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A mortgage is money rented from a bank

A mortgage and rent to a landlord are more similar than you think.

Can you believe it? My own sister uttering the dreaded words:

“I am just throwing money away by renting.”

Ouch! That’s up there with “renting is dead money”.

She might as well have added, “You Only Live Once!” and then spent her ISA savings on a YOLO tattoo.

Before we begin: I’ve learned it’s impossible to write about UK property without provoking an outburst – from every faction – so a quick nod to the laundry list:

  • Yes, people want to own homes for different reasons.
  • Yes, at the end of 25 years of renting, you’re still renting.
  • Yes, houses look cheap / expensive, depending.
  • Yes, a homeowner pays every year to stop the place falling down.
  • Yes, an owner can make a big tax-free gain on their investment.
  • Yes, interest rates may go up / go down / do the Hokey Cokey.

But that is not what I’m talking about at this moment.

What I am questioning is the idea that renting is wasteful and having a mortgage is inherently productive.

Let’s unpack this to see why my sister has compounded the damage she did by watching The Water Babies on video 20,000 times and then crying and claiming I hit her when I tried to make it stop.

Renting is: Paying for something valuable

First off, renting is nothing like throwing money away.

When you throw money away, then – unless you’re Robin Hood, Brewster, or in fear of St. Peter – you get nothing.

In contrast, when you give money to your landlord, you get somewhere to sleep, eat, make whoopee, and write investing blogs.

Here is Maslow’s famous hierarchy of needs:

Maslow's Heirarchy of Needs

Hint: The big ones are at the bottom. (Click to enlarge)

Maslow rightly understood that “shelter” was crucial to human beings. We tend to freeze, rot, dry out, get eaten by animals, or are plagued by packs of foreign exchange students without it.

In fact, Maslow stated shelter was as important as sex, food, and air – but maybe not in that order.

(In the modern world, you don’t get much sex without shelter, although to be fair you will then get more than your fair share of air.)

Housing, in short, is a basic human need. This is what your landlord gives you in exchange for rent. An essential of life! Maybe my sister should send her landlord a thank you card, rather than a dismissal?

What about home ownership? Is that essential?

Sadly, Maslow didn’t tell us where “ability to hammer a nail into own wall” or “can take part in house price bragging” fitted into his pyramid. He lived in simpler times.

My hunch is – Kirsty ‘n’ Phil be damned – he’d consider such things to be self-actualization, topping the pyramid alongside philosophy and drinking mint juleps.

A mortgage is money rented off a bank

Despite the fabulous need-solving you achieve by renting, most people (including me) aspire to swap it for life as a mortgage-sporting wage slave.

Nothing wrong with that, most of the time – buying their own property is the best investment many people ever make.

However there’s nothing magical about a mortgage, and it certainly isn’t free.

When you buy a house with a mortgage, the bank gives you money. Let’s say it gives you £200,000.

Party time! (Assuming hedonism for you is 30 days and nights on Rightmove.)

But once the initial euphoria of home hunting is over, a new mortgage owner begins the slog of paying the darn thing off. And it turns out – obviously – that the bank didn’t give you £200,000 for nothing. It wants interest on the mortgage.

It’s as if it leased you the money: You’re paying to rent the money off the bank.

  • At 5% over 25 years, borrowing £200,000 will cost you £833 a month in “money rent”

Note that if you only ever pay your “money rent” and nothing else, then you have to give back the £200,000 at the end of the term.

Just like you have to give back a rented house to your landlord!1

To avoid this – and to keep your house, usually – you must also repay the capital. Effectively you’re buying the £200,000 off the bank, in monthly installments.

  • With a 5% over 25-year repayment mortgage deal, you’d need to pay an additional £350 every month to “buy” your £200,000 off the bank.

You might even think of it as a cash savings account that starts £200,000 in the red. With a repayment mortgage, you’re salting away £350 a month. After 25 years, the balance is £0.

Happy days!

Equally, if you can rent your home for less than you’d pay to buy, then you could choose to save the difference. You might even save up £200,000 that way.

Note: I’ve oversimplified here – capital repayments are in reality variable over the mortgage term2, and so usually are interest rates. Capital payments are a smaller share of the monthly bill at the start but predominate at the end, as your previous repayments reduce the interest due. Check out the graphs produced by the Monevator mortgage calculator.

