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Thread: Is it worth buying a home?

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    t1grm is offline It's basically an old car with a stripe - The Ferrari Challenge Stradale Club Member
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    Question Is it worth buying a home?

    Iíve just worked out the overall cost of ownership of my home thus:

    (purchase price + all expenses Ė market value) / number of days owned

    All expenses includes moving costs, stamp duty, mortgage interest and all bills and maintenance

    Iíve calculated I could have stayed in a hotel for less. If I work it out by number of days spent in the property as opposed to away on vacation or business I could have stayed in a very very nice hotel!

    So where is the advantage in buying a home? People say you end up with an asset once the mortgage is paid off but the value of that asset is going to be nowhere near the cost of living in the property for 25 years. So where is the gain over buying a home as opposed to renting and saving?

    Or am I working this out wrong?

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    I did read a story on the BBC website saying it is now cheaper to rent than to buy in a growing number of locations.

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    t1grm is offline It's basically an old car with a stripe - The Ferrari Challenge Stradale Club Member
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    For example over 5 years:

    Purchase a property ₤200K with a ₤20K deposit
    Moving costs and stamp duty ₤5K
    Furnishing and interior finishing ₤20K
    Bills and maintenance ₤500 a month * 60 = 30K
    Mortgage interest ₤1000 a month * 60 = ₤60K (assume ₤180K interest only mortgage @ 6.75%)

    Total cost over 5 years = ₤315K

    Assume an average of 7% growth a year, in 5 years that’s a ₤280K market value

    So cost of ownership is ₤315K – ₤280K + ₤20K (deposit) = ₤55K

    Over 5 years that ₤916 per month.

    Assume a rental yield of 5% then a ₤200K property could be rented for ₤830 a month.

    So where’s the benefit in buying?

    I think I'm missing something here

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    jtremlett is offline Overpriced piece of old tat - Ferrari 250 GTO Club Member
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    Quote Originally Posted by t1grm View Post
    For example over 5 years:...
    I'm not sure I agree with your figures. You are comparing buying with renting but your only cost on the rental is the rent. Normally when you rent you would still be paying council tax, utility bills etc.

    Also, you are comparing over a short period. If you own a house long enough then the costs go down (mortgage paid etc.) and the comparison would look different, I think.

    Jonathan

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    Fraccie is offline Don't mention the war! I mentioned it once, but I think I got away with it all right Club Member
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    Quote Originally Posted by jtremlett View Post
    I'm not sure I agree with your figures. You are comparing buying with renting but your only cost on the rental is the rent. Normally when you rent you would still be paying council tax, utility bills etc.

    Also, you are comparing over a short period. If you own a house long enough then the costs go down (mortgage paid etc.) and the comparison would look different, I think.

    Jonathan

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    Hud is offline Post whore with no life, no friends, and a problem fitting into normal social circles Club Member
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    Gary, you might be interested in reading this

    http://www.telegraph.co.uk/opinion/m.../13/do1302.xml

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    Your total cost of ownership is wrong I think as I think it is £ 35 000 - spend = £ 135 000 - return after mortgage is £ 100 000

    I think people like to have a home on which to impose one's own choices as opposed to a house where they live decorated by someone else - it means that if they go away (for example) they do not need to spend a couple of hundred pounds extra each month storing the car - it probably also is affected by one's marital status

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    Fraccie is offline Don't mention the war! I mentioned it once, but I think I got away with it all right Club Member
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    Quote Originally Posted by jos View Post
    Your total cost of ownership is wrong I think as I think it is £ 35 000 - spend = £ 135 000 - return after mortgage is £ 100 000

    I think people like to have a home on which to impose one's own choices as opposed to a house where they live decorated by someone else - it means that if they go away (for example) they do not need to spend a couple of hundred pounds extra each month storing the car - it porbably also is affected by one's marital status
    My tenants decorate the houses themselves......

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    Quote Originally Posted by jtremlett View Post
    Also, you are comparing over a short period. If you own a house long enough then the costs go down (mortgage paid etc.) and the comparison would look different, I think.

    Jonathan
    That effect unfairly squews the calculation of ownership cost. Cost of ownership calculation has to assume zero equity in the house to make any sense (IMO). My reasoning is below:

    You might choose to invest £100,000 in a house, and that saves you £5,000 interest per year (for example) but you gain/lose nothing that you wouldnt already gain/lose - ie captial values changes. You might equally choose to invest that money instead in a Chinese Fund and make £100,000 over the year. Essentially your cash is giving you an advantage in the calculation; an advanatage that you would have regardless of where you invest it - cash makes cash.

    So for the reason I agree with Gary's interest repayment only model/example

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    jtremlett is offline Overpriced piece of old tat - Ferrari 250 GTO Club Member
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    Quote Originally Posted by Ade View Post
    That effect unfairly squews the calculation...
    I'm not sure I follow that (but then it is Friday afternoon). The comparison is with buying accomodation or renting it not with other investments that you might make. Clearly you need to live somewhere one way or another.

    My point was that renting may look better value in the short term but that it won't look so good (by comparison) in the longer term.

    Jonathan

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