Rentings just wasted money...or is it?

[MrXxxx]

8 hours ago, Frank Hovis said:

Enough to live on, though maybe a bit tight the first time tbh, and no dependents.

38/39 and then 45

Retired first time as burnt out from high pay high pressure job but later realised it was that job I wanted to leave rather than all work.

Second time job had become very repetitive so, knowing I didn't need to work, left.

?Eight months later I noticed an intriguing job so applied. It turned out to be awful so I took another which was excellent but now I have decided that working means that I am too limited in what else I can do.

Thanks, very insightful....given me something to think about.

[sancho panza]

SOme maths for people to consider.All based on borrowing £300,000,100% over 25 years at 3.5%

IO mortgage £876 pcm

Repayment £1502 pcm.

Below is 25 year extrapolation of £300,000 compounded at 6%

By year 25 your porfolio is kicking out £72,880 or you'll own your hosue outright.

Also worth noting you've saved on the upkeep of the property.

As ever,granted there's no gurantee of a 6% return and you have poorer security of tenure.

 

[sancho panza]

 

On 26/01/2020 at 18:39, sleepwello'nights said:

What a sheltered life you've led. I witnessed that in my early 30's. In the frequent booms and busts of the economy jobs were lost just like that. In the reshaping of the economy when the UK was subject to the opening up of the economy to global competition there were many men in their early 50's who were made redundant with little hope of being re-employed in similar positions. 

In addition there were many younger men competing for jobs at their levels in new industries and ageism was rife. Over 40 forget a job you're too old. Yes we boomers had it so easy.

We've all led sheltered lives in the West.I travelled a lot in the thrid world when I was younger,served in Afghan later in life.Glad I've led a sheltered life when you see how some people live.

The subtler nuances of then and now are demogrpahic.My main point was thta lot of people Mrs P's age,mid thirties,havent seen a recession where we got a serious unemployment spike.

We who lived through the 80's and early 90's have.

Ref older people being unemployed,things are different to the 80's/90's due to the fact that in the 80's there was a suprlus of young people.That's no longer the case.50+ year olds in general have better re employment prospecvts then than now.Maybe not at the top level but defintiely in many other income deciles.

[sancho panza]

2 hours ago, sancho panza said:

SOme maths for people to consider.All based on borrowing £300,000,100% over 25 years at 3.5%

IO mortgage £876 pcm

Repayment £1502 pcm.

Below is 25 year extrapolation of £300,000 compounded at 6%

By year 25 your porfolio is kicking out £72,880 or you'll own your hosue outright.

Also worth noting you've saved on the upkeep of the property.

As ever,granted there's no gurantee of a 6% return and you have poorer security of tenure.

Forgot to include what you do if you save the repayment of £626 pcm and get a 6% return on it over 25 years.

The maths would be more compelling with higher IR's given higher returns possibly outrunning higher mortgage coasts.

2 hours ago, sancho panza said:

 

 

[kibuc]

On 27/01/2020 at 22:03, sancho panza said:

Forgot to include what you do if you save the repayment of £626 pcm and get a 6% return on it over 25 years.

The maths would be more compelling with higher IR's given higher returns possibly outrunning higher mortgage coasts.

 

I'm not quite sure what your tables are meant to show.

Is it a cost the opportunity cost of buying vs cost of renting? If so, then people who would need to borrow 300k to buy cannot just rent instead and invest that 300k which they don't have. I must be misunderstanding things.

[sancho panza]

22 minutes ago, kibuc said:

I'm not quite sure what your tables are meant to show.

Is it a cost the opportunity cost of buying vs cost of renting? If so, then people who would need to borrow 300k to buy cannot just rent instead and invest that 300k which they don't have. I must be misunderstanding things.

Yeah column 1 shows what you could do if you get a 6% return on your £300,000.You'd need to offset rent against it

 

As you say,not applicable to those without £300k.

Hence second one shows what happens if you invest the difference between the rent and the mortgage over 25 years iirc.As I said if IRs go higher then those second figures would be more compelling

[kibuc]

10 minutes ago, sancho panza said:

Yeah column 1 shows what you could do if you get a 6% return on your £300,000.You'd need to offset rent against it

 

As you say,not applicable to those without £300k.

Hence second one shows what happens if you invest the difference between the rent and the mortgage over 25 years iirc.As I said if IRs go higher then those second figures would be more compelling

Oh, I see. In that case that 626pcm would probably go up in line with inflation, making the final figures even more interesting.