Only money under a mattress is dead money

Of course no bank these days will lease you £200,000 without some security.

The bank tries to protect itself twice. Firstly it demands a deposit of at least 5%, but frequently much more. Secondly it can repossess your house should you fail to repay the money you borrowed (/rented) off it.

Let’s say my sister has had enough of throwing money away and wants to buy a flat for £200,000. She’ll need at least £10,000 as a deposit – and I’d strongly urge her to aim for £40,000 – in order to appease the bank’s money landlord.

(Of course, you have to give a deposit to a property landlord to rent their house, too. When I took on this place, I put down one month’s rent – or much less than 0.5% of my rented property’s current value. Bargain!)

Here the picture gets slightly distorted by the record low interest rates on cash. But even today, my sister’s deposit savings are only dead money is if she keeps them under a mattress. I can think of little worse than looking under my sister’s mattress, but I’m sure there’s no money under there.

Instead, she’s had her money in savings accounts, bonds, and the stock market. It might have earned 2% to 15% this year (or higher if she was lucky).

That’s hardly dead money.

By the same token, it’s not dead money if it’s used to get the mortgage.

If you’re paying a mortgage rate of 5%, then your deposit is in the equivalent of a savings account paying 5% interest, tax-free. That’s nice, too.

The deal when you pay rent

Buying a house basically involves:

  • Deposit + interest payments + (usually) capital repayments + other costs (legal fees, taxes, new boilers, renovations, and so on) + the gain or loss in house prices

Both private owners and landlords also get an income from leasing out their property. As a home owner you get the better deal, since you rent it out to yourself, tax-free3, whereas a landlord leases it to a third-party who might not pay and who won’t clean the gutters. Worse, her rental income is liable for tax.

As a tenant, your landlord handles most of the faff for you. Renting involves:

  • Monthly rent + a month’s deposit

Whereas the deal for the landlord looks something like:

  • (Everything listed for a private homeowner above) + void risk4 + rent payment risk5 + some landlord-specific costs + income tax + (likely) capital gains tax

Your landlord also takes on risks on your behalf – the risk that house prices will go down, for starters, as well as the risk that interest rates will go up.

I expect house prices will rise over 25 years, and rents, too. But there’s no timetable – and it’s still a risk.

A landlord does all that plus satisfying a key human need. That’s quite a deal you get for “throwing money away” by renting your home.

It’s a good time to rent money

None of this is to say it’s not a good time to buy a property, or vice-versa, or to rent, or vice-versa.

House prices seem very expensive to me in London, but I’ve been wrong for a decade.

Who knows?

But I do think it’s a good time to rent money. With five-year fixes under 3%, a big cheap mortgage looks a steal.

Sadly, banks will only rent money to most of us to buy houses, and houses seem expensive. There’s the rub.

But the point is: Renting a home isn’t throwing away money. It’s paying for a service.

And a mortgage isn’t free. You pay to rent money.

It amuses me that the conventional thinkers who say renting is dead money are also often the same people who say paying off their mortgage was the best feeling they ever had.

Make your mind up! Do you like renting money or not? 😉

  1. The technical term for this is an interest-only mortgage. []
  2. Whereas, for example, dividing £200,000 by 25 years worth of monthly payments is £666 a month. []
  3. It is called imputed rent. Please don’t complain to me, follow the previous link if you want to learn more. []
  4. The income-less gaps between tenants. []
  5. The money stolen by tenants who don’t pay. []

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{ 38 comments… add one }
  • 1 living cheap in London November 28, 2013, 10:40 am

    Well written. Love it. Hope your sister still get you a xmas gift after outing her love of The Water Babies!

  • 2 ermine November 28, 2013, 11:10 am

    Sounds like your experience of renting is/was better than mine. I suffered from your sister’s viewpoint and rented the cheapest dives with others, because I preferred to spend the money on toys, partying and drinking beer than, er, throwing it away 😉

    I think there’s a large part of the security aspect to buying – I was forever having to move because of other people’s changing circumstances and that got to really hack me off after a while. Once you do actually own the house, it also gives you the ability to hunker down for a relatively low cost independent of what the markets are doing. That falls into the security level for me.

