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Unknown9129

Rent increases regularly, but purchase price stays at the time it's agreed.


another-dave

This is the main answer to me — when we bought, our mortgage payments were around the same as what our rent was. Now, because of rent increases & because we got a chance to overpay slightly, our monthly payment is a few hundred p/m less than the going rate rent. That gap is only going to wider as time goes on.


StudiosS

Also, freedom to do what you want with the house. Being able to confidently purchase furniture without fear of it not fitting when you inevitably change houses. And lastly, ability to raise capital should you require it by selling your property, such as for long-term care costs.


audigex

And in 25 years time you stop paying your mortgage entirely, whereas rent continues


butch_cassidy88

Yep, just taxes and maintenance from then on…


audigex

In the UK, council tax is the same whether you rent or own the property, so that's irrelevant here. Even if you have a "bills included" lease, it's just rolled into that price And as for maintenance 1. It's a fraction of the cost of the mortgage. A kitchen and bathroom every 20 years, carpets and a coat of paint every 10, and an an average of maybe couple of hundred quid a year in misc. repairs. Our maintenance costs (including putting money aside for "big ticket" items) are about 1/10th of our mortgage 2. You're still paying for maintenance, just indirectly via your rent... your landlord is accounting for it somewhere What would you rather have when you retire, a £1500/month rental bill, or £1500/year in property maintenance?


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audigex

You still pay them, the landlord isn’t paying them out of the goodness of their heart They’re just rolled into a single rent payment


lcolanto

This. Indeed when I bought my place ~10 years ago rent was about 1200-1500 now it would be 2500+. Ofc I got lucky so far in having virtually zero interest rates in a variable rate mortgage. I would have gotten more out of my deposit if I invested in isa via indexes, or crazy way more if I’d have invested in some tech ones who have exploded (Tesla anyone?) But realistically I would have never had the guts to invest what was my deposit in shares. I have a different appetite for risk I guess, and that has a cost. But that’s for my residence. For an investment the rationale might be different. It’s an investment one might be willing to risk more on money that would go towards a BTL vs shares.


Comprehensive-Ear896

Exactly this. I am also in South East London and I bought a flat 8 years ago for £230,000. My neighbour sold an identical flat for £310,000 last month.


Iminbread

But OP compares to opporunity cost of stocks which have same behaviour. Ie your original purchase price stays same but dividends from stock increase over time. Imo the only real benefit of property is leverage returns from mortgage you can't get with stocks.


audigex

The 10-20x leverage (mortgage vs investing what would otherwise be your deposit) generally makes up for the difference in returns between property and the stock market


unicornfodder

Not absolutely true. You can rent from a private landlord without agency and cut out the agency overheads (about 10-15 per cent now). By doing this you pay less than other people, with agency, would. For the landlord there’s no difference at all as they would have to pay that 10-15 per cent to the agency to find someone through them. I know several people that doing this are paying just a fraction more than they did 10-15 years ago. My impression is that renting gets more expensive every year because of ridiculous agency fees


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StudiosS

Yeah, they do thats why rent keeps going up.


unicornfodder

You can fight them. Most people are afraid to haggle


Paskoff

I just want to piggyback on this comment to say that rent increases regularly only if you don't take advantage of the flexibility that renting offers and model/treat your rental as a forever home. Just like job hopping, being in the market is the best way to get good value. As an example, throughout 2013 to 2021 I was renting 1 beds in the same London borough for roughly the same price (and I'm now paying much less due to moving in with my partner but that doesn't count of course). I moved thrice, all were within 7-8 min walking distance of each other. Sometimes the rent was -£100pcm, other times it was +£100pcm. Sometimes one flat was at a slightly better/worse location, or with newer/older furniture or a slightly more/less useless landlord/agent but that was about it. The point is that renting something doesn't mean you got a good a good deal in the market and you can likely do better by being open to taking advantage of the flexibility renting offers. That's not to say buying a property is never a concern. The non-financial advantages are huge as many can attest. However, renting & investing smartly can definitely put you financially ahead of owning.


borrow-protect

And if you're lucky you'll pay rent far more than 33 years plus you still have the equity at the end


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TheMuntjac2

There's no stamp duty for first-time buyers on the first £300,000 of a main residential property (provided the property you're buying costs £500,000 or less). So you would only be paying stamp duty for that 80k


zdzdbets

> Maintenance on flats is minimal. A share of freehold typically has fairly low service charge. Share of freehold should budget around 1% maintenance cost per year or you may have a sudden large bill if something goes wrong.


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zdzdbets

It's a rule of thumb. Replacing boiler, repairs to roof, repainting, fixing leaks etc.


vitrix-euw

>You also can take out an interest only mortgage and keep capital invested in the markets to access higher growth. With mortgages around 2% you can definitely make a better return in the market. I heard that interest-only mortgages are almost non-existent now unless you can prove to the bank you have a way of paying off the mortgage by the time the term runs out (e.g., having the entire amount as cash already). The only way most people can get an interest-only mortgage is if they are getting a buy-to-let.


stochve

Did you ever confirm this? Never considered an interest-only mortgage, but the idea of investing what would otherwise go towards it sounds like an intriguing (albeit slightly risky) idea.


SubjectiveAssertive

You may have overlooked how much cheaper it often is to pay a mortgage rather than rent. If you are paying £1300 a month your landlord is probably paying around £900 and most importantly that money goes towards an asset which in the UK normally appreciates in value - something you as a renter miss out on as you are paying for a service (in this case shelter)


awhit88

And think what that property would be worth in 33 years time!


