Renting is Throwing Money Away … Right?

I moved 8 times in 5 years, and the scars still show as it was mentally traumatising. I so long for the days when I wasn’t renting and lived at an address for a decade rather than months. Getting off the property ladder in this country was the worst mistake I ever made. Should have rented my London property out instead of selling it!

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It’s not the ratio, but this BBC calculator is interesting:

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Where I live is unaffordable for me! Yayyy

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I use to think exactly like that but then 2 years ago I held my daughter for the first time and my whole world changed.
We moved house when she was born from 1 bed flat to 2 bed flat. We are paying £1550/mo + All the usual bills. I could be paying less than this for a mortgage but I don’t see my self getting out of this circle I am in.
Renting is great as long as you are fairly independent but as soon as you start a family you realise moving home means so much more. It means breaking all links to the area you are in.

I know my rent will probably go up again and I will have to move which means finding new playgroups, child care, playgrounds, thought of schools and so much more. This is all before I can think of our work commutes etc…

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If you can afford to pay rent you can afford a mortgage. It’s the pathetically unjustifiable costs of houses, fees, deposits and all that other crap that people can’t afford.

I was looking through some papers from 2011 and flats in my area were circra £500 and now they are circa £950+ for the same ones, nothing has changed and the area is still the same just greed sets in once new builds go up.

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Also the fact you can only borrow 4.5 times your salary or whatever it is. Doesn’t help if your on 20k but homes in your area have gone from 45k to 150k in 15 years

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If you can afford to pay rent you can afford a mortgage. It’s the pathetically unjustifiable costs of houses, fees, deposits and all that other crap that people can’t afford.

This is very true in my case. I am still paying my huge student loan and for the ‘mistakes’ (Credit Cards) I made travelling the world. (no regrets at btw!) So despite being on a good income I can not see myself getting a mortgage in next 5-6 years at least.

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Sadly, that’s just not true - at least as far as the banks are concerned:

The maximum mortgage we could get would translate to monthly repayments of about 85% of the rent we had been paying for the past year. And that rent was absolutely affordable, as evidenced by the fact that we were able to put ca. £600 per month into savings, on top of paying rent.

But is that repayment at the current historically low rates? How would you fare if the rates went to 15% as they did a year after I bought my first house?

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Not disagreeing with you. Certainly, if interest rates went up to 15% within the next year, I’d be screwed. No argument there. (I believe banks are meant to “stress test” a 3 percentage point rise, so that’d be 5-10%.)

All I’m saying is: Just because you can afford rent, doesn’t mean that (in the banks’ eyes) you can afford a mortgage. Whether the banks are right or wrong in that assessment is a discussion for another day.

I’ve been doing a bit of investigation and it appears we favour yield as the metric here rather than price to rent.

Yield = 1 / price to rent ratio * 100

Using the top and bottom figures from http://www.totallymoney.com/buy-to-let-yield-map/ we get

Liverpool L7 is a yield of 12.63% and a price to rent ratio of 7.9
Bournemouth BH13 is a yield of 1.41% and a price to rent ratio of 70.9

I don’t know where the crossover is for us - the original article says that it is at a P/R of 20 for the US but rent over there often includes portions of property tax whilst here that is generally passed on to the renter to pay.

I shall do a bit more twiddling with the data…

Edit: if the crossover is at 20 here then the vast majority of the country should be renting! The areas with a yield above 5% (the equivalent yield) are few and far between

Edit2:
it looks like for the UK for an average house at £235k, assuming an average mortgage interest rate of 5% and staying in the place for 10 years, the price to rent ratio break point is 22, which is a yield of 4.5%. It drops to 20, yield of 5% at about 5 years. Basically for anything less than 5 years you need unusually low house prices to rent ratio to justify buying over renting.

Edit3:
I started out by using similar figures to the article - assuming houses increase by inflation. But as far back as I can find (into the 1950s) this isn’t so in the UK - houses have grown at a real rate of just under 3%. The calculations are extremely sensitive to a) real house price growth and b) the difference between a) and the growth of alternative investments. Over the life of the FTSE 100, the capital growth of the index has been similar to the house price growth, but in addition there is a yield of about 3.4%.
Putting these figures into the calculator pushes the price to growth crossover to about 30 (a yield of 3.3%) for the UK at 10 years, which makes purchasing much more beneficial for most.

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Really appreciate your analysis. :+1:

For me though, Having your own mortgage means more than just money side of things.

Renting in this country (or maybe just London) is not secure enough to call a place Home and that’s why most people get mortgages I think.

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I’ve just updated again - didn’t notice your reply until after!

I agree, owning the bricks and mortar has a real psychological benefit, plus in the very long term we don’t tend to have the additional costs that much of the US seems to have such as home owner association fees.

It really opened my eyes to the options though - I’d be tempted to own where I want to end up long term and rent where my job takes me.

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That’s the plan I am working on :sweat_smile:

This is a benefit of my job with Monzo, I was tied to looking for a house in this area previously. Now I can go where I like!

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Even Cardiff!

I’m going on holiday there this year, my boyfriend and I really enjoyed North Wales, so MAYBE

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Do you not work in the shoreditch office?

I work remotely as I’m out of hours :slight_smile:

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Lucky for some!