  • 3 BeatTheSeasons November 28, 2013, 1:11 pm

    In an inflationary economy your rent will keep rising every year while your sister’s mortgage gets smaller in real terms, even if it’s interest only rather than repayment. The differential will become huge over decades.

    By choosing to rent rather than buy you are relying on your investments to keep pace with inflation and generate sufficient income to fund your basic needs indefinitely. Your sister will have a natural inflation hedge against the risk of this not happening.

  • 4 ermine November 28, 2013, 1:32 pm

    @BeatTheSeasons is not the underlying premise of passive investing that you are buying into a slice of companies making up the economy? Since this is in fact real stuff, and ‘human ingenuity and ideas’, then as long as there is apparent growth then it’s an equally natural inflation hedge over the decades-long viewpoint. Possibly better, because it’s also diversified across asset classes far better than property – though you can add stocks exposed to residential property if you want some of that asset class in the mix.

    It always gives me the willies when I hear people say that they are going into BTL for their pension because of the dreadful volatility of equities in that casino the stock market. I’ve experienced volatility in property of the downwards kind twice now, though the second time (now – outside London, real terms) doesn’t upset me as I have no leveraged exposure to it.

    I like the term ‘renting money from a bank’!

  • 5 Brendan November 28, 2013, 1:48 pm

    ermine: The difference is that you can’t massively leverage on capital gains when you passively invest. I’ve crunched the numbers – we’ve all crunched the numbers! – and were it not for leverage, I would want to be in stocks every single time. But it’s there. And so – housing…

  • 6 The Investor November 28, 2013, 1:49 pm

    The argument here isn’t that a property or a mortgage isn’t a nice thing to own, most of the time.

    It’s that “renting is throwing money away” or that it’s “dead money”.

    It’s clearly not. 🙂

  • 7 Paul S November 28, 2013, 1:55 pm

    The renter also retains flexibility……the ability to move at short notice to take advantage of job opportunities for example. Owning property can be a ball-and-chain.

  • 8 Elbow November 28, 2013, 2:00 pm

    @BTS totally agree, but…… in today’s world with no ‘jobs for life’ (or very few, outside of maybe teaching), the idea of paying a mortgage of over a 25 year period is a risky business. with ‘offshoring’, ‘outsourcing’ or even ‘nearshoring’ aaaggghhh…your job is never safe. I’ve got 18 years left on my mortgage, but am beavering away to get this paid within 5 (hopefully less), for that very reason. The worry of having no work and losing the house (I have a family to house) grips me every day!

    @TI…if i were single/a couple with no kids guy, I would share a rented place (I did this back in the day with 2 mates, our rent between 3 was dirt cheap ), save up as much cash as possible and by a house outright (no i didn’t)…..oh and hope house prices don’t outpace your savings….doh!

    I guess your circumstances will dictate your decision, with a family dependent on me I wouldn’t rent, mainly because when the Landlord wants to sell, it’s time to move…sorry kids pack up again we’re off!

    I think the answer, is to get a cheap as mortgage as you can and pay it off as quick as you can then squirrel your income away for retirement, unless your a teacher, then let the baby run, smash your ISA’s you’ve got a lovely ripe pension awaiting!
    Other than that win the lottery (on a ticket someone has bought for you), or create the next Apple or Windows beast…..then who cares your loaded!

    Sorry my first reply (longtime reader), got a bit carried away …love this site, it’s made regain focus on my finances. 🙂

  • 9 BeatTheSeasons November 28, 2013, 2:13 pm

    @ ermine

    Property has historically had a closer correlation with general inflation than stocks, I think because the latter have ‘slipped’ and lost value during short bursts of very high inflation.

    Also we are talking about rent vs mortgage payments here, and rents ought to be less volatile than house prices.

  • 10 BeatTheSeasons November 28, 2013, 2:16 pm

    @ The Investor

    Clearly you are right that both rent and mortgage interest are basically payment for a service and therefore not a total waste of money.

    However, you could equally argue that becoming financially self-sufficient is better than either proposition, but only buying leads you to that destination.

    This is really no different from saying it’s better to plant an apple tree than pay ‘dead money’ for apples for the rest of your life, or it’s better to install insulation than pay more for heating, etc, etc.

    Inflation and leverage are two extra ingredients that make the choice to own rather than rent a no-brainer in an inflationary economy.