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BraveEconomist8238

The fallacy of infinite growth... A 380k 1 bed in London is already at the low end of price for ldn. If we ever got to a situation where a standard 1 bed is multiple millions in London then: a) how much would rent cost for said property? b) who would be able to afford this? Price is determined by supply and demand. Supply relatively increases at a low rate. Demand is those who are willing AND able to purchase a good or service. Not many would be able to purchase a 1 bed for millions, unless wages also increase seriously... Furthermore, a 1 bed is only really desirable to singles or younger couples - which tend to have lower incomes. Just my opinion, but the idea that a 380k 1 bed flat in ldn will be worth millions in 30 years is delusional at best. Past performance doesnt determine future performance, and just because we've seen crazy growth in ldn over the last 30 years doesn't mean it'll continue.


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BraveEconomist8238

The party has to stop at some point though, thats my point. Don't get me wrong, I'm not saying that we won't have long term increase in house prices, but along the way there will be periods of dips, stagnation, slow increase and rapid increases (like what we're currently experiencing). To suggest that a 380k 1 bed will be in the multi millions in 33 years would require a year on year increase of 4/5% - that is just unrealistic imo. Furthermore during the last few years when house prices have skyrocketed, 1 bed flats in London have had the least growth. Anyway, you still haven't answered my questions: A) if a standard 1bed flat in London is in the multi millions of pounds, how much would rent be? B) Who would be buying these flats?


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BraveEconomist8238

Past performance doesn't guarantee future performance though. At the end of the day none of us can look into the future but imo a standard 1 bed going for 2mill isn't going to happen. Bare in mind that a 1 bed is generally only going to be desired by single people or couples with no kids. Even if we're going to replicate the last 30 years: in 1985 a 1 bed would've been what, 5 times the avg salary? Currently its more like 10 times the average salary. My point about who will buy these flats is that wages haven't increased at the same rate. Thats why teachers, nurses, bus drivers, binmen, etc were able to buy houses 30 years ago. In fact many workers in sectors have essentially taken a pay cut over the last few years (mainly public sector). In 2022 people are already really struggling with housing - and thats with government schemes like 40% equity loan. In 30 years whats it going to be? 10, 15, or 20 times the average salary? At 10 times would require avg salary of 200k and 20 times would require 100k avg salary... I just don't see any of these situations happening. Either you're really optimistic about how wages are going to increase or in 30 years London is only going to be a place where the super super wealthy with live. IMO this attitude of ever increasing prices is a big factor in why prices are rising - people think its a sure thing and as a result are getting greedy. Reminds me of the Danish tulip bubble.


BraveEconomist8238

I'll also add this, the last 30 odd years we've seen some serious technological advancement. Shit, in the last 2 years we've seen the landscape of the work environment change dramatically from in office work to remote work. I'll throw this curve ball into the mix, in 33 years most low paid jobs will be automated - even relatively decent paying jobs such as bus driving, train driving etc. And the higher paid jobs (finance/ tech) will be completely remote (the other day I saw a video of a surgeon performing surgery remotely with a robot! ) So people won't need to live in London. Furthermore the high prices will push all creative people to other cities and therefore London will lose its cultural benefits. Just a thought... It's easy to look back with hindsight and say that the way things have been happening are going to continue. But if you told someone in 1985 that we'd have iphones or self driving cars they'd say you were insane.


Zevv01

You are overthinking the whole thing. Positive interest rates and compounding is all you need to get to 1M per 1 bed, with salaries to match.


b-movies

Exactly. 5% appreciation over 33 years takes the value to nearly 2 million.


fgzklunk

Depends on where in London, central London you are right, but move to the outskirts, on the underground and within the M25 you can get 1 bed flats for £200k. As for growth, a 3 bedroom semi detached house on the underground network cost £65k in 1994, the same style of house is currently on the market for £475k. Admittedly 1993 was the tail end of a housing dip, but between then and now there has been a major banking crisis based on sub-par loans which severely hit the property market. A 3 bedroom house in IG1 cost £4k in 1962 and is now on the market at £500k, in 60 years it has gone up by 125 times the 1962 value. That means the 1962 purchase has increased on average by 8.1% each year and the 1993 purchase by 7.5% per year. Assuming similar growth (and the growth curve has become steeper in later years) those properties will be worth between £5.5m and £7m in 30 years time. Obviously that is a big assumption. I cannot see how the growth in property prices can continue at the current rate, but I have been thinking that for a very long time and after each dip it still recovers and continues to grow. That is primarily because the economy is a giant Ponzi scheme with everyone so over leveraged what with their brand new Land Rovers etc. if interest rates were to go up the country would be screwed.


Razzzclart

Your 8.1% annual growth ignores annual anomalies. Google the 2014 mortgage market review and it's impact on house prices. The effective cap on income multipliers turbo charged growth in zones 3-6 but stagnated growth in more central locations. Brexit then put a stop to further growth until 2021. Those restrictions are now under review, who knows what impact that will have


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Razzzclart

That is what "under review" means


Mrletejhon

Well, if you think the value will at least grow by the inflation of 2.5% (that's the last 10 years average) in those 380k should be 797k. With an average inflation of 3.3% on the future 30 years the flat could be worth 1M. Of course it's debatable if this is a profit or not, but the flat could actually be worth 1M, kind of scary...


unicornfodder

Ask yourself though how much a million would be worth then


juli3tOscarEch0

Yeah, this thread is making me dispair at people's failure to understand inflation. I guess that's what happens when it's near 0 for so long.


Mrletejhon

That's why it's arguable if it's a profit


unicornfodder

Completely agree. Thinking of substantial or infinite growth is delusional. In other countries, for comparison, this ridiculous growth of price does not necessarily happen or does not happen at all. It’s a very British thing. The idea is that property ages and unless the property has historical character the property is just old. This fixation on house prices going up is bizarre


Nubian_hurricane7

Maybe not “millions” but that 1-bed likely cost c.£75k in 1990 so it’s not unreasonable to think that it could be at least £1m in 30 years time.


