Costs of rent vs. buy...

Jimbo Mahoney

Jimbo Mahoney

Jimbo Mahoney

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18 Oct 2002
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I'll be buying a house in the next few years and wanted to check if my cost assumptions are about right. Too often all you hear about is the mortgage cost vs. the rental cost, but there's more to it than that...

Rent = 100% "money down the drain"...

Buy = mortgage (partial interest repayment, partial capital repayment)
+ 1% house price for annual maintenance
+ 0.7% house price for rates (I'm in NI - council tax is called rates and they are "included" when renting)
+ 0.3% house price for building insurance

Thus, if I'm comparing £700 a month in rent, would this be equivalent to a £500 a month repayment mortgage on a house costing around £130k? (Deposit £25k, mortgage £105k, interest 3%).

Assuming £100 a month maintenance (roofing, brickwork, boilers etc.), £100 a month in insurance and council tax / rates.

= approx. £260 capital repayment / money in my pocket + £440 "money down the drain"...

Thanks for any advice on costs of running a house...
 
Renting is not 100% money down the drain if you NEED some were to live and well we all NEED somewhere to live.

What i don't like is the current culture of people expecting to 100% make massive amounts of £££££ on there houses while the house is providing a service of giving them some were to live.
My mum and dads 1st house they got for £4500 in 1987 that same house sold 3-4 years ago for 142k how is that even correct. its just pricing my current generation completely out of the hopes of ownership because the past generation got it drilled into them for years they you should totally buy your own home and you will make mad £££££££ and not telling people you should totally buy your own homes so you secure your own home for your self and your family.
 
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Jimbo Mahoney said:
Buy = mortgage (partial interest repayment, partial capital repayment)
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From my experience it's more like; Mortgage = Mostly Interest with partial capital repayment.



Tappits said:
My mum and dads 1st house they got for £4500 in 1987 that same house sold 3-4 years ago for 142k
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Using the Bank of England Inflation calculator £4500 in 1987 was equal to £110k in 2012. So it's not that over the top pricing.
 
SDK^ said:
From my experience it's more like; Mortgage = Mostly Interest with partial capital repayment.




Using the Bank of England Inflation calculator £4500 in 1987 was equal to £110k in 2012. So it's not that over the top pricing.
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Cool i just typed the same numbers in and it came up with 3.5% ave = £10719.40 10k not 110k but nice math.
Even a 7% inflation would double the cost every 10 years so even over 30 years would only be 36k
 
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Some googleing found some random things that are just mad what evey one has done to the houseing markets trying to make there mad £££££

"When the good times were rolling in 1989, property prices were rising at an annual rate of 34%."

in the year 2000
"The average cost of a property in the UK is £83,000"
in the year 2013
Average UK house price hits £250,000,

Yep this is a sustainable way of having housing in the UK
15 more years as we been going for the past 30 years only the 1%ers will be able to buy a house.
 
We could have bought our house off the inlaws for £70k in 2002. When we DID buy it in 2006 we paid £140k. Doubled in 4 yrs....Mental

Whats really annoying is 8 yrs on and its still only worth £140k
 
Council right to buy;) the years in council tenancy/renting all add up to a hefty discount when you want to buy so renting does have its advantages
 
Tappits said:
Cool i just typed the same numbers in and it came up with 3.5% ave = £10719.40 10k not 110k but nice math.
Even a 7% inflation would double the cost every 10 years so even over 30 years would only be 36k
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:o
My mistake, I thought it looked wrong.


Tappits said:
Some googleing found some random things that are just mad what evey one has done to the houseing markets trying to make there mad £££££

"When the good times were rolling in 1989, property prices were rising at an annual rate of 34%."

in the year 2000
"The average cost of a property in the UK is £83,000"
in the year 2013
Average UK house price hits £250,000,

Yep this is a sustainable way of having housing in the UK
15 more years as we been going for the past 30 years only the 1%ers will be able to buy a house.
Click to expand...
There are always periods of high increases with decrease or flat periods in between. Look at 2008-2012 for example.
 
Whatever way you look at it a mortgage is always the cheaper option.

Pay off your house in your 50's which leaves you adequate time to put away for your retirement, and you don't then end up paying rent til you die AND you leave something to your children.

If buying is an option I would strongly advise it.

The only reason houses are so ******* expensive in the UK is because wages are so crap, even among skilled workers pay isn't worth close to what it was. The key to a housing market recovery is in 3 things.

1. Stop using government schemes to make it possible for people to buy a house on a 5% deposit - it's just making house prices rise dramatically and tieing people into ridiculous mortgages.

2. Bring back workforce unionisation and increase tax on imports to boost the UK manufacturing sector.

3. Close tax loopholes to rectify the huge gaping leaking ******* of a hole in our current balance of payments presenting unfair competition for British firms and fledgling enterprises.
 
wazza300 said:
Council right to buy;) the years in council tenancy/renting all add up to a hefty discount when you want to buy so renting does have its advantages
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Your not wrong there,my uncle got my nans house (she lived there for 70 years) for less than a new car,he had saved the money from giving up smoking and putting the money away each month,my uncle is very good with money and was pleasantly surprised he got the house for my nan :)
 
Tappits said:
Renting is not 100% money down the drain if you NEED some were to live and well we all NEED somewhere to live.
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100% agree, people should always do the sums before assuming that getting on the "ladder" is the best thing for them. We've seen plenty of property crashes over the years, so caution should be taken. Often, the people advising people to buy buy buy are the same people who complain when they end up in negative equity.

pitchfork said:
Whatever way you look at it a mortgage is always the cheaper option.

