Is ED about to experience another property boom?

[indiepanda]

???? Wrote:

-------------------------------------------------------

> mmmm....but you rent for ever where as a mortgage

> is normally done in 25 years...so no more payments

> and you won an asset.

>

> Also, calculations of rent vs mortgage are short

> term so tend to ignore:

>

> 1) increase in asset vale

>

> 2) inflation

>

>

> Ask someone what the rent was on say a 2 bedroom

> house in East Dulwich in SE22 was 24 years ago and

> what interest payments where for someone who got a

> 100% mortgage on a 2 bedroom property 24 years

> ago...then compare what the latter is paying

> against the renter now!

I wasn't suggesting long term renting makes sense compared to buying - clearly it doesn't. I wouldn't even suggest to people trying to sell out of a market at the peak and renting till it drops - quite apart from anything else hard to call the peak.

But, if you happen to have sold out for another reason like me (moving to a new city & changing jobs, not wanting to buy till sure job ok and know which part of city to settle in) or looking to buy for first time, then I think renting for a bit longer than planned when market is falling is a logical step to take.

I would be kicking myself if I had bought in summer/autumn 2007 when I had planned to buy - would have lost half my capital by now. And sure, I know it only really matters if I crystalise the loss by selling up, but I do like the idea of deferring purchase and getting my mortgage payments down through having saved a larger deposit and buying somewhere on a similar scale to what I planned to get at a lesser price.

[Josh]

> mmmm....but you rent for ever where as a mortgage

> is normally done in 25 years...so no more payments

> and you won an asset.

>

> Also, calculations of rent vs mortgage are short

> term so tend to ignore:

>

> 1) increase in asset vale

>

> 2) inflation

>

>

> Ask someone what the rent was on say a 2 bedroom

> house in East Dulwich in SE22 was 24 years ago and

> what interest payments where for someone who got a

> 100% mortgage on a 2 bedroom property 24 years

> ago...then compare what the latter is paying

> against the renter now!

Of course buying 24 yeas ago looks much better than renting for the last 24 years, but the sums don't stack up quite so favourably at the moment. When house prices are falling it always makes sense to rent rather than buy.

[SeanMacGabhann]

Do many people take out a mortgage for 25 years and then 25 years later pay it off to live rent/mortage free?

That's the sensible thing but these days I thought people kept upgrading/stretching the next mortgage/releasing equity

[Jeremy]

I think most people "upgrade" quite frequently in their earlier years, but settle down later on to ensure the mortgage is paid off when they retire.

[????]

Josh Wrote:

-------------------------------------------------------

> > mmmm....but you rent for ever where as a

> mortgage

> > is normally done in 25 years...so no more

> payments

> > and you won an asset.

> >

> > Also, calculations of rent vs mortgage are

> short

> > term so tend to ignore:

> >

> > 1) increase in asset vale

> >

> > 2) inflation

> >

> >

> > Ask someone what the rent was on say a 2

> bedroom

> > house in East Dulwich in SE22 was 24 years ago

> and

> > what interest payments where for someone who got

> a

> > 100% mortgage on a 2 bedroom property 24 years

> > ago...then compare what the latter is paying

> > against the renter now!

>

>

> Of course buying 24 yeas ago looks much better

> than renting for the last 24 years, but the sums

> don't stack up quite so favourably at the moment.

> When house prices are falling it always makes

> sense to rent rather than buy.

er, I'm not talking micro-periods,this is a long term argument - house prices have fallen significantly now twice in that 24 year period and yet the basic sums will still be well in favour of the buyer...most of us hope to be around for more than 25 years of adulthood! As it happens, 24 years ago was not actually a great time to buy just before the crash on the late 1980s. If you'd boght 19 years ago for instance you'd be really laughning - but that's not the point, the point is that in the long term it makes sense. As I've said before, my house is my home not an investment portfolio but if you operate within a reasonable timespan of 25 years (or even 30 years if you increase your mortgage to Sean's point) of mortgage paying you end up with some equity (incase you need it )and no 'mortgage' payments, you pay rent for until you die

[snorky]

heres mthe answer to the initla question. select favoured one as appropriate

a) yes , a boom is a coming

b) No, a boom is not coming

c) I dont know

So, there we have, a one size fits all answer.

can we lock this thread up please ? Im sure you amateur property tycoons can amuse yourselves eleswhere

[Huguenot]

None of these back-of-the-envelope calculations are ultimately persuading me yet.