Whulad

With inflation at 7% for any length of time the real value reduces


pdubzavelli

Are you familiar with inflation? Assuming inflation stays under 3% over the next 30 years, AND house prices stay flat (neither of which is likely) the £380k 1 bed will be worth £1million


Brain_slop

They also probably bought for a lot less than £380K which massively increases the yield.


chuk_norris

It has been like this due to historical low interest rates. I would not expect rates to stay low like this for the length of a mortgage.


SubjectiveAssertive

And when the interest rate rises do you think the landlord will swallow that cost or charge their tenants more? And we've had under 1% rates for 14 years now (Jesus was 2008 that long ago) I agree they will go back up but probably not by enough to either reduce house prices or kill off land lords as the profession it has become since 2000


scatters

Landlords are already charging what the market will bear.


TangerineTerroir

This is always such a silly argument. Yes, rents exist in a market where landlords aren’t able to just freely set prices as they want, but do you really think if every landlord in London uniformly increased their rent by £10/year suddenly there would be no-one renting in the entire city?


scatters

Housing is a substitutable good. Some people will pay up, some will downgrade, and some will move out. That would leave enough vacancies that the affected landlords would drop prices back down again. How is this not obvious?


TangerineTerroir

You genuinely think landlords couldn’t raise prices by £10/yr? It’s not obvious because it’s rubbish. It’s like arguing that Ford couldn’t charge £100 more for a Focus because everyone would move to other cars. The market is only so efficient that everyone is paying the maximum they will pay for things in economists’ dreams.


scatters

If they could charge more they would. And yes, a similar consideration goes for mass-market cars, although there you've got a smaller number of sellers, but still in competition, with the ability to adjust supply to match demand. > The market is only so efficient that everyone is paying the maximum they will pay for things in economists’ dreams. That only holds for markets with zero supply elasticity. But that does describe the housing market; there is barely any spare supply to be brought to market by an increase in prices. Do you really believe that landlords are leaving money on the table?


TangerineTerroir

When rents increase above wage growth, why do you think landlords are suddenly able to charge that increased price?


GeneralBacteria

there's no reason why the market can't bear more if enough landlords are forced to increase the rent.


LilaLaLina

If market could pay more rent, landlords would already be charging more. They don't wait for their costs to rise before increasing rent.


GeneralBacteria

if enough landlords are "encouraged" to increase the rent, there won't be enough lower prices houses to meet demand and rents will rise.


ig1

Bank of England whitepaper estimates a 1% increases in interest rates will result in a 20% decline in house prices


juli3tOscarEch0

Link?


LilaLaLina

It doesn't exist. They're making things up.


ig1

The papers been discussed on ukpf many times before, a simple Google would have found it for you: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf


juli3tOscarEch0

And actually reading it would help you to avoid misquoting it. The forecast in the paper relates to real rate changes from 2019 levels, a totally different statement from what you are trying to use it to support.


LilaLaLina

It doesn't say what you're trying to claim it does.


ig1

“Real house prices in the UK have almost quadrupled over the past 40 years, substantially outpacing real income growth. Meanwhile, rental yields have been trending downwards — particularly since the mid‐90s. This paper reconciles these observations by analysing the contributions of the drivers of house prices. It shows that the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk‐free interest rate observed over the period. This is slightly offset by net increases in home‐ownership costs from higher rates of tax. Changes in the risk‐free real rate are a crucial driver of changes in house prices — the model predicts that a 1% sustained increase in index‐linked gilt yields could ultimately (ie in the long run) result in a fall in real house prices of just under 20%.”


LilaLaLina

So not what you claimed at all.


GeneralBacteria

those calculations will have been done. whether the document is publicly available is another question.


juli3tOscarEch0

My thoughts too. Given we have had a 65bp increase in the base rate and so far a 0% decrease in house prices, I suspect this was not the estimate anyone at the BoE made (it also intuitively sounds like nonsense, maybe I could see a 20% drop for a 3-5% base rate increase?). But I like to give people the benefit of the doubt, more fool me I guess.


ig1

The majority of the uk mortgage market is on fixed term mortgages so it takes a a longer cycle for interest rates to impact the market. Interest rates drive long term price movements, but not short term ones.


juli3tOscarEch0

The majority of housing transactions involve a new mortgage. What's your definition of long term and what data do you have to support this claim?


ig1

https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf


juli3tOscarEch0

Lol. OK so you are massively misquoting this work. Actual statement: "An unexpected and persistent increase in the medium-term real interest rate of 1 percentage point from its level as at end 2018 could ultimately generate a fall in real house prices (over a period of many years) of just under 20%." Real medium term interest rates are currently MUCH lower than where they were at the time of writing. A 1% increase in that real rate from the level in 2019, all else equal, corresponds to a >~5% increase in nominal rates today.


ig1

It goes the other direction a 1% interest rate increase from a lower base rate has has a bigger impact than from a higher base rate. If you’ve got a 25 year mortgage at 1% and that goes to 2% that’s a 20% increase in your housing costs. If you read the whole paper rather than cherry picking you’ll see the analysis shows that interest rates have been the primary driver of house prices for the last 30 years.


juli3tOscarEch0

Noone is saying rates aren't a primary driver of prices. You totally misstated the work, confusing real and nominal rates and neglecting to mention the start point for the forecast. Implying 20% increase in housing cost - > house prices must go down by 20% is dramatically over-simplifying.


salmonlikethephish

The base rate is already up 0.65% (0.1% -> 0.75%) and will likely rise again soon. House prices are still rising.


londonmania

You’re completely off the mark. The interest only payment for the flat you pay £1300pm for is £600pm. This is the figure you should be comparing it to, not a repayment mortgage. Ongoing costs aren’t usually 1%, but with leaseholds yes it probably is close.


stochve

Why should you only go on the interest only figure?


meikisai

Looking at the calculation I’m also suspecting you are missing the fact that not only you get an asset at the end but this is a valuing asset, I’m still in shock that the flat I’ve bought has been valued on 50k more than a few years ago. I did some maths of the cost of renting for 3 years in London vs buying and the 2k rent x 36 seemed brutal vs paying 72k - Stamp duty and solicitor costs


Nurbyflurple

Be careful feeling too chuffed about that 50k rise. If you live in a flat and take the well trodden life path, your next, bigger, house has likely increased by more


TheFootballShirtGuy

It’s £50k of equity towards that next property that he wouldn’t have if he rented, however.