  • 11 Jonny November 28, 2013, 2:35 pm

    A very interesting perspective, and one that I’ve never considered (having up until now held the ‘renting is dead money’ view). In fact it actually makes me want to pay off my mortgage even faster, to get away from that pesky (building society) landlord… though to be fair he doesn’t bother me much.

    I’ve never rented (I want and look forward to the security, that I will eventually get when mortgage free), though Paul S’s comment is worth noting (both lack of flexibility, and ball-and-chain).

    If you buy a house with neighbors from hell, it can be difficult to sell and move on. With renting it’s (usually) 1-6 months notice depending on where in the agreement you are – regardless of your reasons.

    Also, maintenance isn’t just leaky roofs or broken boilers. If you’re unlucky you could suffer an issue with subsidence, which could cost tens of thousands to rectify – again deciding to sell at this point could prove difficult.

    Whilst not everyone does have these issues, I do know a worrying number of people who have had them.

  • 12 Curious Sarah November 28, 2013, 2:40 pm

    It’s a thing worth saying Mr Monevator!

    Somebody tells me that renting is chucking money down the drain every week! They say it while eating dinner in a rented house, under a roof, inside from the rain! 🙂

  • 13 Brendan November 28, 2013, 3:16 pm

    @The Investor

    I think people typically view rent as dead money because -it’s money that could otherwise go toward servicing a leveraged investment-.

    I don’t think they think about it in those terms, but all the ideas are probably there if you grilled someone: you get the house in 25 years; house prices go up; you can get a £250,0000 investment for just £25,000 deposit.

    The point that interest on a mortgage is also dead money is how I rebut suggests I should buy as soon as possible, but it doesn’t cover all of the above.

  • 14 SemiPassive November 28, 2013, 4:43 pm

    Most of my renting was a room in a shared house. I always viewed renting a flat or house for my own sole use as being an extravagant waste of money, which would just make it harder to save up a deposit. In fact you’d find prices usually going up faster than you could save.

    P.S. Sorry if a bit off topic but related to Elbow’s points, I’d be keen to hear how people split their ratio of savings to mortgage payments. I think I have been roughly 50:50 (mortgage:SIPP&ISA) for the last 6 years or so, but switching to 80:20 (mortgage:SIPP) now due to slight shift in goals, priorities and investment expectations.

    Tax relief is all well and good, but have become more determined than ever to wipe out the mortgage in the next 5 years, while rates are low.

  • 15 George November 28, 2013, 6:44 pm

    > Tax relief is all well and good, but have become more
    > determined than ever to wipe out the mortgage in the
    > next 5 years, while rates are low.

    @SemiPassive – I think you have that backwards. You should be investing the money while rates are low, earning as much as possible at a rate higher than the mortgage, and then pay the mortgage off when rates rise.

  • 16 George November 28, 2013, 6:51 pm

    Dead money… it’s dead money in the sense that your rent is paying the landlord’s mortgage instead of your own and likely a cushion above the cost of the landlord’s mortgage (or else your landlord is not very clever, though sometimes the landlord is relying on appreciation to provide long term capital gains instead of an income stream).

    What we rent is usually a smaller property than what we buy, so a direct comparison between rents & mortgages is skewed unless you know the market value of your rented property.

  • 17 SemiPassive November 28, 2013, 7:02 pm

    Can’t really get a risk free rate higher than the mortgage, plus I may need to relocate in the next few years. That is too short an investment window to make a calculated gamble on shares and bonds that may be simultaneously hit by increasing rates anyway. Also anything invested in a SIPP I won’t be able to get back until 55. I intend clearing the mortgage way before then (I hope!). This is all personal preference and logic – I’m not suggesting it will offer the best returns.

  • 18 Robert November 28, 2013, 9:29 pm

    Leveraged investments work very well until they don’t.
    Inflation is not guaranteed.

  • 19 Edge of Cultivation November 28, 2013, 10:39 pm

    @Robert

    Inflation’s guaranteed, the question is whether your earnings will keep pace with it…

  • 20 Edge of Cultivation November 28, 2013, 10:44 pm

    For those who like to compare notes, my current strategy is to max out my pension allowance first, then fill my and the wife’s ISAs, then any spare goes in savings accounts.

    I reassess often, but at the moment the mortgage rate is lower than the post-tax return I get for instant access cash so I’m making minimum payments on an interest only basis.

