Continue renting or buy?

random10

We are currently renting in co. Wexford. At the moment we are paying less in rent than we would in a mortgage, so each month we are adding to our savings, at the moment we have 40k saved between us, I am so scared of entering the property market, but we want to start a family in the next year or so, my question will property prices continue to drop and if so should we keep renting and saving so well have a smaller mortgage in a few years ?

L1011

Property prices could easily continue to fall. However, you will have significant equity in a property, and rents may not fall as much if at all.

What price range are you looking at? If you can get away with a mortgage that's seen as sensible under old rules (1980s old - 3.5x+1x or so), I'd go for it

Lyn256

Keep saving-the smaller your mortgage, the easier your life can be.
If your rent is less than your mortgage will be I'd continue renting for the moment and boost your savings. Property prices will probably continue to fall and even if they don;t they should stabilise in the next year or so.
If you're planning a family-work out your mortgage on one salary as that'll give you flexibility in the future should either you or your partner want to take some time off to mind your children

beaner88

You would be utterly insane to buy if your mortgage payments are going to be more than your rent. I'd probably save about 500 per month if I were to buy but there are huge risks involved.

Procrastastudy

Property market will probably continue to fall but it's unlikely it will fall much further. My prediction (pulled out my rear end as everyone's is) is another 20%. Do your prediction and then balance the dead money in rent vs the fall. Mine is an extreme case but here goes:

Rent 1000 bought in 2006 = 12 x 1000 x 6 = 72,000

Aparment cost 295,000 now worth 100,000 = 195,000 less 72,000 = 123,000

I should have waited

Now try you?

Property cost 200,000 less 20% = 160,000 = 40,000

Lets say your rent is 1000 - you can wait 40 months as it's dead money eitherway. The issue is if they dont fall by that much then you've not as long obviously. You want to avoid paying dead-money on rent longer that the fall continues for.

In all honesty I'd just slowly start looking at houses and if you find the dream-home go for it. If it's not perfect hold on and keep looking. Bear in mind the property you want might not be avialable when you want it so factor that in.

beaner88

Procrastastudy wrote: »

Property market will probably continue to fall but it's unlikely it will fall much further. My prediction (pulled out my rear end as everyone's is) is another 20%. Do your prediction and then balance the dead money in rent vs the fall. Mine is an extreme case but here goes:

Rent 1000 bought in 2006 = 12 x 1000 x 6 = 72,000

Aparment cost 295,000 now worth 100,000 = 195,000 less 72,000 = 123,000

I should have waited

Now try you?

Property cost 200,000 less 20% = 160,000 = 40,000

Lets say your rent is 1000 - you can wait 40 months as it's dead money eitherway. The issue is if they dont fall by that much then you've not as long obviously. You want to avoid paying dead-money on rent longer that the fall continues for.

In all honesty I'd just slowly start looking at houses and if you find the dream-home go for it. If it's not perfect hold on and keep looking. Bear in mind the property you want might not be avialable when you want it so factor that in.

You forgot the 70K or interest that you would have paid. I'm still astonished to see that people who already got burned so badly still can't manage the most basic of personal financial calculations and worryingly see themselves fit to advise others.

Procrastastudy

beaner88 wrote: »

You forgot the 70K or interest that you would have paid. I'm still astonished to see that people who already got burned so badly still can't manage the most basic of personal financial calculations and worryingly see themselves fit to advise others.

You forgot that a market at the bottom rebounds back up. I'm astonished that people so blinkered by a natural cycle in a market worryingly see fit to criticise others without checking their own facts.

EDIT: You also forgot inflation increases rents but decreases mortgages.

beaner88

I don't think you should be lecturing people on natural market cycles when you bought in 2006 when there was as "a permanently high plateau". Don't forget, mortgage interest is dead money kids!

Procrastastudy

beaner88 wrote: »

I don't think you should be lecturing people on natural market cycles when you bought in 2006 when there was as "a permanently high plateau". Don't forget, mortgage interest is dead money kids!