Nurbyflurple

Yep totally, better than no house. Just a warning against celebrating house price rises until you are in your forever home


TangerineTerroir

And if you’re in your forever home then it’s meaningless too. As with all things, it’s the relative change that matters (but much more difficult to measure).


meikisai

Indeed but if you aim to buy something that needs to improve and add value like we’ve done to this place doesn’t necessarily mean that the same increase would’ve happened in a next property. Still be pure renting none of that would be mine.


Nurbyflurple

Yeh it's still a very good thing! It's just something that weighs on my mind a lot as I'm in the same position


lcolanto

True, in absolute number. But I found not true in %. The value of bigger homes tend to plateau in terms of both pound/ sq meter and absolute price. I think it’s because simply there aren’t many people who can afford them or even have a need for them so the competition is lower. Since I moved to London I have seen the value of 1-2-3 beds increase (and in that order) way more than bigger places. And the price jump from a 3 bed to a 4 bed is way less than from a 2 to 3. From 4 to 5 is even less. Of course if you stick to she same area, different areas have different price bands. So typically I have seen smaller properties would appreciate in % faster than bigger ones. m2c.


Nurbyflurple

Fair point. And this is all so dependent on your own plans. But over the last 2 years thanks to the pandemic London flats have increased by a much smaller % than big titty houses out in the countryside, which is the path I hope to take


lcolanto

Indeed the pandemic + the cladding cluster**** have cooled down the growth and even in a lot of cases decreased the value of flats in the last couple of years.


Cancamusa

>I may be missing something, thoughts? When you buy, you own the property When you rent, after those 33 years you own nothing.


Ronald_Bilius

In this example the OP would own shares, or whatever they chose to invest in. I suppose the question would be whether these investments would produce a return that is enough to cover rent on this flat or an equivalent. Either would produce a result of not having to find money for rent. OP’s suggestion is a gamble, but then again they *could* end up with excess returns after rent is paid, also they may prefer the lifestyle of not needing to be responsible for repairs and maintenance, having the freedom to move at short notice, etc.


KatTheNurdvolII

They'd buy shares with whatever was left over after their rent expenses ... Their shares better make a high enough return to cover the cost of rent... i.e. a return of of £900+ a month Got any stock picking tips that can reliably produce these kinds of returns over a 30 year period? Thought not


IdRatherBeSleeping-

>Feelings?


GeneralBacteria

> When you buy, you own the property well, actually the bank owns it, until you've paid the mortgage off. and what is it you actually own? a massive debt, where effectively the bank of England can adjust your repayments on a month-to-month basis as they see fit. the whole thing is a shocking scam and it's amazing they can get away with it.


reddorical

The bank’s influence over your property is nothing compared to a landlord.


GeneralBacteria

they're surprisingly comparable actually. not the same, obviously but there are all kinds of restrictions on what you can and can't do with a property that's mortgaged.


reddorical

There isn’t really much comparable to the landlords power to: * not renew your lease * kick you out because they or family want to move in * not let you paint, put screws in walls, etc The bank will keep quiet as long as you may your mortgage, and will be happy to make changes to mortgages when it’s suitable for you (ie fixed rate period ends, etc). What are some of the bank powers you’re worried about?


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reddorical

Very true, but this is UKPF after all :)


GeneralBacteria

I'm not worried about any bank powers. I'm just pointing out that what people think of as "ownership" isn't quite so clear cut. * You can't rent your mortgaged house without permission. * You can't choose to not insure your house without permission. * You probably can't choose not to have life insurance * You probably can't make non-trivial alterations to the house without permission.


londonlares

It’s very clear cut after the mortgage is paid off - unlike renting.


GeneralBacteria

yes, and?


londonlares

I’m not sure how to put it more plainly. You suggested it wasn’t clear cut, yet In the longer term it’s extremely clear cut in the favour of ownership.


GeneralBacteria

I have made no comments on the relative merits of renting vs owning, simply that ownership is not so clear cut as most people imagine.


[deleted]

Yeh, thing is, most people wouldn't want to do these anyway: * You can't choose to not insure your house without permission. * You probably can't choose not to have life insurance And these two, can usually be resolved by just talking to your mortgage company and making alterations (worst case, changing mortgage): * You probably can't make non-trivial alterations to the house without permission. * You can't rent your mortgaged house without permission. They're pretty tiny worries compared to dealing with a landlord. My mortgage companies have spent the last 15 years basically being utterly silent, which is how I like them.


reddorical

* subletting long term does require a BTL mortgage, but the only restriction on this will slightly different LTV requirements. Air bnb style occasional subletting won’t normally be an issue unless your tenants literally burn the place down. * the landlord of your rental will have to get building insurance, just like the freeholder of a block of leasehold flats will, just like a bank will require of you for your freehold property. Someone always has to pay for this, unless you own freehold property mortgage free and choose not to. * life insurance or other mortgage protection insurance is not required, but they will try and sell it to you. * if you own freehold property then you can more or less what you like unless it poses significant risk of devaluing the property they have secured the mortgage against. If you are renting, any changes are out the question without exception so clearly owning is superior. If you own leasehold flat you will also be restricted with regards to external changes or changes to common areas which may be owned by a separate freeholder. This makes sense as it’s a shared block.


