Silly to Rent?

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  • bart4858bart4858 Posts: 11,413
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    Emzie21 wrote: »
    I'm not wanting my own property per se, my only concern was the "dead money" but you've all really reassured me :)

    I'm only 25, I have years to save and as some have said I can save and think about it if/when I meet someone to live with.

    I can leave at a month's notice, my Landlady is fantastic, I love who I live near/where I am, and lets face it I have a bargain!

    I'd been renting privately for 3 years at £550 per month. Then sent a text to my landlady asking if she was interested in selling!

    Six weeks later, the property was mine, and it was costing me perhaps just under £300 per month (although that depends on exactly how the funds would otherwise have been invested -- this was a cash purchase).

    I could have bought anywhere but I knew the area and the neighbours, and couldn't be bothered moving. I'm also fitter now with all the DIY I'm doing. (And I don't have to worry about visiting kids scribbling all over the walls, and worse..)

    Renting/buying both have pros and cons; at the moment, with static house prices and low interest rates (for savings), renting is viable. And as has been mentioned, any bad neighbours and it's a lot easier to move!

    BTW financially I don't see a huge difference between renting and owning. After a mortgage has been paid off, then yes it looks like £0 per month cost, in reality you then have eg. £200K tied up in an asset that be earning you up to 5% pa elsewhere. So it's still 'costing' you up to £10K per year.
  • CornucopiaCornucopia Posts: 19,440
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    bart4858 wrote: »
    I'd been renting privately for 3 years at £550 per month. Then sent a text to my landlady asking if she was interested in selling!

    Six weeks later, the property was mine, and it was costing me perhaps just under £300 per month (although that depends on exactly how the funds would otherwise have been invested -- this was a cash purchase).

    ....

    BTW financially I don't see a huge difference between renting and owning. After a mortgage has been paid off, then yes it looks like £0 per month cost, in reality you then have eg. £200K tied up in an asset that be earning you up to 5% pa elsewhere. So it's still 'costing' you up to £10K per year.
    So... if I can summarise your maths...

    Renting=£550 per month, indefinitely, rising with inflation.
    Mortgage=£300 per month, potential to fix at that figure over a long period of time

    And after 25 years, it then becomes a "cost" to have a £200K asset, that you wouldn't otherwise have. Perhaps you could then sell it, give me the £200K, and go back to renting on exactly the same basis as you were at day one.
  • [Deleted User][Deleted User] Posts: 735
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    Johnbee wrote: »
    You state very clearly that £440 rent now will be worth only £1000 rent in twenty five years time. You also ignored the fact that the buyer will be paying zero, but I will pass over that.

    In the last 25 years GB house prices have risen by a lot more than 600% despite the troubles over the last few years and the previous big slump in 89. There is no indication that prices will fail to carry on going up in the long term - it is very likely that they will more than keep pace with inflation.

    I am afraid that rents will go up according to the value of the asset being rented - that is just basic reality.

    Correct, 25 years ago we had no where near as much personal or business borrowing as we do today, the economy is very very different and based on average inflation of 4-5% over the 25 years this means current rent of £440 rise to approx £1000 as I said earlier.
  • Raring_to_goRaring_to_go Posts: 20,565
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    Cornucopia wrote: »
    So... if I can summarise your maths...

    Renting=£550 per month, indefinitely, rising with inflation.
    Mortgage=£300 per month, potential to fix at that figure over a long period of time

    And after 25 years, it then becomes a "cost" to have a £200K asset, that you wouldn't otherwise have. Perhaps you could then sell it, give me the £200K, and go back to renting on exactly the same basis as you were at day one.

    It’s actually quite simple but it's surprising how many folk just don’t get it......:eek:
  • Barbarella81Barbarella81 Posts: 580
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    rickbe wrote: »
    ??
    Not sure what you mean here..

    Do you mean "buy to let"?

    If so, then I don't really consider that a good investment either. It means lots of hassle with tenants, all the upkeep of the property on your hands and pocket.

    I think they meant shared ownership, which I think is a great idea for someone to get on the property ladder if they want:

    http://www.cheshireeast.gov.uk/housing/affordable_housing.aspx
  • Raring_to_goRaring_to_go Posts: 20,565
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    I think they meant shared ownership, which I think is a great idea for someone to get on the property ladder if they want:

    http://www.cheshireeast.gov.uk/housing/affordable_housing.aspx

    What a load of crap.....

