Renting is now cheaper

[pkfryer]

I have been looking around for my second property and even if I sold my property for a 50% gain (which looks likely), I still would have to get a huge mortgage and with the prospects of interest rates creaping up over the next few years that scares me! I was planning on buying interest only but it looks like I'll only save myself a few hundred pounds a month!! So there isn't much point.

So, i changed tactics and started looking for similar properties but for rent. And I was shocked that most of them were £500+ cheaper. Also if I rent I could use my liquidated equity to remove my debt and have enough left over to support myself for an entire year whilst I make my first steps into trading for a living. I must admit the idea of having absolutely no debt really appeals to me. We are used to being in a society where you have to get into debt to afford anything, but that traps us and we have to pay through the nose for the loan. What with increasing interest rates, renting is looking really attractive.

I know I wont benefit from house prices climbing but if I take into account the money saved from interest paid on my loans, credit cards and mortgage, and the monthly cost of repayments... Im not going to be that far behind. I think I'll wait until I can get a property with only a 50% mortgage before dipping my toes into the property ownership again. Its too much of a millstone.

I was surprised that renting was cheaper as I remember looking a few years back when it was over twice as expensive to rent a property than to buy. It seems to have changed now. But this makes sense as people who bought 5 years ago would have a property now valued twice as much as their mortgage. But because they aren't looking for wealth building from rent money, they are looking at wealth through increase in property price, they are happy just to have their mortgage covered. I had a similar thought when I was thinking about buying to let, I would be happy just to have the mortgage covered and reap the rewards 20 years down the road for a minimal initial outlay. (buy to lets a good long term investment plan I think). The buy to let market is also saturated, too much supply and not enough demand, which inevitably forces prices downwards to encourage 'buyers'.

I've seen some gorgeous properties that would cost about £300+K to buy, going for only a grand rent per month! Also some luxurious flats in southampton that would cost £200-250K going for as little as £650! If I was going to buy a place like that it would cost me £1600 p/m! If I saved up the £1000 difference in not having a mortgage I would probably come out ahead of buying a property and letting the value increase.

 

[llew]

Good idea

I'm doing the exact thing at this moment PK,i'm in the process of selling hope to have things tied up at the end of the month.Then i'm just going to rent for a few months maybe a couple of years.Pay full rent for 6 months to take some pressure away and just see how it goes from there.

 

[pkfryer]

Really? I thought I was the only one! The 'normal' route, is once you have a property to hold onto it and buy bigger and bigger properties as you can afford it. But when I really thought about it, I would be financially better off by getting rid of my property and renting. (My parents think Im making a dreadful mistake!!) But I like the idea of having no debts and living in a really gorgeous place for a fraction of the cost!

I'm tarting up my current place and its looking really good now, so I'll be putting it on the market in the next few months! Sooner the better.

 

[RogerM]

Whilst I can't argue with the short term logic, mortgages were historically always more expensive than renting, but whereas rent continues forever, and over the long term tends to rise, mortgages tend to stay static and eventually come to an end so that when you retire, you do so rent and mortgage free.

 

[pkfryer]

That is true RogerM. But I remember years ago looking to rent a house and they were all £1500+ a month, where as to buy them the mortgage would have been below a grand (this was a few years ago). But now its reversed.

I'm only looking at short term at the moment! The approach Im following is: clear my debts! Reduce my outgoings! Reduce the cost of living! When my 'expendible' income rises sufficiently enough to afford to buy a property, then I am giving serious thought to getting a luxurious flat, or quaint cottage as a buy-to-let. 25% outlay (or more) with a view to having the mortgage paid by rent money. There is where I plan to have my future security. But I'm not too keen on buying a place to live in again until it becomes cheaper to have a mortgage than to rent.

The thing that really is driving me to this decision is a few huge loans I've had to have in the past for higher education (MSc etc) and a few bad experiences with £10K limit credit cards Also, I did a stupid thing and got a £10K loan out to fund trading which I blew!!!! Its not fun having a huge mortgage and lots of debts and credit cards... so I want to get rid of those so my cost of living is reduced to a minimum!

 

[NKE]

I guess that if you have no dependents (which it sounds like) now is as good a time as any to get out from under all those debts, but long term, I think that it is a mistake to be out of the property market in the South East.

Unless there is a really serious collapse in the buy to let market, which I can't see. i think that property prices will stall may be drift down and rents will gradually fall and then even out. But over the medium to long term, I think that demand will always exceed the limited supply int he SE ( eg Guildford - I live close by in Clandon!)

Don't forget that there is a huge number of properties, whose mortgages have been paid off by parents which will get passed down to their children over the next n years. This can only keep prices up

 

[TheBramble]

Unless there is a really serious collapse in the buy to let market

This has already happened. Buy-to-lets are coming onto the market in increasing numbers.

 

[RogerM]

Don't forget that there is a huge number of properties, whose mortgages have been paid off by parents which will get passed down to their children over the next n years. This can only keep prices up

But also don't forget that we are living longer, and that for many of us this will mean residential or nursing home fees. Up until a few years ago, the average time spent in a nursing home was just 11 months, but the signs are that this is already increasing rapidly. It only takes 5 years of nursing home fees at £5 - £600 per week to use up the equity in the average home, so I suggest that no one thinks of their parents home as part of their mortgage repayment or pension planning - it may have been spent by then - particularly if both parents need care!

 

[minx]

This has already happened. Buy-to-lets are coming onto the market in increasing numbers.

I remember reading somewhere that rents have been stable/falling in my corner and surrounding areas of SW London for the last 2 years. If oyu walk down some streets you get huge clusters of To Let and For Sale signs, cant be too great a sign.......

 

[dsmodi]

pkfryer

i agree with your point about getting rid of debt. Always a good thing, but if you're going to pay £1to rent, then why don't u buy a smaller property where the mortgage is also £1K? This way, as property prices have been rising at 20% per year, you can sell when in a better position and have possible made a profit. The counter argument would be that there may be a property price crash then you could lose out....well you wouldn't because the crash would not be that much, and it isn't just around the corner.... people are still buying. I wuld seriously suggest you don't just rent and do consider this option...unless you have a family in which case i accept you would need a bigger place foir which renting at £1K would be better than mortgage of £2K, or £1.5K....

let us know what yoyu think, and do/have done....