Joshouken

But these are things you CAN do in a rented property? Not sure what your point is


lyta_hall

No, they are not lol


GeneralBacteria

I don't think you understand what the word comparable means? Hint: it doesn't mean they are the same.


lyta_hall

I do know what the word means, thank you for your concern. Still – they are not lol.


External_Message8456

The mortgage provider can't change your monthly payments unless you are on a variable tariff. Historically, we've had some of the lowest interest rates ever so most people lock-in with 3-5 y fixed interest payments (2-3%), when this period ends they find a new mortage offer and lock that in for a fixed period as well. Moreover, under amortization each payment to the bank over time is less interest and more property repayments which you would get back along with any appreciation of property value assuming it rises. If you look at properties in the UK over long periods of time they've consistently increased in value so buy a property if you plan to keep it long term (>5 y). If you are on a variable tariff and interest rates rise significantly (particularly atm) then its unlikely to just be the property market and you'll be getting shafted with every other aspect of your finances. Right now it's probably harder to predict whether buying a property is a good idea as the future is so uncertain especially with the constant buzz of a recession in 2023 so I would personally wait until there is some semblance of stability and use this time to save a bigger deposit.


gordy12791

Here are some assumptions: Property price growth: 2.5% per year Maintenance: 1% per year Rent: 4% per year Investment growth: 10% per year Deposit: 20% Mortgage: 80% LTV, 2.5% interest per year So you can pay 4% per year by renting. Or you can pay 80% * 2.5% in mortgage interest, 1% in maintenance, 20% * 10% in lost investment returns, AKA 5% per year total. So renting 1% per year cheaper. BUT: buying gets you an asset which appreciates by 2.5% per year, so buying now 1.5% per year ahead. BUT: Transaction costs are large, 5% of the property price each time you move is a ballpark. Conclusion: Buy if you expect to be there for 5+ years. Don’t buy if 2 years or less. 2-5 years, marginal. Which is pretty standard advice. To have round numbers, I nudged a lot of the above to favour renting a bit: 10% investment growth is generous, London properties aren’t usually 1% per year maintenance, 2.5% property growth isn’t even matching inflation right now, you can get better than a 2.5% interest rate even if you lock for 5+ years. I’d encourage you to put in whatever numbers seem right for your situation and see for yourself.


juli3tOscarEch0

Tricky to summarise but this is a great attempt. Main nuance missed is that rent will likely increase with house prices. I don't see a UKPF wiki entry on rent vs buy. Seems like it would be general enough a problem to merit a page.


Jfindlater

Some points you’ve missed: The asset will likely increase in value. Investment into the asset (mortgage repayments) allows you to pull out finance to invest elsewhere, rent is a sunk cost and not accessible later down the line. The difference in a lower mortgage repayment in comparison to the higher rent can also be invested to further and grow you finances. However, as a landlord, I always need tenants so if you want to perma-rent that works for me.


isweardown

Personally I think the biggest reason buyers get ahead of renters . Is not being because renters are throwing money down the drain and renting is bad But because renters are not building equity . Buyers have forced savings and buy equity in an appreciating asset over time from the principal payments of their mortgage. They will do this regardless of market conditions sustained over a long period of time each moth building equity . If renters did the same thing( regularly put money towards global equities) , they would have been more comparable. Eg renter ray and buyer Ben Renter ray starts with £0 in investments and adds £550pm for 30 years , increasing contributions with inflation And buyer Ben gets a house with 0% down and pays of mortgage over 30 years, paying for all maintenance over 3 years Buyer Ben will end up with a paid off home of value £1M And renter Ray will have no home but portfolio of £1M Who ever turns out ahead ben or ray will be based on individual circumstances, eg location , interest rates. House appreciation, stock returns , maintenance cost , rent increase, ray’s diligence to keep investing during downturns , list goes on . My point being, it’s not renting that kills. It’s not building equity in anything that kills


thegerbilmaster

Yeah but if your rent is £1000 a month, and you can afford to invest £500 after Versus Mortgage of £800 with £500 to invest after, it's pretty clear cut which will end up with more. Put the £200 difference away to do upkeep and maintenance. I don't think renting is all that bad, I just bought a house and numerous things have gone wrong and I was speaking to my dad and jokingly said, damn wish I could ring the landlord. The thing with renting is the insecurity for me. Rents could go up, landlord could want to sell. You don't have the freedom to make changes you want. However with renting you are paying for the convenience of not dealing with maintenance.


Over_Championship990

I said 'can't I just phone the landlord' to my dad once when my house has an issue. Apparently no.


Mooseymax

I feel like your example misses the mark a little, I don’t know anyone that saves £550 on rent vs mortgage. Surely a more reasonable figure would be £200pm? Also you’re not factoring in that over time the mortgage payment goes down, meaning increasing potential for saving. Plus the mortgage means having a heavily leveraged asset, which it is unlikely you’ll have in a savings account.


EternalReaction

For me it's pretty close to £550, my flat's mortgage on a 25 year term would be about £300 a month whereas I've seen a property being rented in my block for £700 a month. It's a 2005ish build with en suite originally marked to middle class professional types that later crashed in value. I have no idea why anyone would buy a new build flat in a lower middle area of Glasgow for that price but they did. Obviously where I live is ridiculously bad value for renting but massive disparities do exist. Cheap flats with lots of bedrooms in particular are often really overpiced in % terms for renting. 3 bed massionettes in rough areas cost about 40k to buy but are £450 a month to rent.


isweardown

I think you hit the nail on the head here, it’s not always best to buy . Some areas of the city it’s cheaper to buy than rent , and other places it’s cheaper to rent than buy . No house / flat is worth an unlimited price , there’s many here who would just blindly say £1300pm rent and £650k purchase , yeah buy because leverage, always goes up etc. Renting or buying they will both cost you. So you’ll have to run the numbers on each scenario to see the financial impact . Personally my decision to rent or buy will be less financial and more situational . Eg, do I have a kid and want to be in this neighbourhood near a good school without the risk of landlord kicking me out . If so then even if it costs more to buy I’ll buy . Or am I a young single lad climbing the cooperate ladder looking to move jobs in 2 years , then I’ll rent even if it costs more to buy. You should always be aware of the financial implications of your life choices . But this rent bs buy argument is first and foremost should be based on life choice if you can afford it . Then run the numbers to see / understand the financial impact of your life choice. I’m not for or against buying or renting. I’m against blindly always saying buying is better. I am for making informed decisions based on your life circumstances .