So is rent. This calculation has been done over and over again in this forum. I wasnt lecturing anyone you came in asserting that your opinion was better than mine. You're clearly misinformed.

ted1

If you see a dream house buy it, if you don't then wait.

Houses in parts of Dublin are rising. Houses outside won' t rise for another while.

I brought this year as house prices were below renting costs. And we saw a house we wanted.

BrownianMotion

Procrastastudy wrote: »

So is rent. This calculation has been done over and over again in this forum. I wasnt lecturing anyone you came in asserting that your opinion was better than mine. You're clearly misinformed.

He's not misinformed. This is not a matter of opinion, it's fact.

You left mortgage interest completely out of your calculations, depending on what rate you've been paying this could be 30/40k extra that you've lost because you bought when you did.

I'd like to see where on this forum where there was unanimous agreement that your calculation was correct!

Procrastastudy

BrownianMotion wrote: »

He's not misinformed. This is not a matter of opinion, it's fact.

You left mortgage interest completely out of your calculations, depending on what rate you've been paying this could be 30/40k extra that you've lost because you bought when you did.

I'd like to see where on this forum where there was unanimous agreement that your calculation was correct!

This (in my post) = rent v buy calculation.

Show me and the OP the facts then on how much better off they'll be renting for a bit longer - I'm more than happy, and I'm sure the OP would, for more information and an informed discussion.

StillWaters

beaner88 wrote: »

I don't think you should be lecturing people on natural market cycles when you bought in 2006 when there was as "a permanently high plateau". Don't forget, mortgage interest is dead money kids!

Er, no it's not. It's the cost of borrowing. Most People cannot afford to buy an asset class such as property without borrowing.

You seem to claim in every post that buying property makes no sense regardless of the individual circumstance. That is just so blinkered. There are people who shouldn't go near property, but there are people, like the OP, where when sums are done, buying might make sense.

murphaph

beaner88 wrote:

Don't forget, mortgage interest is dead money kids!

Procrastastudy wrote:

So is rent

...actually neither are. For both, you receive a service in return. Mortgage interest is the fee you pay to the bank for giving you a heap of money up front to buy somewhere to live and rent is simply a more direct way of financing that home, but it's still being exchanged for something.

Why do people view the money spent on keeping a roof over their head as "dead money" at all? Is the money you spend on food also "dead money" once you've eaten it?

BrownianMotion

Procrastastudy wrote: »

This (in my post) = rent v buy calculation.

Show me and the OP the facts then on how much better off they'll be renting for a bit longer - I'm more than happy, and I'm sure the OP would, for more information and an informed discussion.

Take how much you paid in mortgage payments over the 6 years - total 1.

Take how much capital you've paid off (find out your capital outstanding and take that from your original purchase price) - total 2.

Total 1 - total 2 = interest paid.

This is dead money in the same way rent is dead money under your description.

Add this interest paid to the money you've lost due to your decision to buy as it is money you've paid out with absolutely nothing to show for it.

It's an important part of any calculation when deciding to buy.

Sunny Dayz

There is certainly no harm in you checking with the banks how much of a mortgage they will give you. Once you know that, you have a budget. It could take a while to find a house you like. People aren't putting their houses up for sale anymore because they assume no one has the money to buy. We have been looking the last year, poor selection in our area, cant move to far due to school and work. We don't want to buy A house just for the sake of it, it has to tick our boxes.

Don't be in any rush, the property market has slowed to a snail's pace.

Procrastastudy

BrownianMotion wrote: »

Take how much you paid in mortgage payments over the 6 years - total 1.

Take how much capital you've paid off (find out your capital outstanding and take that from your original purchase price) - total 2.

Total 1 - total 2 = interest paid.

This is dead money in the same way rent is dead money under your description.

Add this interest paid to the money you've lost due to your decision to buy as it is money you've paid out with absolutely nothing to show for it.

It's an important part of any calculation when deciding to buy.

You've missed the point of the post again - advise the OP - if you disagree with me thats the best way of proving my point wrong given I've already admitted my decision to buy when I did wasn't the best from a purely financial point of view.

cgarrad

Bankruptcy laws come into effect soon, loads will take up or be forced into bankruptcy and a spike in available property will lead to the bottom in my opinion.