The upside on the house purchase is final sale price, less costs (capital, interest and maintenance payments).

On the "average UK house" 1975 to 2000 (twenty five years) you'd expect that to be 100k (2000 price) less 10k capital (1975 price), 40k interest and 30k maintenance. Everybody ignores maintenance, but it's an intrinsic part of the cost of a house.

For rent it's the "costs on equivalent house minus actual rent payments" reinvested over a 25 year investment period.

You'd be shocked to discover that the reinvested rent differential often comes very close to the equity asset you have in the house over a 25 year period.

The differential is tight enough for it to be utterly dependent upon exact timing as to whether you're better off (in terms of final assets) renting or buying over a 25 year period.

[*Bob*]

Huguenot Wrote:

-------------------------------------------------------

> You'd be shocked to discover that the reinvested

> rent differential often comes very close to the

> equity asset you have in the house over a 25 year

> period.

Unfortunately this also means spending 25 years in varying degrees of crummy rental accommodation, subject to the whims of a series of disinterested landlord, begging them to fix the washing machine / rotten windows / boiler / repaint in a colour other than beige.

So, essentially, if you spend half adult living in a bucket of mud with a broken handle, you might come out of it up a few quid.. by which time you're too old to enjoy anything properly anyway.

No thanks. If you're able, buy somewhere affordable as soon as you can and enjoy it - and forget about all the other stuff.

[????]

....and, to add to *BOB*'s point..... at the end of 25 years having another 25 years of renting to go.

In terms of investments, as an example the FTSE now is at about 1988 levelsish (someone look it up) so you'd be a master of invesment to have done as well as property has.........at it's peak around 2000 the FTSE was 7000, this morning a touch under 4500

[Jeremy]

???? Wrote:

-------------------------------------------------------

> In terms of investments, as an example the FTSE

> now is at about 1988 levelsish (someone look it

> up) so you'd be a master of invesment to have done

> as well as property has.........at it's peak

> around 2000 the FTSE was 7000, this morning a

> touch under 4500

You're actually a long way off the mark... 1988 levels were around 1800, it didn't reach the mid 4000s until 1997. But I'm not sure it's a valid comparison anyway, as investments equities and property are chalk and cheese, there are so many more factors to take into account other than just capitals gains.

There are lots of good reasons to buy a property, but I'm not sure that capital appreciation is the best one.

[*Bob*]

If money does happen to be your prime reason for buying a property, then look at it this way:

The reality is that most people piss 99% of any spare money they have up the wall one way or another (boozing, skiing holidays, a new car, recreational drugs, organic vegetables, mobiles phones - take your pick). Look upon a property as a kind-of enforced saving scheme which at least puts money out of your all-consuming spendthrift reach.

Comparisons with if I did X with my money instead of buying a property I'd be Y pounds better-off are futile, because no-one ever does X - they just piss it up the wall.

[sophiesofa]

you also need to weigh up if your sanity, not just your wallet, would be better off if you rented or bought. I'm in the process of buying my first flat and it is definitely the most stressful time of my life so far and despite not being a cryer I seem to be in tears at least every other day. I think i've just been unlucky because everything keeps going wrong but renting is generally (in my opinion) less stressful. I think buy if you want to (if you can afford) but there's nothing wrong with renting.

[Huguenot]

All valid points.

The most annoying one is that by paying rent you're papering someone else's pockets.

Having said that, most of us would wave a silky finger at the winner if we were rich, rich, as a result.

[EDOldie]

Don't forget any capital gain on your main home remains tax free. Unless you are an MP in which case it's tax free on both first and second homes! No tax advantage to renting , not only that but the tenant often is paying for the landlords mortgage (i'm sure someones made that point already but I've not bothered reading the whole thread). You end up with nothing when you move out unless you are a very astute saver and no chance of any growth in a tax free asset. You might have kept your ISA's up to date but, good luck.

Anyway what with all this renting going on, cheap mortgages for Landlords, is supply drying up and is there another boom around the corner? Just in time to save those with snouts in troughs.

