Seneca21

But the owner eventually gets to let the asset out irrespective of the value of the property.

Steve2009

I don't see your point. The renter still ends up with a lump sum to do with whatever they like. Whether that is investing in property or some other investment or keep on demand deposit. Average rental yields in Australia are currently 3.5%, demand deposits are 6%. It's a no-brainer.

Rod-Helen-Poppy

surely the owner of the property would have an assett to sell or rent?

Seneca21

Exactly. Person A rents a 300,000 house for 25 years, Person B pays mortgage on a 300,000 house for 25 years. In that time both people pay 1000 per month for their accommodation and pay 1000 per month into a savings account.

So put very simply because this is a simple point, in 25 years' time. Person A has paid 300,000 to his landlord and is then asked to leave and has 300,000 in savings, and Person B has paid 300,000 to the bank and now has an asset worth 300,000 and 300,000 in savings. So Person B has 600k and Person A has 300k - and Person A's landlord has way more than either, probably.

Steve2009

You seem to have missed the point completely. A mortgage payment has two components, one is mortgage interest and one is capital repayment. Consider this, revisit your figures and let me know if I need to elaborate.

BristolBeary

I seem to be missing the point completely - could you elaborate for me?

I'm guessing there is an assumption that renting is cheaper than buying?

Vash the Stampede

I think you mean a hypothetical cost. It's not a real cost; it's not a sum I am actually paying.

No, I talk about "recovery" in the UK market because it is a likely outcome. I can't think of a single western nation which has never recovered from a property slump (can you?) It may take time, but it eventually happens.

Yes, I agree. No offence taken, because that's not how I approach my property decisions.

Steve2009

Yes, but even aside from that, the fundamental mistake he made is that person B is renting money from the bank.

Rod-Helen-Poppy

regardless of that, the point remains that there will still be an asset owned that can be sold or rented - or even equity released from if thats your bag.

it would appear that renting v owning/mortgage is a personal choice.

on your model, i'll quite happily buy properties and have others pay for them and then have assets to own

Seneca21

My post makes it clear that the capital and interest payments of Person B comes to 1000 every month. Revisit it and tell me if you need any assistance. You were so polite to me I can only return the favour.

MartinLuther

Also person A only has $200k in savings and the government has $100k in its coffers.

Seneca21

Both persons saved 1000 per month.

littda01

Jimbo, not having a go at you here but a symptom of every bubble known to man is the "its different here" mentality. What IS different is the characteristics and specific behaviours. What is NOT different is the market cycle and the fundamental laws of economics.

Or another way to look at it is, if current trends (20% pa price rises) in some areas of Melbourne for example were to continue, then a 700k house today would in 15 years cost 9mil, moving from 8-9 times average earnings today to around 30 times average earnings in 2025 (assuming ~3% inflation).

There is no way that is sustainable. Everyone knows that. So having accepted that, what are the scenarios? One is a long period of stagnation, the other is a sharp correction. The longer and faster the bubble inflates the likelier the sharp correction. This simply reflects the human behaviour that sees people become more and more desparate as the stakes increase e.g. "I have to get in now or I will never be able to afford it" or "I have to sell because its going to crash".

We've all witnessed that behaviour before. Dot-com bust, Irish housing market, Spanish housing market, US housing market etc.

Steve2009

It's a very real cost. More info... http://en.wikipedia.org/wiki/Opportunity_cost
Sweden, Japan, Amsterdam (although that's going back a century or two), there are many examples. You also have an opportunity cost of the capital employed in the UK. That capital could be in UBank earning 6% too.

Vash the Stampede

If it was a very real cost, it would be coming out of my bank account. It's not.

Precisely.

Within the last 20 years? I suspect not.

And what happens to our UK mortgage when we withdraw all this equity? (Presuming, of course, that our bank would even allow this). The rent barely covers the mortgage as it is.