I bought in London in 2019 (2 bed flat in zone 3) and my mortgage was never very far away from the equivalent rent. In fact, mortgage is more expensive when you take into account the opportunity cost of tying up capital, depreciation costs.
When i bought mortgage payment was £1020, service charge was £150. The rent at that time was £1400. So i had £200 extra per month which isn't a lot when you take into account i am responsible for all repairs. I had a deposit of 15% too and had saved £90k in 3 years on account of living with parents so its not that I didn't have an ok deposit. This was also cheaper compared to moving outside London where a season ticket is £4000 per year (and rising), so over 10 years would work out to £8000 in total for me and DH per year so £100k minimum over 10 years. A freehold 2 bed house in my area in London would be £200k more for the same size (together with the commuserate interest cost). So far preferable to pay £150 per month in service charge (plus residents own the freehold so more control over costs)
The main benefit was that my mortgage was fixed for 5 years so when the rent for my neighbour increased to £1600, that didn't affect me. Now the rent for my neighbour is increasing to £1800, but I am due to remortgage next July.
The main reason why I bought was to control my payments for 5 years which would allow me time to increase our household income while having a comfortable place to stay in London so we didn't give up (which has since increased from £75k to £120k). But of course all grace periods end and I am on the hook again. It was a high risk strategy of course, cos my capital would be at risk if it hadn't worked out given that one should measure cost of home ownership over the whole term or at least 10 years (not the first 5 years).
I have overpaid and my mortgage balance has gone down by £70k. I expect 6% mortgage rates so that would be £1500. Plus service charge that is £150 so £1650. I am £150 better off every month which would probably go to the repair fund. So its roughly equal with renting
My flat was worth £195k in 2003, according to Bank of England inflation calculator. This is £340k in today's money. in 2023, i think its worth around £400k, maybe £415k. So it has gone up 17% above inflation but not significantly. If I had bought this flat as an investment it would be a pretty crap one but I only bought it for the sake of 5 years of price stability in my 20s (was 27 when I bought). And also because I wanted to.
In fact the previous guy who bought it for 100k and paid 90k to extend the lease and refurbish it, we calculated he didn't make much money from us at all when we bought it from us for £392k (his total cost including lease extension and refurbishment and lost interest from his savings and capital gains tax and transaction costs total to £382k) . No wonder he was furious.
yes I would be mortgage free at retirement but after taking on a lot of responsibility and paying a lot of mortgage interest over the years. If my purpose was to have a mortgage free retirement, i would be better off buying a £100k flat in the Midlands in cash at 27, leaving it empty and renting in London! Not that I would do it. But i think buying is an emotional decision so its not all about the maths and i do love where I live. I suppose its also cultural so doesn't actually need to make sense.
I like this article in the FT on home ownership: https://www.ft.com/content/00bf5968-f518-11e2-b4f8-00144feabdc0
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https://www.ft.com/content/00bf5968-f518-11e2-b4f8-00144feabdc0
Average individuals cannot calculate, let alone reasonably project, the running costs and financial risks of their housing investment as opposed to renting and putting their savings in more stable, liquid assets. But they constantly hear the misleading mantra that renting “is throwing money away” while incurring mortgage debt “builds equity”.
So their savings go into housing, which puts them to little productive purpose as compared to investing in new businesses, infrastructure or research and development – or, for that matter, compared to rental housing that provides the same services but costs less (when individuals are not paying for the option on artificial capital gains that goes with ownership). Overinvesting in bricks and mortar is a losing proposition for the households involved – but also for the economy as a whole. The mass movement of voters’ savings into an inherently risky asset also creates demands on policy makers to provide capital gains on housing that their constituents otherwise would not receive.
As a result, we get a combination of regulatory measures, local stimulus plans, subsidies to property lending and bias towards inflation that promote housing bubbles. And it is housing booms and busts that wreak the most havoc on economies of all bubbles, including through the concomitant destruction of banking systems. This was evident from history even before our current crisis, as my colleague Tomas Hellebrandt and I have shown. But if the disasters in the UK and US were not enough, recent events, including overheated property markets in China and Turkey, further illustrate the point.
This danger alone would be justification enough to having governments lean against housing price swings, as opposed to pursuing policies that promote real estate speculation by individuals. The costs of excessive home ownership, however, go even further. The promotion of such ownership is fundamentally regressive. It perpetuates inherited wealth and subsidies of middle-class children. The accumulation of housing wealth benefits those simply lucky enough to have had grandparents who were homeowners.
Any policies to promote younger people “getting on the property ladder” will disproportionately benefit those fortunate children who have been given savings, have parental co-signers and can show stable prior residency. They come at the cost of spending that money elsewhere, say on housing credits for the poor. They also perpetuate an influential lobby to protect mortgage debt and housing assets from taxes, whether while living in the asset or passing it on to family members. Like all favouritism to the children of the relatively rich, this discourages the development of new talent and competition, and thus is economically harmful. Home ownership also directly discourages economic flexibility. In new research, my colleague David Blanchflower and Andrew Oswald of Warwick university have found that rises in the home-ownership rate in a US state are a precursor to eventual greater rises in unemployment. Home ownership damages employment through three powerful channels: decreasing levels of labour mobility, increasing commuting times and diminishing creation of businesses. Their evidence suggests that the housing market can produce negative “externalities” on the labour market. Of course, in a free society, people who want to own homes and have the means should be able to purchase them, just as they would any other luxury item. But our governments do not need to subsidise that purchase. Increasing home ownership does not increase housing, least of all for the poor. Increasing home ownership in the US and Britain beyond what the free market would generate does, however, distort capital allocation, put a large share of household savings at unnecessary risk, impede mobility, and creates a powerful lobby for government transfers to the wealthy. And it creates housing bubbles to devastating effect.