Reply to: Oh Dear: Rents fall as properties flood the market

[Cyberman]

Sorry A very valid point and I should have known it would be someone as quality as you that made it.



After 25 years the renter would be £124k better off so that they could buy a similar house for £1k and not have had the repair and upkeep bills so would probably be better off.



Yeah but in my example I stated that house prices went 50% negative so I doubt if rent would have risen. Like today it would have fallen to reflect house prices as it usually does.

My point was that over time, with unexpected circumstances, the renter would be no worse off than the buyer, maybe better off due to property upkeep. Yes, this scenario does not take inflation into account but I could also have said that if the renter paid the extra £124k into investments they may be able to beat inflation and also have more in the pot than the buyer.

They are an unlikely set of circumstances with a lot of gaping holes and was only meant to show what could happen, although very unlikely. I still think that long-term buying is the best policy but also that renting and buying both have their places and could prove to be financially beneficial at certain times.

Glad to see that you have seen economic commonsense at last !!

[Stan.goodvibes]

It's a very competitive board Franko, you need to be really good in order to get noticed, try "My Lunch" threads or something positive of this nature

True, everyone ignores me despite everything I write having the Ring of Truth about it (I'm in NZ - Lord of The Rings land).

I was reading some article the other day on the BBC or telegraph website about the long term advantages/disadvantages of purchasing over renting. If only I could remember the details, but there are financial advantages to renting that can outweigh home ownership - depends on the timing of the home purchase - buy at the bottom etc etc etc

[AtW]

Isn't it about time you 'retired' Franko, AtW?

I'll be seeing him in a sushi bar in London next week...

[bogeyman]

It's a very competitive board Franko, you need to be really good in order to get noticed, try "My Lunch" threads or something positive of this nature

Isn't it about time you 'retired' Franko, AtW?

[AtW]

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

It's a very competitive board Franko, you need to be really good in order to get noticed, try "My Lunch" threads or something positive of this nature

[ferret]

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

Sorry A very valid point and I should have known it would be someone as quality as you that made it.

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

After 25 years the renter would be £124k better off so that they could buy a similar house for £1k and not have had the repair and upkeep bills so would probably be better off.

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 !!!!

Yeah but in my example I stated that house prices went 50% negative so I doubt if rent would have risen. Like today it would have fallen to reflect house prices as it usually does.

My point was that over time, with unexpected circumstances, the renter would be no worse off than the buyer, maybe better off due to property upkeep. Yes, this scenario does not take inflation into account but I could also have said that if the renter paid the extra £124k into investments they may be able to beat inflation and also have more in the pot than the buyer.

They are an unlikely set of circumstances with a lot of gaping holes and was only meant to show what could happen, although very unlikely. I still think that long-term buying is the best policy but also that renting and buying both have their places and could prove to be financially beneficial at certain times.

[PAH]

I was using endowment as a loose term. I'm sure there are safer and more effective ways of investing over the medium to long term.

The idea I've heard for not getting a repayment mortgage in favour of interest only is that with interest only, you can 'afford' a bigger debt due to inflation wiping out much of the initial cost of the property over 20-25 years.

I've also heard the idea that you're better off with a mortgage rather than paying it off early, providing you can invest what you would have overpaid, somewhere earning more interest than the mortgage rate.

[Cyberman]

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.

Yes, you can be worse off and you will. Endowments are a waste of time and are only really there to make money for salesmen and insurance companies. You're better off putting your money into a tax-free ISA each year.
The only better thing to do is to put your money straight into property, because the longer that you wait the more expensive it will be.

[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.

[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]

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]

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.

[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.

[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 !

[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.