If buying is an option I would strongly advise it.
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Poor and far too general advice, everyone's circumstances are different and there have been plenty of times in the housing market's history where it was a terrible time to buy. A residential property isn't the only investment you can make in your life but it is one of the largest and shouldn't be rushed into imho.

Not directly comparable to situation in the UK at the moment, but the sums on the property that just sold next door to us here in Sydney.
Cost to buy: $720,000
rates: $1612/year
Service charge: $3160/year
Cost to rent: $30680/year
So cost to buy with a 10% deposit and a reasonable interest rate here over 30 years - mortgage payments are $41124/year, bringing the total to $46k/year before any repairs. The above is really going to hurt the owner when the market collapses.


Regarding the OP's sums, £100/month is probably a bit low to cover any major repairs but if you can keep a bit of a sinking fund separately then it lessens the potential blow. Also, ensure that you can handle a significant interest rate hike with your current circumstances. If everything checks out and makes sense - good luck!
 
I'm a advocate of house ownership, but as the poster above says, it is far from a black and white easy decision. Renting has its place for those that have no option of significant deposits nor the means to save towards them, or who may be more mobile and need to move in the near future.

Many see a house as an investment, and struggle either consciously or subconsciously to separate the primary purpose of the asset - being a home. As an investment property ownership is expensive compared to most easily tradeable assets. The costs to buy are:

- the purchase cost
- conveyancing fees
- solicitors fees
- surveys and valuations
- possible mortgage arrangement fee
- stamp duty

Ongoing costs include:

- budget for maintenance and improvements (although the latter may (may) improve the value)
- buildings insurance (a low cost admittedly)

Then of course, to realise the value of your home / investment you need to sell it at some point when you will then face:

- conveyancing fees
- estate agency fees

Now, being savvy can reduce many of these fees but they're still there. If you move fairly regularly then they're a significant overhead. If you don't move very frequently then they're still there but the impact will be lessened.

Home ownership has made me some money over the years - I'm 41 years old and in my fifth property now - but those profits / increases in value normally mean that the market has risen and the next property I've bought is proportionately more expensive than it would have been in the past. I've also lost money on property ownership too, the most being £20,000 on a flat I lived in for only two years. Property ownership is not a one-way ticket to guaranteed future profits but, I must admit, I have a certain satisfaction working towards the day when the mortgage is repaid and I finally own it outright.
 
The_Abyss said:
I must admit, I have a certain satisfaction working towards the day when the mortgage is repaid and I finally own it outright.
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This i agree with, i bought my first house 2 years ago now another 14 years it will be paid off and the day that comes will be the best day ever. Knowing you have no more payments and its all yours.
 
commited said:
Poor and far too general advice, everyone's circumstances are different and there have been plenty of times in the housing market's history where it was a terrible time to buy. A residential property isn't the only investment you can make in your life but it is one of the largest and shouldn't be rushed into imho.

Not directly comparable to situation in the UK at the moment, but the sums on the property that just sold next door to us here in Sydney.
Cost to buy: $720,000
rates: $1612/year
Service charge: $3160/year
Cost to rent: $30680/year
So cost to buy with a 10% deposit and a reasonable interest rate here over 30 years - mortgage payments are $41124/year, bringing the total to $46k/year before any repairs. The above is really going to hurt the owner when the market collapses.


Regarding the OP's sums, £100/month is probably a bit low to cover any major repairs but if you can keep a bit of a sinking fund separately then it lessens the potential blow. Also, ensure that you can handle a significant interest rate hike with your current circumstances. If everything checks out and makes sense - good luck!
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One scenario is the equivalent of setting fire to $30680 a year, the other is the equivalent of saving a proportion of $41k a year.

You're always better off buying if you can - get the mortgage paid off so you don't need to work in your retirement years or end up in some horrendous nursing home.

Plus you'll have something to leave to your kids - even if the market collapses it'll probably recover over your lifetime.
 
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Renting is not money down the drain, it is providing you shelter which is the most important thing in life after oxygen, food and water. If renting is putting money down the drain then so it buying food, paying for electricity, or buying a car, let alone paying for vacations.

Given the choice of being homeless on the streets or "throwing money away renting" then I would choose renting personally.
 
The thread is about renting vs buying, not renting vs homeless.

I don't want to make a blanket statement as to one being better than the other as it depends a lot on individual circumstances. It's not just the financial aspect you have to consider but also, mobility, flexibility, job security, etc.

From a financial point, yes buying is usually better than renting. I think you do need to increase your maintenance budget though.

Personally, I bought a flat in 2006 and it's worked out ok as I got a good deal on my mortgage (BoE base + 0.99%) and I expected to live there a while. It does annoy me to think sometimes that had I lived with my parents for longer I could've bought this place outright by now instead of still having £90k+ mortgage outstanding.

Renting was never really an option for me. I didn't need to rent due to a lack of somewhere else to live or lack of money for a deposit, etc and I was/am one of these folk that think it's money down the drain if you have other options.
 
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Those who rent, what is your longterm plan?

I'm talking in old age, keep working till you drop to pay the rent, or live in a dive and get by on a state pension eating baked beans?

Those who buy a house should have it paid off before they retire, meaning they no longer need to pay the mortgage, which equals more money to enjoy yourself later in life.
 
To me, renting is dead money, paying off someone else's mortgage!

For equal or less amount I could be paying off my 'own' and that's what I do.

The only benefit I see for renting is if you want something short term and plan on moving anytime soon.
 
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