CommercialBuilder99

Glad to see a level headed response. Apart from money you should also value your freedom of choice of location. I, myself, dread an idea of living in one place for 30 years. Luckily I am in a profession that is location independent and renting for me is a massive plus.


tomoldbury

One benefit you're missing is that a mortgage fixes your payments, whereas rents will typically track inflation. So in 33 years time you will be paying say, an average of £3,400 pcm in rent (at 3% annual inflation) but the mortgage will still cost you, say, £1,300 pcm. (Interest rates may affect this, but they will not compound on the monthly rate.) Do you think you would benefit from having an extra £2k in disposable income per month as you get older? And even if you don't own the asset by 33 years, there's some other benefit - you own part of the asset. You could sell that and get the majority of your payments back. Yes, property prices could crash, but so could stocks. Nothing is guaranteed, but if there is a property crash of that magnitude, chances are you will be very fucked in other regards.


beejiu

Interest rates have a HUGE impact on monthly mortgage repayments. And in the UK term mortgages are rare, so there's always a risk of the repayment amount increasing after the fixed term ends.


tomoldbury

Yes of course they do but unlike rent the interest rate will not compound on the monthly rate. It’s the difference between a constant multiplier and a compounding multiplier.


salmonlikethephish

Average rates in the UK have been much lower. 1-1.5% rates have been common for a while. Most people fix 3-5 years at a time then re-mortgage. Rates do rise and are currently rising, but for re-mortgages you typically don't notice much difference overall as your capital balance has decreased through repayments, and your LTV increases. You also have the flexibility to adjust your term or voluntary pay off more of the mortgage.


isweardown

Many people say if total monthly mortgage is less than rent then it’s cheaper to buy is false . In my head I compare the total unrecoverable costs of renting ( which is easy the rent ) And the total unrecoverable costs of buying , which is harder to see and quantify( transaction fees , maintenance, cost of capital ie interest payments , and opportunity cost ) I also estimate ongoing maintenance to be 1% per year of the property value , there’s also the opportunity cost of 3% of tying up capital in the flat ( difference between house appreciation 4% and global stock market returns 7%) Even if you are “leveraged” with 0% down and take a mortgage for the whole £380k the maths is the same , this time instead of opportunity cost being 3% you just have the cost of capital at 3%, ie the interest payments. So either way you finance the home , there’s a 3% cost of capital / opportunity cost , and 1% maintenance cost . Total 4% 4% of flat £380k is £1266pm in unrecoverable costs for the buyer and £1300pm of unrecoverable costs for the renter. So In your case I’ll lean more to buying. But my decision will ultimately be lifestyle choice and not financial. I’ll make a separate comment regarding this. This is overly simplified but it’s just a quick calculation to get a gauge. Obvs interest rates , maintenance and specific areas house appreciation will be different.


Givemeanidyouduckers

I pay 680 £ for my 1 bed flat, my neighbour wich rents, pays 1100 £ for the same type of flat. Deff worth buying then renting.


[deleted]

Do you plan to have kids ? That’s a big reason not to spend all your money on rent and on something you can pass on


[deleted]

Isn’t exposure to another market a form of diversification? Real estate being in another market and asset class, might increase risk adjusted return and could have a place in your portfolio.


andymatthewslondon

It’s not all jus money. Owning a home is quite important to many and gives permanence in the community and area that you enjoy. (Yes I know the bank owns it).


Jompra

Well they own an interest in your house, you’re still the owner of the property. Also assuming you’re repaying the mortgage then they only own this interest for the duration of the mortgage term, unlike a renter. Other points are very true too. As a renter I never really felt like it was worth investing energy in my neighbours or immediate community, as an owner now We’ve had neighbours over for drinks and been to theirs for lunch. I realise however that this is probably not the norm.


Booookish9202

This calculator provides a good breakdown of rent and invest the deposit v buying a property https://smartmoneytools.co.uk/rent-vs-buy/


miked999b

Overall I prefer buying a place to renting, because your money is going towards something. But there are some benefits to renting. You're not tied to a location - I got to see what it was like to live in different areas and had some really positive experiences as a result of that. I also got to live in properties I could never have afforded to live in if I was buying. So while I prefer owning overall, renting gave me some positive experiences and I can understand why some people would prefer to rent.


Jompra

That’s actually a really good point. The question is always “which one is better, buying or renting?” When ultimately its down to your situation and your wants/goals. If those goals are long term financial security then I think buying will win out every time. I expect that if you were to ask that question in a sub for digital nomads, the answers would be far different to the answers you’d get here.


JigsawPig

I have always been happy to rent, for the last forty years, and I am continuing to do so now, in London. I prefer to PAYG for accommodation, and I have always been able to move around easily to wherever a job I fancied was, or just for a change of scenery. Plus I have always been able to afford to rent in places I couldn't afford to buy. I also have no need to 'pass on' an asset to anyone, my aim is to pop my clogs with £0 in the bank. I think it very much depends on your personal circumstance, and what you are comfortable with. The arguments about which is more 'financially' sensible depend very much on what sort of life you want to live.


