Please offer any thoughts,

Been thinking about the renting v’s buying issue and have the below scenario.

Couple renting a house at £500 a month and saving roughly £600 a month towards a deposit on a house. Total outgoing for that is £1100 with £500 of it being pissed into thin air (rent).

Would the couple be better off getting a 95% mortgage on a small (crap) house where mortgage at 4.99% could mean payments similar to the rent? Plus many now offer £0 fees for the mortgage.

Considering it would take approx 2-3 years to get a decent deposit whilst renting they would have wasted approx £15000.

Surely it would make more sense to buy the slightly shit house and build up 3 years of equity and move if they wanted?

Why would they rent? or am I being far to simplistic in my thinking?

Wrong bloody forum.

depends on the values involved….

4.99% of 150000 is still alot of money pissed up the wall each month…..

And good luck with that small deposit.

thing is wrightyson – folks are getting mortgages with 5% now ….

its scary – i know a couple earning very similar to us just taken out a 95% on 370k house….. the monthly repayment scares the shit out me .

yes you would be better of course and the chances are medium/good that your house will rise (perhaps only a little) in value. BUT if you buy a house you have to pay for the repairs and if you’re thinking of a fixer upper the costs may be considerable. Have a look at John Charcoal’s website for a 95% deal, there are a few I think. And it’s advice, it’s only ever spelt with a s in the word advised, which is past tense not present. 🙂

After 3 years, on a 25 year repayment mortgage on £85,000 at 4.99%, you’d be paying about £500 a month and after 3 years you’d have realised about £5,500 of equity (ignoring any increase/decrease in the property value).

So for an equal monthly spend on both properties, you’d have pissed away £18k on the rental and £12,500 on the bought house.

However, you’d also need to factor in repairs and other costs associated with ownership over three years, and any increase/decrease in value.

The reality is (provided your house doesn’t decrease in value or you have any massive repair bills of course!) that you’d probably be around £1k-£1.5k a year better off in the bought property.

Of course, if your house increases in value by 4.99% each year…you’re all good 😉

Incidentally, you can get 4.75%, fixed for 5 years at Furness. No fees and 95% LTV.

Dont forget interest rates will go up at some point and those repayments could get very large….

oh and the actual costs to buy/ sell – stamp duty / legal fees / estate agent fees etc..

Depends on how easily you can obtain a mortgage, whether you are looking at like-for-like accommodation (i.e. will the banks lend you enough to buy the same standard of property you are renting) and how long you are going to be there for. You haven’t taken into account the fees when buying (Solicitor’s fees, searches, bank fees) or when selling on (EA fees, Solicitor’s fees and bank fees).

Like trailrat points out, you don’t pay off very much of the capital when you first start paying off a mortgage, because there is a big chunk of interest applied every month.

We found with the low interest rates that currently exist, and with a big deposit, owning/mortgaging evened out with renting after 2 years, but this is specific to our circumstances/location and as you inferred, we bought a house in a much worse condition than that which we would have rented. If interest rates were worse or we had very little deposit then it could have been more like 5 years before it made sense to buy. Make yourself a spreadsheet and work it out!

As per Peterfile’s post you’ll build up very little equity in the house (unless house prices continue to rise and rise).

Don’t forget to factor in solicitors fees £700-1k for purchase etc.

its scary – i know a couple earning very similar to us just taken out a 95% on 370k house….. the monthly repayment scares the shit out me .

Yeah, my brother in law has a mortgage of around £400k on a house worth about £415k Madsticks.

And good luck with that small deposit.

Eh?

Loads are now offering 95% Mortgages….

And are they completing? Surveyors are still being ruthless in their valuations.

And repair costs needn’t put you off. If you have a good look around and have gas engineers, plumbers, builders, electricians have a look around there’s no reason that repairs should exceed for than £0 PA – perfectly possible.

If you get something that you are able to improve (with most work done yourself) then you have a much better chance of improving the value of the property.

95% LTV is widely available, I don’t think that is the issue.