    They couldn’t possibly introduce a much simpler scheme like giving a grant to help with the deposit.....plus a low mortgage interest rate for first time buyers.

    BTW.....the finance for a grant to help with the deposit could be diverted from the astronomical sum paid in housing benefit.
  • LostFoolLostFool Posts: 90,623
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    I think they meant shared ownership, which I think is a great idea for someone to get on the property ladder if they want:

    http://www.cheshireeast.gov.uk/housing/affordable_housing.aspx

    Shared Ownership works for some people but there are some pitfalls you have to be careful of. Some mortgage companies don't like lending on shared equity schemes, it can be hard to sell the property in a few years and many of the schemes are overpriced.

    In addition, the ones run by local authorities or housing associations tend to have qualifying criterea which typically favour young families. Single people with jobs are usually bottom of the list.
  • ACUACU Posts: 9,104
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    it's only "dead" in the sense of spending any money on anything.

    Housebuying only makes sense if prices go up. The repayments for buying and renting are not too different, I would have thought.

    Leasing a car is a choice many people make. Car Manufacturers make it easy with options to buy, etc.

    Personally, I prefer not to buy that way, but for a regular outlay, you get a always new trouble free car.

    If renting out was so profitable, more would buy houses and do it. A lot of people got their fngers burnt jumping on that bandwagon, didn't they.

    As I say - if house prices are static, renting is a real good option.

    Plenty of people jumped onto the bandwagon. Many people made it work, quite a few didnt. The ones that didnt, jumped into it without much thinking. If you sat down did all the maths, and thought of it as a long term investment, then chances are you would be making money.

    I would say with mortgage rates at an all time low, getting a mortgage would be ideal. The problem for most people is getting a deposit together. If this wasnt a problem, most people would buy rather than rent.
    rickbe wrote: »
    I agree with the posters who've pointed out that renting is not "dead money".

    Residential property tends to be a comparatively mediocre investment. Particularly at the moment when the housing market is in the doldrums and likely to remain that way for some time.

    You should look at alternative investments for example on the stock market. There are plenty of other investments which give you much more flexibility and liquidity than real estate.

    You can also invest in unit trusts or tracker funds if it all seems too complicated. All of these investments will give you a much better return for your money than buying property.

    PS. Must point out that this is a general rule - there is a wide diversity between different specific stocks and funds.

    Property has been one of the best investments over the last 10 years or so. It has outperformed the stock market by quite a bit. If you have the money, then housing is the best long/medium term investment option there is.

    Look at house prices over the last 100 years, take any 10 year period and house prices have risen. You could probably take any 5 year period and they would have risen (with the last 5 years being the exception).

    I bought my first house in 98 for £42k...I rented it out since day one. The house next door sold about 12 months ago for £105k. All the time (with some periods where the property is empty) I have had tenants pay my mortgage. £450 pm is the first rent I got (on a £330 mortgage). I now get £525 pm on around £450 mortgage (I re-mortgaged for tax reasons).

    There is no other investment out there, with the same level of risk, that would have given me that kind of return. The key with a house is the term you are looking at. The longer the term, the more you will make, and the safer your investment. Anybody thinking they will make a profit over the 2 - 4 year period, forget about it, especially now. From my point of view, renting is paying someone elses mortgage.
  • [Deleted User][Deleted User] Posts: 10,868
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    Housing WAS a good investment. Tense is everything. The housing BUBBLE was driven by lax lending. All bubbles burst in the end. ;)
  • [Deleted User][Deleted User] Posts: 925
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    ACU wrote: »
    From my point of view, renting is paying someone elses mortgage.

    I agree and i rent for £585 a month!

    The worse thing i can think of is im paying someone elses mortgage and theyre getting abit of extra money on the side, its annoying. However im stuck because i cant save up stupid money for a deposit.

    The deposit is the most annoying thing about buying.
  • gemma-the-huskygemma-the-husky Posts: 18,116
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    ACU wrote: »
    Plenty of people jumped onto the bandwagon. Many people made it work, quite a few didnt. The ones that didnt, jumped into it without much thinking. If you sat down did all the maths, and thought of it as a long term investment, then chances are you would be making money.