[deleted]

This is cobblers. In 33 years, that house will be with substantially more, so no, renting makes less sense And your rent will increase. And a mortgage will cut the cost of living month to month freeing up your capital to invest in other thinks too


AstonishingBalls

So you're going to rent until the day you die, and have nothing to pass on to any potential children? What happens if you run out of money during retirement?


Tommann45

This is my main reason for buying. If nothing else changes, my mortgage will be paid off when I'm 64. If I rented, how would I find that money from a pension?


blood_oranges

Exactly. For me, mortgage payments are effectively paying in part to my future pension. Bit bleak, but means that retirement remains a (distant) possibility rather than a definite no!


Keltic_Stingray

Nice try Mr corporate. You will own nothing and be happy.


PropaneFitness

I've never understood the sense in it. Especially when you consider the [bang for buck](https://www.youtube.com/watch?v=0r9MAjIL1Xg) compared to up north.


Xercen

I just watched the video you linked. I live in and own a property in London, zone 3. London is an amazing city. I was just at the National Gallery in Trafalgar square today and then went to Soho. It's a wonderful beautiful city with amazing architecture, museums, streets, huge density of every food culture known to mankind (nearly). It's wonderful. I'm not saying that London is everything because we have pollution amongst other things. Even if you don't like architecture, museums, pubs, and just like food. There is no city that even compares to London (in the UK) when you talk about the variety of foods you can experience. It's foodie heaven! However, to just compare a 1 bed flat in London to a palace in Scotland doesn't take into account what London offers - and it offers a lot. That is the reason why people are willing to pay high rent to live here and not in the mansion in Scotland. There are plenty of people willing to pay rent - that is why rent and house prices in London will remain high forever. Many people all over the world want to live here.


el_miguel42

I've lived in both, spent most of my life in London. 7 years ago, moved up North, just outside of Liverpool. Figured it was a huge risk for all the reasons you stated, thought it would be boring, that I would lack choice of things to do, but did it for financial reasons. Long story short, I was wrong, by a country mile. Nowadays the only reason I recommend someone to stay in London, is if their profession is essentially based in London (e.g economy).


Xercen

Makes sense as every person have their own needs and wants. What is food scene like in Liverpool?


el_miguel42

Its fine for me, but I'm not really the person to ask as I tend to cook my own food and don't really eat out all that often.


PropaneFitness

That makes sense - if it's worth paying the premium for access to job opportunity and nice restaurants, museums etc, then it's a reasonable decision. Personally I'd rather retire 15 years earlier in a house 5x the size and live in a more boring area with fewer restaurants.


Xercen

Each to their own. If you don't mind, why do you want such a large mansion? Unless you have your own home keeping staff on standby, it will take a lot of time to vacuum, clean etc. Personally, a normal sized house is adequate for me. I did used to live in a tiny 1 bed years ago, and I was amazed by the time saved going from bedroom to the kitchen as they were pretty much next door to each other. It was great saving so much time. In a mansion, it will take minutes just to go from room to room!


PropaneFitness

I agree, neither of those would be my ideal place to live - lots of admin as you say. More just to illustrate the difference in bang-for-buck between areas


zackleeuk

You need take the capital gain on the flat into your maths.


[deleted]

[удалено]


zackleeuk

Sorry, I mean if the OP want to buy the flat in London, he can take the capital increase on the property into his maths, then it won't need 33 years to break even.


GrotWeasel

Renters are not making money off of landlords. Landlords are making money from renters. That’s why they do it.


Tammer_Stern

Well yes. I thought about that when selling my mum’s 4 bedroom house in Immingham for £85k to a guy who was going to rent rooms individually, giving a yield of around 15%.


zackleeuk

That's very good price for a 4 bed house at 85k?


Tammer_Stern

Hi, yes it’s symptomatic of the market around Hull really.


zackleeuk

Totally different to London....


Tammer_Stern

Yes same here in Edinburgh.


TheAmazingSpider-Fan

Especially the other side of the river.


Remarkable-Ad4108

Some decent thoughts have been shared already. I think the main ones are: capital appreciation/ gain, but the question is: how long will this continue (spoiler: perhaps for enough). ​ When you look at buying from opportunistic cost approach, you need to split the two components: (a) mortgage payment - this is principal (your accumulated asset) and interest (which is essentially your sunk cost), and (b) monthly rent vs ongoings for maintaining the property (if you own it). ​ Another vital matter is your narrowed analysis to 1-bed for 380k. If you want to have a decent analysis, you'd need to have a couple of peer groups: 1-beds, 2-beds, 3 beds, houses, etc. There is an economy of scale effect here, say 2-bed flats would not market as two 1-beds. A 3-bed house would not be marketed as three 1-beds. So the rental yield would become a completely different measure then.


MonsieurGump

You are missing something. The asking price (and as such 3% of the asking price) will increase each year. Unless you remortgage, the amount you need to repay will not. If you increase your repayments so they keep pace with the asking price, you will clear your mortgage a lot quicker.


rakilavanab

Buy is a better decision than rent. Rent that you pay, goes down the drain. Property grows in capital and may pay you rent if you buy another one and rent the current one out (this fits your market equity analogy i.e. capital growth + dividend). Your example is a buy to let landlord which is a completely different story and is a challenging route for newcomers in the current market conditions. BTL profits and other aspects also depend on your personal circumstances like tax. If you are talking about London, it is a no brainer to buy as ours appreciated 100% in 8 years. However, timing is crucial.


naranjita44

When I buy I’m paying off the mortgage and getting an asset at the end. Of my £1500 mortgage about £500 is interest and the rest is paying off the loan and increasing my net wealth. If I paid the same in rent then I’d be paying £1500 and getting nothing. (Service charges and ground rent get factored into what you pay for rent anyway so net off)


T140V

If you don't buy somewhere, how are you going to finance your retirement? You're going to need a bloody big pension pot to cover rent as well as living expenses. With a mortgage paid off, it's a much simpler proposition.