It will stay there a while before crawling back over the next 10-20 years.

If your flexible you will get great deals from some other persons misery ;-D

BrownianMotion

Procrastastudy wrote: »

You've missed the point of the post again - advise the OP - if you disagree with me thats the best way of proving my point wrong given I've already admitted my decision to buy when I did wasn't the best from a purely financial point of view.

I'm not advising the OP in any way here, all I'm doing is laying out the facts of the calculation. It's something that they should be aware of when making big decisions like this. You gave them an incomplete view of the costs involved.

No need to dig the heels in, it's not about agreeing or disagreeing with the rest of your advice.

Procrastastudy

BrownianMotion wrote: »

I'm not advising the OP in any way here, all I'm doing is laying out the facts of the calculation. It's something that they should be aware of when making big decisions like this. You gave them an incomplete view of the costs involved.

No need to dig the heels in, it's not about agreeing or disagreeing with the rest of your advice.

Okay fair enough but when considering a calcualtion on buying there are so many factors involved. To be fair to the OP this is my logic - it isn't perfect - but neither is anyone elses.

Rent v Buy no brainer in the long term imho. Search the forum for various threads.

When to jump in is a factor of market cycle vs rent in dead money - yes there are other factors however;

Mortgage Interest vs Inflation, apprication and owning as asset at the end.
I couldn't tell you which one is worth more - if I could I'd be a richman indeed. Given in the 60s £100 is now worth €5000 and the effects that has on rents and mortages I'd say inflation is the key but who knows whats going to happen over the next 50 years.

There are a myriad of other factors to consider such as maitanace vs having the Kitchen/Bathroom you want. Freedom to upsticks v security of not being kicked out (unless you cnt pay the mortgage).

random10

Well to give more information we are 29 and 32. Our gross combined income is Just over 100k we have saved 40k and our rent is only 500 a month, family friend owns the house. Houses we are looking at, no more than 250k

djimi

My advice (based on nothing more than opinion) is to continue renting and to keep an eye on the property market in your area. While property prices continue to fall you are better off renting and saving; bigger deposit + cheaper property = smaller mortgage (win).

You do not need to own a house to start a family; do not let that influence your decision one iota. Sit down and do the sums of renting vs buying (the property register plus a chat with the bank should give you a good idea of what it will cost you to buy). Try and guestimate the price of buying a house now vs buying the same house in a year, two years, three years etc. This will help you come to the decision that make the most financial sense for your family, which is the bottom line.

beaner88

BrownianMotion wrote: »

I'm not advising the OP in any way here, all I'm doing is laying out the facts of the calculation. It's something that they should be aware of when making big decisions like this. You gave them an incomplete view of the costs involved.

No need to dig the heels in, it's not about agreeing or disagreeing with the rest of your advice.

Some people are beyond help even when the facts are laid out to them. Ask the average person who much the interest on a 200K house will cost them and most would not have a clue.

Procrastastudy

beaner88 wrote: »

Some people are beyond help even when the facts are laid out to them. Ask the average person who much the interest on a 200K house will cost them and most would not have a clue.

Because to many it simply doesn't matter. Many renters are beyond help in that if you only rent over the period of your lifetime you are worse off that someone who bought at the peak.

There are some very limited scenarios where people are better off renting if they move a lot. But even those are out weighed by buying and renting the property out yourself.

As to interest nobody has a clue - simply based on the fact that you cant predict interest rates. That said what you can do is bear in mind that rents are linked so if mortgages go up so do rents. People are also, generally, blind to the effects of inflation over a long term.

There's two options here. Either you know all this and you're not willing to contribute that information and your insights as you don't want the information out there or you're not as well informed as you thing you are. Only you know which one.

beaner88

I already contributed. I mentioned interest costs which you left out. You can argue about all sorts of things which are unknown and personal to some people but interest costs are one of the most basic costs.