    I would say with mortgage rates at an all time low, getting a mortgage would be ideal. The problem for most people is getting a deposit together. If this wasnt a problem, most people would buy rather than rent.



    Property has been one of the best investments over the last 10 years or so. It has outperformed the stock market by quite a bit. If you have the money, then housing is the best long/medium term investment option there is.

    Look at house prices over the last 100 years, take any 10 year period and house prices have risen. You could probably take any 5 year period and they would have risen (with the last 5 years being the exception).

    I bought my first house in 98 for £42k...I rented it out since day one. The house next door sold about 12 months ago for £105k. All the time (with some periods where the property is empty) I have had tenants pay my mortgage. £450 pm is the first rent I got (on a £330 mortgage). I now get £525 pm on around £450 mortgage (I re-mortgaged for tax reasons).

    There is no other investment out there, with the same level of risk, that would have given me that kind of return. The key with a house is the term you are looking at. The longer the term, the more you will make, and the safer your investment. Anybody thinking they will make a profit over the 2 - 4 year period, forget about it, especially now. From my point of view, renting is paying someone elses mortgage.

    I just think the past is not necessarily a guide to the future in respect of housing. We are starting from a completely different point.

    I struggle to see how house prices can continue to escalate at historic rates. How can they? 30 years ago, say, (at a time of a standard male-female couple) you would get salary multipliers of 3x mans salary and 1 times womans. Families could afford this, and also mange a time when perhaps the woman would stop work to raise a family (talking tradiitonal here, you understand - not questioning any current family arrangements)

    Now over the last 30 years, families have changed, and the multipliers have risen to cope with ever increasing house prices. So now it becomes difficult for anyone to afford mortgage repayments.

    So you have to think

    a - salaries aren't going anywhere fast therefore
    b - house prices can't go anywhere fast either, as owners just would not be able to afford to buy since
    c - interest rates WILL start to increase again in due course

    so
    d - if house prices cannot increase further - then the justification for buying is much less certain - as without a capital profit, there is a downside to buying.

    eg a rental yield of 4-5% is not so good, given a house is a depreciating asset, which may need a lot of maintenance. It only works if the yield is enhanced by a capital gain.

    So, i think you need to be think it through very carefully now before buying.

    eg
    what if stamp duties rise further
    what if they do bring in a wealth tax assessed on house value
    what if local rates/council taxes continue to increase.
    what if they increase taxes on second home ownership
    what if they try and tax capital profits on first home ownership

    governments need ever increasing amounts of tax - and wealth taxation will start to appeal to them

    so what if all ofd a sudden no-one WANTS to own the house they live in.

    and what if all these factors start to drive house prices down. Not so buying a house becomes more affordable. But so that the buy/not to buy decision becomes a different one than it is today.
  • ACUACU Posts: 9,104
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    jon8769 wrote: »
    Housing WAS a good investment. Tense is everything. The housing BUBBLE was driven by lax lending. All bubbles burst in the end. ;)

    The bubble has burst on the huge rise in property value over the short term. If those are the kind of gains you are looking at, then housing isnt an option. Then again I dont know of anything that is.

    Housing is still a very good long/medium term investment.
  • Raring_to_goRaring_to_go Posts: 20,565
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    Ataraxia wrote: »
    I agree and i rent for £585 a month!

    The worse thing i can think of is im paying someone elses mortgage and theyre getting abit of extra money on the side, its annoying. However im stuck because i cant save up stupid money for a deposit.

    The deposit is the most annoying thing about buying.

    It can be tough......

    50 years ago my wife and I lived with her parents for 18 months so that we could save the £180 to pay our deposit and the legal fees.

    Today my whole family are home owners with a total value in excess of £2 million.

    My father always rented because he thought it was unacceptable to take out a mortgage to buy a home.
  • ACUACU Posts: 9,104
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    I just think the past is not necessarily a guide to the future in respect of housing. We are starting from a completely different point.