BitterOldie

[Josh]

> er, I'm not talking micro-periods,this is a long

> term argument - house prices have fallen

> significantly now twice in that 24 year period and

> yet the basic sums will still be well in favour of

> the buyer...most of us hope to be around for more

> than 25 years of adulthood! As it happens, 24

> years ago was not actually a great time to buy

> just before the crash on the late 1980s. If you'd

> boght 19 years ago for instance you'd be really

> laughning - but that's not the point, the point is

> that in the long term it makes sense. As I've said

> before, my house is my home not an investment

> portfolio but if you operate within a reasonable

> timespan of 25 years (or even 30 years if you

> increase your mortgage to Sean's point) of

> mortgage paying you end up with some equity

> (incase you need it )and no 'mortgage' payments,

> you pay rent for until you die

Rent and mortgage interest are both money down the drain and are equivalent. A homeowner also makes capital repayments and can built up equity until it reaches 100%, allowing them to live mortgage-free. A renter can also invest equivalent sums in whatever investment they fancy: shares, gold, a pension etc. After 25 years of investing, the renter will build up a fund that pays sufficient income to cover their rent.

The two strategies are balanced and it's not true that owning property is necessarily better. Owning only beats renting when house prices rise faster than inflation, which is what's happened since the 1970s. There's no reason to expect that to happen again now that the house price bubble has burst.

[Josh]

Huguenot Wrote:

-------------------------------------------------------

> All valid points.

>

> The most annoying one is that by paying rent

> you're papering someone else's pockets.

>

> Having said that, most of us would wave a silky

> finger at the winner if we were rich, rich, as a

> result.

Paying a mortgage is also papering someone else's pockets. A person who owns a house with a mortgage is actually renting the property from a bank and doesn't truly own it. Interest paid on the loan is money down the drain just as much as rent is money down the drain.

[Josh]

Huguenot Wrote:

-------------------------------------------------------

> None of these back-of-the-envelope calculations

> are ultimately persuading me yet.

>

> The upside on the house purchase is final sale

> price, less costs (capital, interest and

> maintenance payments).

>

> On the "average UK house" 1975 to 2000 (twenty

> five years) you'd expect that to be 100k (2000

> price) less 10k capital (1975 price), 40k interest

> and 30k maintenance. Everybody ignores

> maintenance, but it's an intrinsic part of the

> cost of a house.

>

> For rent it's the "costs on equivalent house minus

> actual rent payments" reinvested over a 25 year

> investment period.

>

> You'd be shocked to discover that the reinvested

> rent differential often comes very close to the

> equity asset you have in the house over a 25 year

> period.

>

> The differential is tight enough for it to be

> utterly dependent upon exact timing as to whether

> you're better off (in terms of final assets)

> renting or buying over a 25 year period.

exactly

[Josh]

EDOldie Wrote:

-------------------------------------------------------

> Don't forget any capital gain on your main home

> remains tax free. Unless you are an MP in which

> case it's tax free on both first and second homes!

> No tax advantage to renting , not only that but

> the tenant often is paying for the landlords

> mortgage (i'm sure someones made that point

> already but I've not bothered reading the whole

> thread). You end up with nothing when you move out

> unless you are a very astute saver and no chance

> of any growth in a tax free asset. You might have

> kept your ISA's up to date but, good luck.

What's to stop a renter from putting money into tax-free investments such as ISAs, pensions, NS&I certificates, or gold?

And don't forget that homeowners have to pay stamp duty, so property isn't a truly tax-free investment.

[Josh]

*Bob* Wrote:

-------------------------------------------------------

> Huguenot Wrote:

> --------------------------------------------------

> -----

> > You'd be shocked to discover that the

> reinvested

> > rent differential often comes very close to the

> > equity asset you have in the house over a 25

> year

> > period.

>

> Unfortunately this also means spending 25 years in

> varying degrees of crummy rental accommodation,

> subject to the whims of a series of disinterested

> landlord, begging them to fix the washing machine

> / rotten windows / boiler / repaint in a colour

> other than beige.

>

> So, essentially, if you spend half adult living in

> a bucket of mud with a broken handle, you might

> come out of it up a few quid.. by which time

> you're too old to enjoy anything properly anyway.

>

>

> No thanks. If you're able, buy somewhere

> affordable as soon as you can and enjoy it - and

> forget about all the other stuff.

or you could rent somewhere nice. Not every rental property is "a bucket of mud with a broken handle". And not every house purchased in East Dulwich is the opposite. I'd be happy to rent a house with subsidence, for instance, but not entirely happy to own one.