Oh Dear: Rents fall as properties flood the market

[Bob Dalek]

As a person renting now, I have a few opinions myself.

a) It is always better to buy. The risk being that you are unable to service the payments on the asset. You timing will affect the short term value of the asset but over 30 years you would be better off buying.

b) The rental sector could do with some hard times. Renting especially in London is a nightmare with dishonest penny pinching landlords and faceless beaurocratic "mis" management companies who do as little as possible to maximise their profits and the landlords. More selection would mean that tenants are not forced into paying exorbitant adminitration costs and have to put up with unfair rental contracts, shoddy maintenance and poor quality fixtures and fittings. On a cost/value matrix I would say London offers some of the poorest accomodation I have ever encountered.

Before I get all you free market advocates jumping down my throat, if you have ever tried to rent a property in London in the last 4 years, if you dont pay the fees and sign the contract, there is always some other mug that will. A "free market" correction will work better than any kind of regulation.

I believe that an improvement in standards and cost of rental accomodation in London will make it a more attractive propostion for employment as at present it makes more sense to go and work somewhere with a lower salary as expenses in London, especially for those with families are prohibitive.

If a BTL crash means that you will be retiring in Ormskirk instead of Cannes, tough tulip. Investing in property has and always will be an "investment" with the associated risks, not the common perception that it is an automatic passport to prosperity

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Ormskirk's not THAT bad... loads of trainee lady teachers to wine & dine... at least there were when I was last there.

[Cyberman]

Rents will never reach zero, but interest on your sell-to-rent fund might also not fall to zero, and may in time exceed rent in the medium term. So in the medium term it pays to be a renter.

So you are a renter for years and then you buy. That's only possible if you can save, but while you are saving, houses may be getting far more expensive and out of each. It does not make sense. Buy while house prices are low and your asset will appreciate in value as you pay off your mortgage.

[ferret]

Rents will never reach zero, but my mortgage will do. It just proves that in the long run it pays to be a house buyer.

Your mortgage of zero will still not be much fun when your house is worth 50% less than you paid for it. Add up all the interest over the 25 years that you worked to pay it off and that could be a heck of a lot more expensive than renting for 25 years...

House - bought for £250k
Interest on £250K @ 6% over 25 years = £239k

Total cost = £489k

House price deflation sees your house as being worth 50% less so now you have equity of £125k.

Total spend to live in house of own = £364k

Of course, that does not take into account fees during buying and selling and upkeep and repairs on the house while you live in it.

Rent - 25 years at £800 per month = £240k

Renter is better off by £124k by my reckoning

Of course, this is all taking just the current snap-shot as being the whole of the market over 25 years, as another poster said, you make more by buying in the lows, selling in the highs and renting during a down-turn.

Of course Cyberman - you are immune to all of this due to the magical house you possess that simply will not go down in value over the next couple of years.

Back on topic though, rents around here definitely dropping in price. Will be writing to the letting agent requesting a rent reduction this month

[Francko]

Of course, this is all taking just the current snap-shot as being the whole of the market over 25 years, as another poster said, you make more by buying in the lows, selling in the highs and renting during a down-turn.

It was me. How come you always spot me when I allegedly say something negative and never for something positive.

[foritisme]

Your mortgage of zero will still not be much fun when your house is worth 50% less than you paid for it. Add up all the interest over the 25 years that you worked to pay it off and that could be a heck of a lot more expensive than renting for 25 years...

House - bought for £250k
Interest on £250K @ 6% over 25 years = £239k

Total cost = £489k

House price deflation sees your house as being worth 50% less so now you have equity of £125k.

Total spend to live in house of own = £364k

Of course, that does not take into account fees during buying and selling and upkeep and repairs on the house while you live in it.

Rent - 25 years at £800 per month = £240k

Renter is better off by £124k by my reckoning

Of course, this is all taking just the current snap-shot as being the whole of the market over 25 years, as another poster said, you make more by buying in the lows, selling in the highs and renting during a down-turn.

Of course Cyberman - you are immune to all of this due to the magical house you possess that simply will not go down in value over the next couple of years.

Back on topic though, rents around here definitely dropping in price. Will be writing to the letting agent requesting a rent reduction this month

But, after 25 years you will still be paying rent !

[TimberWolf]

Your mortgage of zero will still not be much fun when your house is worth 50% less than you paid for it. Add up all the interest over the 25 years that you worked to pay it off and that could be a heck of a lot more expensive than renting for 25 years...

House - bought for £250k
Interest on £250K @ 6% over 25 years = £239k

Total cost = £489k

House price deflation sees your house as being worth 50% less so now you have equity of £125k.

Total spend to live in house of own = £364k

Of course, that does not take into account fees during buying and selling and upkeep and repairs on the house while you live in it.

Rent - 25 years at £800 per month = £240k

Renter is better off by £124k by my reckoning

Of course, this is all taking just the current snap-shot as being the whole of the market over 25 years, as another poster said, you make more by buying in the lows, selling in the highs and renting during a down-turn.

Of course Cyberman - you are immune to all of this due to the magical house you possess that simply will not go down in value over the next couple of years.

Back on topic though, rents around here definitely dropping in price. Will be writing to the letting agent requesting a rent reduction this month

Okay, I only spent 30 seconds reading this, but why no mention of the biggest factor of the lot - inflation - which more or less negates interest payments.

[Cyberman]

But, after 25 years you will still be paying rent !

I've made this point many times, but people such as Ferret ignore it. That will be their problem. When I am paying zero rent for thirty years, they will be paying it and it will rise with inflation and murder their pensions.

[PAH]

Inflation is mostly always well below the typical mortgage interest rate. More so now we're heading for the much talked about 'deflation' period as the recession gets real.

I've so far never owned a house, my home has always been close to where ever the contract is, which has never been the same area for more than a couple of years tops.

Though with the killing some folks made in the last boom period,
by buying and selling property, I'm certainly keeping an eye out for the next upturn, assuming I've got a decent wad of cash to invest when the time comes. Till then I'm more than happy renting.

[Cyberman]

30 years at 800 per month = 30 * 12 * 800 = 288 K !!

Then you have to include inflation which is anybody's guess. Lets just say a conservative 200% over 30 years and your final rents will be 2,400 a month, while I am paying nothing....... OUCH !!!!!

Good Luck Ferret !!!!

[PAH]

The other option is to rent, and invest in an endowment to pay for a place to retire to.

Just like all those with interest only mortgages are doing.

If you can rent the same property for less than it would cost an interest only mortgage, you can't be worse off can you? As long as you can find something worth investing in that's not going to go up in smoke whenever someone stuffs the economy up, or changes the rules, retrospectively.