    I struggle to see how house prices can continue to escalate at historic rates. How can they? 30 years ago, say, (at a time of a standard male-female couple) you would get salary multipliers of 3x mans salary and 1 times womans. Families could afford this, and also mange a time when perhaps the woman would stop work to raise a family (talking tradiitonal here, you understand - not questioning any current family arrangements)

    Now over the last 30 years, families have changed, and the multipliers have risen to cope with ever increasing house prices. So now it becomes difficult for anyone to afford mortgage repayments.

    So you have to think

    a - salaries aren't going anywhere fast therefore
    b - house prices can't go anywhere fast either, as owners just would not be able to afford to buy since
    c - interest rates WILL start to increase again in due course

    so
    d - if house prices cannot increase further - then the justification for buying is much less certain - as without a capital profit, there is a downside to buying.

    eg a rental yield of 4-5% is not so good, given a house is a depreciating asset, which may need a lot of maintenance. It only works if the yield is enhanced by a capital gain.

    So, i think you need to be think it through very carefully now before buying.

    eg
    what if stamp duties rise further
    what if they do bring in a wealth tax assessed on house value
    what if local rates/council taxes continue to increase.
    what if they increase taxes on second home ownership
    what if they try and tax capital profits on first home ownership

    governments need ever increasing amounts of tax - and wealth taxation will start to appeal to them

    so what if all ofd a sudden no-one WANTS to own the house they live in.

    and what if all these factors start to drive house prices down. Not so buying a house becomes more affordable. But so that the buy/not to buy decision becomes a different one than it is today.

    You have to base you ideas on something. If it is not the past performance of the housing market then what?

    One of the reasons for house price rises, is that more women now have a career, than say 30 years ago. Where as 30 years ago, there was only one income coming in, there are now two.

    Another thing the banks have done to make a mortgage affordable, is to increase the length of the mortgage. Whereas in the past 25 years was the max term, we are now seeing mortgages for 30+ years. Also a smaller deposit is required, with upto 90% LTV offered.

    There are a lot of 'what ifs' in your reason for not buying a property. Some/all of these may not even happen. I also feel its a pessimistic view to take. If we thought about the worst case scenario all the time, we wouldnt do anything.

    If we do take your scenario, and no one wants to buy, we all want to rent. Then the demand for rented property would go up, thus the rents would go up - due to basic supply/demand economics. This would be an ideal time to purchase a property to rent out. As with a capitalist society we live in, these things would balance out. So there would never be a scenario where no one wants to buy and we all want to rent.

    I do agree the housing market does need to 'correct' itself...which I feel it has done (to some extent) over the last few years.

    For me, I feel that property is a sound investment. I also know this isnt the case for everyone. It does very much depend on your circumstances.
  • LostFoolLostFool Posts: 90,623
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    ACU wrote: »
    I bought my first house in 98 for £42k...I rented it out since day one. The house next door sold about 12 months ago for £105k. All the time (with some periods where the property is empty) I have had tenants pay my mortgage. £450 pm is the first rent I got (on a £330 mortgage). I now get £525 pm on around £450 mortgage (I re-mortgaged for tax reasons).

    I first started earning decent money in 1998 and I can remember seeing houses available for £42k and thinking "That's a lot of money but a few years of saving and I could afford that". Back then all you needed was a 5% deposit. Unfortunately, that's when the housing boom started and I missed the boat.

    Last year I finally bought my first place and had to put down a deposit of £42k. What with legal fees and setting the house up it cost me almost £50k in total. That's a lot of savings to expect people to have. I had been lucky in the last few years and had a windfall from some share options but otherwise there is no way I could have saved that amount.

    In the past people may have expected an inheritance in their 30s but with parents living longer that isn't happening a much and any equity in their home often has to be spent on care in their old age.
  • gemma-the-huskygemma-the-husky Posts: 18,116
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    ACU wrote: »
    You have to base you ideas on something. If it is not the past performance of the housing market then what?

    One of the reasons for house price rises, is that more women now have a career, than say 30 years ago. Where as 30 years ago, there was only one income coming in, there are now two.

    Another thing the banks have done to make a mortgage affordable, is to increase the length of the mortgage. Whereas in the past 25 years was the max term, we are now seeing mortgages for 30+ years. Also a smaller deposit is required, with upto 90% LTV offered.

    There are a lot of 'what ifs' in your reason for not buying a property. Some/all of these may not even happen. I also feel its a pessimistic view to take. If we thought about the worst case scenario all the time, we wouldnt do anything.

