Rented accommodation vs mortgage - overpriced and impossible?

[Cyclone 10]

110k house would be roughly 220k in payments over 25 years, that's approx £700 a month.

[Grandad.Malky 11]

No, it's just a rather large calculation, QUOTE]

 

I am no mathematician but here goes,

 

Even though we are in a recession my house is worth 150,000 , minus the 25,000 I owe gives me a 125,000 asset + a lump sum from my endowment.

 

25 years = 300 months

 

£125,000 / 300 = £416

 

How many people would save £400 a month and not touch it for 25 years

 

I know that my rough calculation doesn’t take into account the cost of the endowment or the fact that the person saving would have interest on top of their savings but I think it shows that someone is going to have to do some serious saving to build up a nest egg of over £100,000

Edited February 26, 2010 by Grandad.Malky

[Cyclone 10]

I doubt that you actually paid 125k for your house though, you didn't buy it yesterday.

 

You can base the calculation more easily on the example above. Buying a house at 110k right now will cost about £700/month.

Rent in Sheffield can be had for £500/month for a similar property.

 

Saving £200/month for 25 years would net you 60k in the bank. So you'd be better off buying the house as that would be worth 110k when you'd done paying.

(This ignores the effect of inflation, but you can reasonably safely do that for the majority of the calculation).

 

If the rent was less than half the mortgage payment on an equivalent property, then financially you're better off renting. (This depends on the prevailing interest rate as to the exact fraction).

 

(Interest is ignored on the savings and on the value of the house because they should go up roughly equally, what we are ignoring though is that the real cost of the mortgage falls over time whereas rent doesn't).

 

Edit - I have ignored a key factor which are the additional costs of owning a house. So buildings insurance, water rates, maintenance, these might equate to another £100 a month, which would make the saving in this example 90k if you rented, still not enough.

[Dave650 10]

Most people take insurance against loss of income. It normally covers you for 12 months, which is enough time in most cases to find another income. There is always the risk of loosing the house though, but renting would be less safe, no income for rent, no room to stay in.

 

If you lose the house because you can't keep up on the payments and say you've paid a massive deposit and a couple of years mortgage, do they just take everything? Or just what's owed.

[Cyclone 10]

If you lose the house because you can't keep up on the payments and say you've paid a massive deposit and a couple of years mortgage, do they just take everything? Or just what's owed.

 

Just what is owed. But you would normally be advised to take income protection along with the mortgage. If it became clear that you weren't going to find work before the income protection expired, you could sell up and get more that way, if they repossess and then sell it they'll sell it cheap and quick.

[Grandad.Malky 11]

I doubt that you actually paid 125k for your house though, you didn't buy it yesterday.

 

.

 

Obviously there are some lengthy calculations involved, my figures were meant for illustration purposes only.

 

The point is I paid £25,000 for a house 25 years ago which is now worth £150,000 , as I see it that represents at least a £100, 000 nest egg even taking into account “costs”

 

There is no way I would have saved that amount and paid rent over the same period, I guess what I am saying is that over the last 25 years property as been a better investment than savings and a lot of people will be relying on it to supplement their retirement.

[Dave650 10]

Just what is owed. But you would normally be advised to take income protection along with the mortgage. If it became clear that you weren't going to find work before the income protection expired, you could sell up and get more that way, if they repossess and then sell it they'll sell it cheap and quick.

Cheers, just doing a bit of risk assessment.

[Keith Rich 10]

You could pack in work, knock a couple of kids out, claim benefits and live rent free for the rest of your life.

 

Quite popular with certain members of this forum, I believe. As a tax-payer, nothing makes me happier for them.

 

You believe? On what evidence?

[Cyclone 10]

Obviously there are some lengthy calculations involved, my figures were meant for illustration purposes only.

 

The point is I paid £25,000 for a house 25 years ago which is now worth £150,000 , as I see it that represents at least a £100, 000 nest egg even taking into account “costs”

 

There is no way I would have saved that amount and paid rent over the same period, I guess what I am saying is that over the last 25 years property as been a better investment than savings and a lot of people will be relying on it to supplement their retirement.

 

The house price bubble distorts the figures somewhat, but if housing costs had risen with inflation instead of shooting ahead then your savings would have kept pace.

I think the conclusion that if rent is half the cost of buying a house then it's a break even situation is about correct.

Over the last 25 years though, and particularly the last 10 (exluding the last 2), housing has been a better investment than most alternatives.

[Grandad.Malky 11]

Over the last 25 years though, and particularly the last 10 (exluding the last 2), housing has been a better investment than most alternatives.

 

What we all need is a crystal ball, 25 years ago with interest rates in double figures and rising I was mortgaged up to the hilt and I was facing a seemingly endless tunnel, who knows what the next 25 years will bring.

[leeislive 10]

Have you considered shared ownership? the mortgages available for this are growing in availability and the rent part is subsidised... best of both worlds!

 

If anyone needs any advice, PM me.

 

Thanks

 

Lee

[barginboy 10]

one of the reasons for the huge rental hike is because of the eastern european migrants, they all need somewhere to live and the goverment will pay almost anything. the price should start to lower a little now as there getting houses built for them so will be leaving private accommodation.