[sancho panza]

44 minutes ago, kibuc said:

Oh, I see. In that case that 626pcm would probably go up in line with inflation, making the final figures even more interesting.

Yeah that's what I was trying to get across.The £626 could be used to hedge inflation costs in food /fuel ie not core CPI.....but core inflation to msot ordianry people.

Something that people often focus on is rent being dead money,but there's an opportuntity  cost to  putting all your moeny into a mortgage rather than some of it into a savings package that can be sued to hedge inflation.

few points worth thinking about

1) you might not make the 25 year mark and get cut short which might result in either a gain or a loss-noone knows .

2) heaven forbid we end up with a hosuing market like japans but if that does happen then value of hosuing may go down over 25 years whilst food rises over the timeframe.

3) if IR's go higher investment returns will outperform for savers whilst mortgage rates will rise for hoembuyers.

 

 

 

[kibuc]

17 hours ago, sancho panza said:

Yeah that's what I was trying to get across.The £626 could be used to hedge inflation costs in food /fuel ie not core CPI.....but core inflation to msot ordianry people.

Something that people often focus on is rent being dead money,but there's an opportuntity  cost to  putting all your moeny into a mortgage rather than some of it into a savings package that can be sued to hedge inflation.

few points worth thinking about

1) you might not make the 25 year mark and get cut short which might result in either a gain or a loss-noone knows .

2) heaven forbid we end up with a hosuing market like japans but if that does happen then value of hosuing may go down over 25 years whilst food rises over the timeframe.

3) if IR's go higher investment returns will outperform for savers whilst mortgage rates will rise for hoembuyers.

 

 

 

What I meant was not just that the initial 626pcm would grow in line with inflation (or hopefully outpacing it) but also that with each year the gap between renting and buying (the monthly saving) would grow in the same manner. So probably the more accurate way to calculate it would be to have 25*12*626 as the starting point.

 

£187,800 at 6% over 25 years gives over £800k...

[BoSon]

How easy is it to get a 6% return on investments not in the high risk category?

This reminds me of a friend who was always on about even if you could afford to buy a property outright or a large part of it by way of a deposit it was better to get a mortgage for say 90% of it (whatever LTV gets a decent low interest rate at the time) and invest the savings in places outperforming the mortgage rate. Which is why IO mortgages became popular.

Seems a no-brainer if one can be sure of the investment or at least have a big margin for error, and that's where it gets tricky. For sure savers are not doing well so where are the relatively safe investments we should be looking at?

Can't see renting being that much safer when looking to do similar over a 10-20 year period but I'm willing to be convinced.

[sancho panza]

34 minutes ago, BoSon said:

How easy is it to get a 6% return on investments not in the high risk category?

Can't see renting being that much safer when looking to do similar over a 10-20 year period but I'm willing to be convinced.

Your friend has a good view on things.

However,for 95% of people getting a ten year fix ++ of HSBC and overpaying is the best bet.The IO property play only really works long term if you diversify out of the asset class the IO is on ie property.If you simply use IO and then rely on rising equity in said property you have areasonable chance of it unwinding on you,most likely at the moment you can least afford it.

Each person has their own risk profile.I've been specualting for 25 years,some big wins some big losses.I'll back myself to outperform the mrotgage rate.

For isntance I know roughly some of what Kibuc is invested in and I suspect he'll be able to outperform handosmely over 10 years fi he's renting.PM's versus HPI to 2030...............?I know where my money is.

3 hours ago, kibuc said:

What I meant was not just that the initial 626pcm would grow in line with inflation (or hopefully outpacing it) but also that with each year the gap between renting and buying (the monthly saving) would grow in the same manner. So probably the more accurate way to calculate it would be to have 25*12*626 as the starting point.

 

£187,800 at 6% over 25 years gives over £800k...

I get you.I hadn't thought of it that way.

Another aspect to consdier is that my Landlord for isntance is suffering substantial inflation erosion of his capital for two reasons.

1) firstly,any rent rises are generally forward looking.We've been in our current pad 3 years.Haven't had a rent rise.By the time the LL will get round to it,I'll do a 5% hike and lock in for two years or possibly more depends on our circumstances.That's if I can't negotiate it flat by pleading poverty as me and the mrs have gone part time.

2) the way inflation measured-as I alluded-dosern't really reflect the increasing cost of living.I know I've bored on before about the sheer poverty of the inflation data especially with regrad to different income deciles ie low income hosueholds spend far more on food proportionately than middle income