    If we do take your scenario, and no one wants to buy, we all want to rent. Then the demand for rented property would go up, thus the rents would go up - due to basic supply/demand economics. This would be an ideal time to purchase a property to rent out. As with a capitalist society we live in, these things would balance out. So there would never be a scenario where no one wants to buy and we all want to rent.

    I do agree the housing market does need to 'correct' itself...which I feel it has done (to some extent) over the last few years.

    For me, I feel that property is a sound investment. I also know this isnt the case for everyone. It does very much depend on your circumstances.

    I just think it's not so cut and dried now, and a conscious decision to rent isn't necessarily wrong.

    I have bought and paid for my own house, but it wasn't purchased at today's price levels - and I think it would be a tougher call now.
  • ACUACU Posts: 9,104
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    LostFool wrote: »
    I first started earning decent money in 1998 and I can remember seeing houses available for £42k and thinking "That's a lot of money but a few years of saving and I could afford that". Back then all you needed was a 5% deposit. Unfortunately, that's when the housing boom started and I missed the boat.

    Last year I finally bought my first place and had to put down a deposit of £42k. What with legal fees and setting the house up it cost me almost £50k in total. That's a lot of savings to expect people to have. I had been lucky in the last few years and had a windfall from some share options but otherwise there is no way I could have saved that amount.

    In the past people may have expected an inheritance in their 30s but with parents living longer that isn't happening a much and any equity in their home often has to be spent on care in their old age.

    As I said earlier, the biggest problem is the deposit. Its not reasonable for average joe, to be able to save £30k+ to buy a house. To be honest I am not sure what the solution is. Banks have given 90+% mortgages. However this wasnt enough. Banks dont want to offer 100% mortgages.

    Would a guarantor system work???. Where the bank will give you a 100% mortgage, but if things went wrong, the guarantor would cough up an agreed amount. If things went ok, after a certain amount of time (where the LTV dropped to a certain level), the guarantor would be released from their obligation. Not sure about this, just thinking aloud.
  • What name??What name?? Posts: 26,623
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    Housebuying only makes sense if prices go up. The repayments for buying and renting are not too different, I would have thought.

    I disagree. I bought 12 years ago. Leaving out any capital gains in my house my original mortgage at around 6% worked out at £500. It cost about that to rent the place too at the time, probably a bit more. Now it costs £1,200 to rent and interest rates are between 2-3% for a tracker. If I keep the place for another 12-13 years (which I probably won’t) my housing costs will be 0. Meanwhile rental prices are still going up because the credit squeeze means people can't afford the deposits.

    Who cares how much the house is worth until you sell it since most of us will then still need shelter somewhere and don't look on a house as an investment but as a home? The important point is that if you buy your home you pay less for a roof over your head in the long term. Renting is cheaper in the short term but ends up more expensive in the long term. Mortgaging is more expensive in the beginning but tends to get cheaper in the long run – especially if there is high inflation – such as the period we are going through now. And at the end of 25 years paying mortgage you own something whist at the end of 25 years of renting you have no rights and no property can still be tossed out with little notice as no matter how nice you landlord is they have their own interests to look out for and their own life plans.
  • [Deleted User][Deleted User] Posts: 10,868
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    ACU wrote: »
    As I said earlier, the biggest problem is the deposit. Its not reasonable for average joe, to be able to save £30k+ to buy a house. To be honest I am not sure what the solution is. Banks have given 90+% mortgages. However this wasnt enough. Banks dont want to offer 100% mortgages.

    Would a guarantor system work???. Where the bank will give you a 100% mortgage, but if things went wrong, the guarantor would cough up an agreed amount. If things went ok, after a certain amount of time (where the LTV dropped to a certain level), the guarantor would be released from their obligation. Not sure about this, just thinking aloud.

    The solution?

    House prices falling to historically normal levels compared to salary.

    As for renting is dead money. It is long term. But short term no.

    And anyone who is on an interest only mortgage is just renting from the bank.
  • bart4858bart4858 Posts: 11,413
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    Cornucopia wrote: »
    So... if I can summarise your maths...

    Renting=£550 per month, indefinitely, rising with inflation.
    Mortgage=£300 per month, potential to fix at that figure over a long period of time.

