able to sell and move up the ladder because you’ll be trapped in negative equity; and (b) you’ll kick yourself because you missed out on the opportunity to buy somewhere bigger. If you had a large deposit then you’ll kick yourself more because you missed the chance to leverage it more. So if you do buy somewhere, make sure it’s a house you like in an area you like. Don’t buy in the hope of flipping your way up the ladder: you’ll be living there for quite a while.”

    Well said Drewster.

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  • Thanks for the detailed explanation Drewster, very useful

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  • The problem I have with this debate is that if you are renting (like me) and have a stash of money which is currently be earning you some income, the loss of this income (when it turns into a deposit) is never counted in this argument and it should be.

    Take Drewsters example above. A £58k deposit should earn you about 3% which is £1740 a year or £145 a month extra that buying will cost you over renting. For me that should be added onto £393/mo for 25 years which makes it more like £538.

    I also don’t see Stamp duty, solicitors fees, mortgage fees (which using the example rate above of 2.49%. must be high), being taken into consideration. You then have buildings insurance, maintenance and repairs, and also these days many of these new builds are “Leaseholds” with some kind of monthly and/or annual service charges. When you actually look at a full picture, I would be surprised if buying really is cheaper than renting.

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  • manclad,

    I agree with your adding the 3% savings interest.

    I did mention stamp duty, but FTBs are exempt up to £250,000. Solicitors and estate agents fees are only incurred once; they aren’t a recurring bill. I did say it’s only a good idea to buy if you think you’ll be in the same place for a long time – at least ten years. Mortgage fees for my above four examples are £0, £995, £995, and £995; these will recur every five years if you choose the five-year fixed-term deal. Service charges mostly apply to flats, not houses, but yes it’s something to watch out for.

    Right now is not a brilliant time to buy. But it’s not a terrible time either, particularly in cheaper parts of the country. If buying wouldn’t cost any more than renting, if you have a stable job, and if your wife or girlfriend keeps dropping hints that she’d like a home in which to bring up a baby, then don’t let the fear of losing a few % keep you out of the market.

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  • MK property at 145,000, 75% of the stuff at that price, you will want to be moving on as soon as you can…………you may get lucky and find a nice one squeezed into a quiet corner, and thats without considering cluster home (one small house divided into 2 or even 4 smaller homes) one allocated parking space, thin walled apartments.
    A lot of these are shared ownership from the 80’s crash, sorry FTB schemes.
    These carry a premium…..the profit payment to the last owner so they can inflate to the next level of property.

    Oh and MK the city of the car, buses are a joke and the late night taxi’s are akin to a polite (sometimes) mugging.
    Really fast build times here on apartments as well, take friend and a ghetto blaster (showing age) and get them in the next appartment to the one you fancy……boom boom boom, lets party!

    Grrrrr, spitting blood now!

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