    In any case, I’d rather have a £100 mortgage and £50 of savings than a £50 mortgage and no savings. I think there’s cash to be made from outperformance and leverage while the low rates sun is shining, and when things chhange I can pay it down.

  • 21 dearieme November 29, 2013, 12:47 am

    “Inflation’s guaranteed”: no. You can guarantee that our governments will want to promote inflation; you can’t guarantee that they’ll succeed.

  • 22 dearieme November 29, 2013, 12:52 am

    In the days when I instructed bright young students, I’d tell ’em “interest is the rent you pay for money”. Mostly they were astonished by this revelation. Geeze, there’s a couple of generations horribly short-changed on their education.

  • 23 mcwooster November 29, 2013, 1:31 am

    A commenter in the FT put it succinctly, but I can’t find it, so I’ll repeat the argument here: when you leave your parents, you are short one house. Rent is the amount you pay to maintain a short position in the housing market. So hardly wasted money.

  • 24 living cheap in London November 29, 2013, 9:53 am

    The non-economic case for home ownership hasn’t been made here, so I will make it for the sense of balance…. Why I enjoy my not-yet-fully-paid-for-home regardless of the financial sense or otherwise of owning it.

    Even for us working-at-financial-independence types, surely sometimes there are things we do that are beyond the driest of financially ‘correct’ of choices.

    1. I have been able to decorate & furnish it to my exact tastes (a lot more expense, yes, but as someone who enjoys cooking I gain much happiness for having built my perfect kitchen in which to spend time).

    2. I can make changes to the house whenever I want: nails into walls, shelves up, cat flap in back door etc without needing to seek permission.

    3. I can make long term decisions that benefit my family & I as a result of home ownership. Examples: taking the effort to level the front garden to put a bike shed up for the kids bikes. Or when the boiler breaks I can choose to replace it with the best (most efficient) the market offers rather than just the cheapest thing a landlord feels they can get away with).

    4. you can be more protected from rental price increases as a growing family if you buy well. I’ve got a couple of kids now, so if renting the place I own I would have needed to have moved locally to rent a larger property within the same school catchment….. this would have costed hideously more money in rent over the next 8+ yrs of my life…. in comparison I was able to add rooms in our loft for about 35K, which in the long term I will recoup either by downsizing in retirement (or my kids benefit from the inheritance of a larger more valuable property).

    I could go on, but I think that makes the point. My house is certainly my most illiquid asset in my portfolio, but it’s certainly my favourite.

  • 25 The Edge of Cultivation November 29, 2013, 11:52 am

    @ dearieme

    OK, my inflation comment was a little glib, but consider some specifics for the UK right now.

    The UK has its own currency and central bank. The Bank of England is mandated to target CPI inflation of 2.0% p.a. Whether the levers they pull actually change the direction HMS UK is travelling in is debatable, that’s their aim and they have a suite of tried and as yet untried options to achieve it, e.g. base interest rate changes, QE, gilt cancellation, money printing, FLS, exhange rate interventions, currency pegs, devaluation, reducing additional capital requirements for lenders etc etc.

    We are in the midst of one of the most severe economic downturns seen in the last century (complete with many possible causes of deflation) however the Governor of the BoE has written a ‘Dear Chancellor’ apology for inflation being over-target for the past 46 consecutive months. It’s in the UK’s blood: there’s been persistant recurring bouts of high-inflation since the end of WWII.

    The UK government issues predominantly fixed interest debt. This can only be dealt with by repaying it with tax receipts funded by economic activity, inflating it away, or default. Inflation is an easy way out and offers a ‘soft-default’ means of welching on debt without actually ‘defaulting’ by not meeting a coupon or principal payment.

    Globally, central banks are engaging in a race-to-the-bottom currency devaluation, which has lead to tidal waves of liquidity sloshing round the economic system. This is funnelled into asset price increases, and is manifesting in increasing costs of commodities and energy, hence fuelling increasing imported inflation.

    Never say never and all that, but I’m certainly not currently positioning a significant part of my portfolio to protect against deflation.

  • 26 The Edge of Cultivation November 29, 2013, 12:20 pm

    @mcwooster

    I first heard that on the Zikomo letter website via Mr Money Mustache but the original site is down.