    And after 25 years, it then becomes a "cost" to have a £200K asset, that you wouldn't otherwise have. Perhaps you could then sell it, give me the £200K, and go back to renting on exactly the same basis as you were at day one.

    Look at it this way. If you had the £200K purchase price in the bank, you could choose to buy for cash, and lose out on 3-5% of £200K.

    Or take out a 100% £200K mortgage at 3-5%.

    Or rent, and pay a similar amount each month in rent.

    In all three cases, you'd be up to £10K a year worse off than if you decided to sleep in a barn.

    In the longer term, then yes perhaps it is possible to benefit from capital gains on property (so current rents go up, current mortgage payments stay the same). But there are many factors to consider:

    Not everyone stays in the same house for 25 years, most people move 'up', and their outgoings do as well. There can be expensive costs associated with owning property. And house prices can go down as well as up! (My second house lost 45% of it's value after one year.)
  • PunkchickPunkchick Posts: 2,369
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    I live in the south east so obviously our property prices have not suffered as much as up north. I know when I bought my current property 7-8 years ago a member of my family bought a very similar property (same no. bedrooms, size etc) in Middlesbrough at the same time. His property cost him 30% of what mine did. But today his is worth pretty much the same as when he got it, but mine is worth £60,000 more than when I bought it. Also all the houses in my street are the same, so I know that to rent one is costs between £1,400 - £1,800 a month depending on the spec inside, my mortgage is £848, and before anyone says it is because of low ineterest rates at the moment, I have been on a fixed rate for years fixed at 6% so I have at between £552 - £952 in my pocket every month, and it doesn't cost that much for repairs etc.
    It is a commitment but long term well worth it.
  • ACUACU Posts: 9,104
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    jon8769 wrote: »
    The solution?

    House prices falling to historically normal levels compared to salary.

    As for renting is dead money. It is long term. But short term no.

    And anyone who is on an interest only mortgage is just renting from the bank.

    I cant see house prices falling to that kind of level. If they started to falling that fast. People would not sell, and this would stop the fall. Then when a house came on the market, you would have several buyers waiting to purchase, thus pushing up the price.
    bart4858 wrote: »
    Look at it this way. If you had the £200K purchase price in the bank, you could choose to buy for cash, and lose out on 3-5% of £200K.

    Or take out a 100% £200K mortgage at 3-5%.

    Or rent, and pay a similar amount each month in rent.

    In all three cases, you'd be up to £10K a year worse off than if you decided to sleep in a barn.

    In the longer term, then yes perhaps it is possible to benefit from capital gains on property (so current rents go up, current mortgage payments stay the same). But there are many factors to consider:

    Not everyone stays in the same house for 25 years, most people move 'up', and their outgoings do as well. There can be expensive costs associated with owning property. And house prices can go down as well as up! (My second house lost 45% of it's value after one year.)

    Lost 45% in one year!! :eek: Ouch. That is not the norm, and I would suggest very very rare. How did that happen?
  • bart4858bart4858 Posts: 11,413
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    ACU wrote: »
    Lost 45% in one year!! :eek: Ouch. That is not the norm, and I would suggest very very rare. How did that happen?

    Well it might have been 18 months. This was in the early nineties. House bought for £65K in '89, valued at £36K in '91, a lot less than my mortgage (which happened to be at 12%).

    The recent 'crash' was nothing.
  • ACUACU Posts: 9,104
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    .......deleted
  • CornucopiaCornucopia Posts: 19,440
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    bart4858 wrote: »
    Look at it this way. If you had the £200K purchase price in the bank, you could choose to buy for cash, and lose out on 3-5% of £200K.

    Or take out a 100% £200K mortgage at 3-5%.

    Or rent, and pay a similar amount each month in rent.
    It's extremely unlikely that you'd have mortgage payments at a similar level to savings interest. For most working people, there's a simple approach to handling any excess funds they may have: pay down high-interest loans (credit cards); pay down low-interest loans (cars & mortgages); then (depending on one's priorities) - savings, short/long term, and other investments.
    In all three cases, you'd be up to £10K a year worse off than if you decided to sleep in a barn.
    Possibly. Most people would not choose to "sleep in a barn" if they had the means to buy a house, tho.
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