I understand the interest rate offsets a bit of the gain from not renting, but mentally the thought of putting your money into something rather than lining the pockets of another landlord must be quite attractive now.

If it was a house for £80 – £85,000 a 20 year mortgage would be more possible.

It’s the nagging thought of giving the £500 a month to a landlord rather than at least starting to build something for yourself.

And repair costs needn’t put you off.

One of my friends has just had his share of a bill for roof works come through for a property he has had for a few years. £30k. Ouch.

I understand the interest rate offsets a bit of the gain from not renting, but mentally the thought of putting your money into something rather than lining the pockets of another landlord must be quite attractive now.

Eh?

Look at the figures I posted above. Most of your money is simply lining the pockets of a bank for 3 years, before you even look at the ancillary costs associated with buying.

double post

And it’s advice, it’s only ever spelt with a s in the word advised, which is past tense not present.

I’d like to advise you different, otherwise good advice. Sorry, nobody likes a smart arce 🙂

The only useful thing I’d add is there’s a fairly high fixed cost against moving, if you think you might want to move sooner rather than later.

I understand what you are saying peterfile,

However you have to start somewhere and although you are putting a large chunk of money into the bank, it’s surely better than putting 100% into a landlords pocket?

As others have said, the other costs are obviously something you need the cash for up front, if you were already renting you could recoup that from the return of deposit already paid to the rental landlord 😉

my 700 quid rental deposit return didnt even cover the solicitors fees when i bought.

as some friends of mine are finding out – cheap houses are usually cheap for a reason. – they rushed into it and bought a cheap house just to get on the ladder found out next door was being run as a 24 hour brothel and the police not interested. – their “equity” even in a rising market was written off by the stamp duty payment.

bought a cheap house

written off by the stamp duty payment

So NOT cheap houses then?

Although you may have only released £5500 in equity, you will still have paid off 3 years of your 25 year mortgage.

I can’t see any good reason to take the rental option if the long term plan is to buy a property.

as cheap as your going to get round here 😉 – its all relitive – no point buying a cheaper house in dunfermilne if you work in dyce…..

“Although you may have only released £5500 in equity, you will still have paid off 3 years of your 25 year mortgage.

I can’t see any good reason to take the rental option if the long term plan is to buy a property. “

EH . 3 years of THAT 25 year mortgage ….if your always planning on moving the 3 years of 25 is a moot point.

you still only have 5500 equity that is all – there is no other benifit unless the house prices continue to rise silly. potentially you could lose all equity if there is a crash after the general election when the common man realises this years all been a big scam to make the figures look good for the GE

I can’t see any good reason to take the rental option if the long term plan is to buy a property.

I have to agree. I am 46 and have a pretty large mortgage on a large property but I *am* in the position where I could sell and move somewhere smaller and have no mortgage to pay should I wish as the LTV is only around 35% (have owned three houses in just under 20 years and steadily built up despite never being a particularly high earner)

Trailrat

That is £5500 more than you would have if you were renting.

On top of the £600 a month that you could still save if you wanted to.

No point in renting at all – it costs about the same as a mortgage on a monthly basis, so you may as well be building up equity each month rather than giving it to someone else. Just getting the deposit is an issue.

Interest rates have to go up (or so we’re told), i’m about to start the process of re-mortgaging to fund an extension and i’m going to go for the longest period fixed rate I can find. About 2 weeks ago I saw a 10yr fixed rate at sub 5%, no arrangement fee and no early redemption fee. If that’s still available i’ll be all over it. By the end of the 10yrs i’d have nearly paid it off anyway.

agree

largely depends where your looking at living also – large parts of the north of england – renting makes sense imo.

if your somewhere where rental is in high demand then buying makes sense.

rents have increased by 25% in the 2 years since i bought round here and competition is fierce – folks are putting deposits down on rentals without even viewing ! – my mortgage minimum payment has just dropped by 13% in the same time (reality is it hasnt dropped at all but the interest rate has)

i would wait till the market changes before buying, depends where/what you are thiking of I suppose
but everyting is overvalued IMO and if the prices drop several k in 12/18 months you will be better off waiting.

who said negative equity?

but if you have found the place of your dreams…

No point in renting at all – it costs about the same as a mortgage on a monthly basis, so you may as well be building up equity each month rather than giving it to someone else. Just getting the deposit is an issue.