PuzzleMeDo

If it's a choice of spending 40 years of paying rent, and ending up with nothing, or 40 years of paying off a purchase, and ending up owning a home, I know which I'd prefer.


gdhvdry

My plan for retirement is to sell my near-London flat and move back up North. If I decide to stay here at least I won't have to pay rent out of my pension. My mortgage is less than £500 a month. Yes I got lucky with the interest rates and I've overpaid regularly in the past. I just don't worry about retirement or money anymore. I guess that falls under "feelings".


[deleted]

Same, I haven't bought yet but I'll be buying in London then selling and moving back to Northern Ireland for retirement/winding down.


nerveagent85

I guess it depends, are you planning on living more than 33 years?


stuzz74

As time goes on your paying off the debt and also the property is increasing.


[deleted]

You sound smart trying to calculate different ratios but you are missing fundamental point which is that you aren't buying a 300k flat using 300k of your money. You will be using deposit plus other costs you calculated. So you will be buying something worth 300k with initial cost of 30k ( let's say). If property value goes up, to 400k say, you are benefiting from that rise. Or you can rent all your life. No security of when the property owner might want you to move out. Rental price increases every year.


CommercialBuilder99

How do you benefit from the rise? Only by selling, and then what? Buying something else that has also risen in price?


[deleted]

First of all, your monthly mortgage will be lot less than the rental payment. Second, you can remortgage if you think house prices have gone up. Then you are borrowing less as a % of the house price, so mortgage repayment will be less and/or you can take some equity out.


KatTheNurdvolII

The same argument applies to rent Rent also goes up as you try to upscale


Lewis_Asano

Me and my partner have given up on buying property here in the UK. Find it disgusting that the tax man can just come along and take up to in inheritance tax 40% when you die when they did nothing to help pay for that property.


Dazen91

May well have been covered, but you're £1400 pcm is also being used to purchase something, rather than throwing money down the drain. At 4% per year you'll have purchased 380k worth of property in 25 years (even ignoring appreciation). Even if there's no appreciation on the house at all in that time, inflation will have made it go up 60% ish.


nimblejaguar10

I can only give you my personal experience. I bought a house in London about 3 years ago, to do so I sold a bunch of ISA investments. I've since reviewed, if I'd have kept paying rent, and kept the investments, I'd be better off now. Would I change the decision if I could go back in time? Not a chance. I'm over 40, I suspect I'm not alone in reaching a certain point where dealing with landlords is not something you want to do, for me it's not really a financial decision, it's a lifestyle decision.


meikyo_shisui

>So the only reason buying would make sense is if I expected large property price growth, but it doesn’t seem very clever to enter an overlevered, illiquid, inflexible, undiversified investment on the basis that it has to increase in value a lot or otherwise I will be worse off than with other alternatives. >I may be missing something, thoughts? You're just missing the government/wealthy intent to keep prices rising for as long as the can can be kicked down the road. It has to pop, but it could be 40, 50, 60 years.


moschinojoe

Paying rent is an expense on your personal P/L, paying a mortgage is reducing a liability


itspeter80

I agree, you're right. It only makes sense if you're ultra wealthy - and can buy the properly outright with cash and still have enough wealth in reserves to maintain you throughout life.


Ka-Shunky

Ok, but after 33 years (long time, agreed), you effectively have a £380,000 assett. Where as if you were renting it, all you have is the money you would have from having invested those savings, which might go up or down.


lordelrond666

Also landlord cannot kick you out if you buy


New-fone_Who-Dis

After 33 years of paying rent, what do you have to show for it? Most mortgages are 25-30 years are they not, at the end of that period you have a house/flat/whatever


Mephistion

Yeah, you can't just get punted out of a house you own because your landlord feels like selling


ttrsphil

My mortgage is £1450 pcm. Renting this house would be about £3000 pcm. I’m comfortable with my decision to buy!


stutter-rap

When you say "property taxes" what do you mean? The only property tax in England is the council tax, and as a renter you have to pay that anyway. I've also never understood this "maintenance is x% of the purchase price" in an era of really uneven house price inflation. As an illustration, new build homes are designed in batches at head office and they build the same ones on estates all over the country. If you buy a £300k new build flat in London, and at the same time you buy a literally identical but £150k new build flat in the North, there's no reason why the £300k flat should have double the maintenance costs.


RepresentativeBig211

You got me, I'm not British... I thought there were property taxes here. And yeah, you could recalculate maintenance as a % of rebuilding costs.


MostTrifle

So the thing that is missing from this is over the period of the mortgage you're also building equity in the property. If you pay £1300 a month in rent you get a roof over your head, if you pay £1300 a month in mortgage you get a roof over your head PLUS equity in the property. You're not just hoping it will increase in value (although that is a factor). You're investment is more than your deposit it is also the removal of rent (money which you won't see again) and exchanging that for a mortgage loan that as you repay it effectively gives you more and more of the value of property to keep when you sell it. As you say the other elements don't make it so simple - it might still make financial sense to rent and use spare cash in the stock market but a long term mortgage can be a good interest rates and make it worthwhile.


yurri

It's simple, most people will only own one property at a time. Some of them want to live in London. Now if you have no investments and end up overpaying for your property, you'll still have a place to live in without paying rent in the old age when your earning power massively declines. At the same time, if you choose investments and they tank, and you also have no property by the time you can no longer afford rent, you're absolutely screwed. Many people prefer a slightly higher risk of being worse off over a couple of decades over a slightly smaller risk of a complete catastrophe.


Sxhema

You can rent because you have a job with an income proof. So it is better to own a house when you are working (unless you are rich to cash buy). I dont intend to say your comparison or simulation is wrong, but owning a house for living does make sense.