Inflation is a funny one. Rents have fallen over the past 12 years in Ireland despite there being 40% or so general inflation in that time.

the_syco

random10 wrote: »

We are currently renting in co. Wexford.

How stable is your job down there, and what is the job market down like? Finally, how many of your neighbours commute to Dublin to work?

cgarrad wrote: »

Bankruptcy laws come into effect soon, loads will take up or be forced into bankruptcy and a spike in available property will lead to the bottom in my opinion.

Read the law, and you'll see a note about keeping the family home when they go bankrupt.

Procrastastudy

beaner88 wrote: »

I already contributed. I mentioned interest costs which you left out. You can argue about all sorts of things which are unknown and personal to some people but interest costs are one of the most basic costs.

Inflation is a funny one. Rents have fallen over the past 12 years in Ireland despite there being 40% or so general inflation in that time.

I find that very hard to believe, that said my experiance is of Dublin and its possible that countrywide you are correct. You can't however tell me that someone who entered the property market in 1965 and bought a house for £5000 is worse off than someone who has been renting since then.

You still haven't answered the OPs questiion.

beaner88

Procrastastudy wrote: »

I find that very hard to believe, that said my experiance is of Dublin and its possible that countrywide you are correct. You can't however tell me that someone who entered the property market in 1965 and bought a house for £5000 is worse off than someone who has been renting since then.

You still haven't answered the OPs questiion.

This is the start of 2003. Prices were higher in 1999 but I can't find the data yet.

http://www.cso.ie/px/pxeirestat/statire/temp/2012122714810228373CPM13_1481531.gif

What does that have to do with the OP? Every situation is different. The problem in Ireland is that the older generation 50+ lived through periods of huge house price inflation and they tend to believe that as being normal. You buy high and let inflation work its magic. But we live in a completely different environment now. I told the OP he'd be crazy to buy if his rent was so much lower. He can do the sums for himself balancing the hard financials with the intangible benefits.

Procrastastudy

beaner88 wrote: »

This is the start of 2003. Prices were higher in 1999 but I can't find the data yet.

http://www.cso.ie/px/pxeirestat/statire/temp/2012122714810228373CPM13_1481531.gif

What does that have to do with the OP? Every situation is different. The problem in Ireland is that the older generation 50+ lived through periods of huge house price inflation and they tend to believe that as being normal. You buy high and let inflation work its magic. But we live in a completely different environment now. I told the OP he'd be crazy to buy if his rent was so much lower. He can do the sums for himself balancing the hard financials with the intangible benefits.

Appoligies you and I obviously posted at similar times and I missed you OP. Is that data country wide? Rents in Dublin have at best stagnated of late and I bet you all the money in my pockets vs all the money in your pockets that they will start to creep up.

I couldn't disgaree with you more about the mortgage payments vs rent payments. You have to look at it over a longer period of time. It makes sence to wait until the bottom of the market assuming the house you want is available, but doesn't make any sense to rent in the long term.

StillWaters

random10 wrote: »

Well to give more information we are 29 and 32. Our gross combined income is Just over 100k we have saved 40k and our rent is only 500 a month, family friend owns the house. Houses we are looking at, no more than 250k

I'd buy.

fricatus

OP, just remember one other factor that hasn't been covered yet. It's probably not relevant to you just yet at the age you're at, but if you're on the wrong side of 40 and looking for a mortgage, two things can cause you a problem:

1) The banks will not lend to you beyond a certain age (which I think is 70 in a lot of cases), so someone aged 41 might only be able to get a 25-year mortgage, not a 30-year one*.
2) Life assurance can be a difficulty as you get older, especially if you've had any health scares or if you've developed any chronic conditions. Banks don't like to lend money to people who can't get a life assurance policy. If you're in this situation, you will almost certainly have to sign a waiver agreeing that you understand that the surviving partner risks losing the house if they can't keep up payments after one party dies.

* Not that I think long mortgages are a good idea, but at least if you sign up for 30 years, you can increase your repayments later, but if you're stuck with the higher repayments on a 25-year mortgage, you can be in a lot of bother if you need to get them decreased...