What, ever? Absolute nonsense. Home owning is only financially prudent if you stay in the same place long enough. I had a house in manchester which I ended up having to rent out after needing to move just after the arse falling out of the market. years of sitting on, maintaining and dealing with tenants on a property, just to make back close to what was spent on it.

For the last 12 years I’ve moved every year or two (as have the vast majority of my friends), so for us, ownership has been both restrictive and financially daft. I’m only just coming round to the idea that I’ll be in my current location for any length of time.

Caveat – There’s no point in buying a property if you intend to move house every year or two!!

just had a quick skim through this, and apologies if ive missed it being mentioned already, but isnt it a very large consideration that after 25 yrs you will own your house and have zero repayments, whereas with renting youll still be paying a (probably) ever increasing rate til the day you die?

It not £5500 equity though is it. There are two scenarios:

1) £5500 equity – £1000 solicitors fees to buy – £500 solicitors fee to sell in 3yrs – £x redecorating costs – £x repairs + £x rise in house price

or

1) £5500 equity – £1000 solicitors fees to buy – £500 solicitors fee to sell in 3yrs – £x redecorating costs – £x repairs – £x fall in house price

There are also other considerations which are less important. But will all the furniture you buy for this first house fit/be used in your next house (asumming you’re renting fully furnished this is all extra costs over the 3 yr period).

but isnt it a very large consideration that after 25 yrs you will own your house and have zero repayments,

No. The OP is talking about the difference in costs of renting v buying for 3 years. This is massively different to renting v buying for 25 years.

It not £5500 equity though is it. There are two scenarios:

1) £5500 equity – £1000 solicitors fees to buy – £500 solicitors fee to sell in 3yrs – £x recorating costs – £x repairs + £x rise in house prices

or

1) £5500 equity – £1000 solicitors fees to buy – £500 solicitors fee to sell in 3yrs – £x recorating costs – £x repairs – £x rise in house prices

See

However, you’d also need to factor in repairs and other costs associated with ownership over three years, and any increase/decrease in value.

No. The OP is talking about the difference in costs of renting v buying for 3 years. This is massively different to renting v buying for 25 years.

ah sorry, should have read it more closely 🙂

I’m in agreement with you Peterfile.

Really need detailed calcs and risk assessment of the market in the area where the OP is thinking of buying to work out whether it’s worth it for 3 years.

sadexpunk, I agree completely though, if you’re planning on pumping money into something for 25 years, then it absolutely makes more sense to pay off a mortgage than pay rent.

But the cost benefits only become apparent once you’ve been in a property for some time. As with the examples above, 3 years doesn’t really show much of a difference (or certainly less than most people assume at least)

aye dooosuk, if the area jumps up by 5% in value each year for three years then buying becomes MUCH more profitable!

Quite a healthy debate

I was under the impression that house prices in general were expected to rise in the near future, possibly driven by ease of buying with low deposits, help to buy etc.

Scandal – that happened already. My point is – your really gambling on if that will continue…..

I was under the impression that house prices in general were expected to rise in the near future

I wouldn’t be banking on any house price rises in the near future.

Unemployment will be below 7% in the next few months and that will trigger the BOE to start to look at raising base rates, which will probably be early 2015. When this happens mortgages will become more expensive, borrowing will become more difficult which will cut housing demand and keep prices flat (Hopefully push a load of BTL people out of the market, which will increase supply in the market)

Yes at a base rate of 0.5% the costs of buying vs renting look similar, but work out what your repayments would be when base rates rise to 3% in 2018 (Latest Office of Budget Responsibility report)

Anyone with an LTV of greater than 80% needs to be very careful