    His premise was that you are born needing somewhere to live but don’t have it, hence you are short ‘housing’. My own take on this is that to hedge your position you need only the most basic provision and you can achieve this either by renting or buying. Buying a house bigger than you need makes you ‘long’ housing rather than neutral. Disclosure: I’m long housing, not down to any particularly bullish financial outlook but from the more intangible perspective of wanting a nice house to live in.

    I don’t see a great deal of difference financially speaking between paying rent to a landlord (representing the cost of the landlord acquiring and maintaining the property plus a little extra for covering voids and profit) and renting cash from a bank in the form of a mortgage (representing the cost of the bank aquiring and capitalising the funds plus a little extra for covering defaults and profit). Indeed, if you own your house outright, you are still paying for it indirectly through the opportunity cost of not investing the capital tied up in it – but you keep your own profits at the expense of underwriting your own risk. These costs will all change over time so the skill (or luck) comes from deciding which is best.

  • 27 BeatTheSeasons November 29, 2013, 1:57 pm

    @ The Edge

    You say inflation is inevitable and then you add:

    “I don’t see a great deal of difference financially speaking between paying rent to a landlord (representing the cost of the landlord acquiring and maintaining the property plus a little extra for covering voids and profit) and renting cash from a bank in the form of a mortgage (representing the cost of the bank aquiring and capitalising the funds plus a little extra for covering defaults and profit).”

    How do you square these two views? Surely in an inflationary economy the rent will keep getting bigger and the mortgage will keep getting smaller. Or to put it another way, compounding is working against the Investor but in favour of his sister.

    And that’s without even considering leverage and house prices.

  • 28 Steve November 29, 2013, 3:03 pm

    I am a landlord and I find it frustrating that Banks after 20+ years of advertising seem to get better thought of than a landlord,maybe it is because nobody fights our corner.
    I like the way you have explained renting and owning and this is very close to how I explain renting.
    Most people don’t link the price of rent to the price of property and one of the most moaned about things is the high price of rent,how I explain it is that they are borrowing my equity at x% a month.
    Let’s face it if I could buy a property for £50,000 it would be let out for a far less rate than if I bought at £200,000 so rents are a consequence of high property prices which in turn are a consequence of the banks over lending and loose government policy to push prices ever higher.
    But who is it that gets the blame for high rents,the greedy landlord that gets 6% return on the equity in his rental property.
    Also many rents are cheaper than deposit and mortgage rates,I have worked one of mine out to be £200 per month cheaper than buying.Now that’s not to be sniffed at!

  • 29 The Edge of Cultivation November 29, 2013, 3:20 pm

    @BeatTheSeasons

    I was trying to make the point that rent and mortgage interest are both recurring housing expenses that I would classify in the same way – regular money out of the door in exchange for housing. The opportunity cost of capital tied up in a property to live in is really an absence of money in, which I think amounts to the same thing…not making £10 is the same as spending £10.

    Contrast with making a mortgage capital payment which can be thought of as a transfer between one’s current account and mortgage account; it’s a cash flow but it has no impact on balance sheet/net worth.

    “Surely in an inflationary economy…the mortgage will keep getting smaller. ”

    Not sure I completely agree with you on that.

    My understanding is that an economy experiencing inflation simply means that the purchasing power of the currency is falling. This *can* be accompanied by rises to nominal wages to compensate, like in the 70s, but not always.

    This current recession is a clear example of one where wages are not keeping up in real terms with prices, leading to a fall in discretionary income. For the 70s debtor, as wages rose, the apparent cost of the fixed mortgage payments fell, but someone experiencing average wage growth who locked into a 5 year interest-only fix at the end of 2008 would have had a very different experience.

  • 30 Emanonltd November 29, 2013, 4:10 pm

    What’s quite strange though is how the second most biggest purchase we have in our lives seems to be rented with no such issues or alarms ringing. A car. Most people I know rent their car for two years then trade up after the two years without ever owning the car. Is renting a house that much different?

  • 31 Steve November 29, 2013, 4:20 pm

    Home owner’s in the last 10 years have been blessed with low and stagnant interest rates subsidized by savings account owner’s, the risk is this can’t last forever. High inflation is supposed to be fought with increased interest rates but this will be avoided to inflate the national debt away and to stop people getting there properties repossessed, the question is for how long.

    It’s OK to use hindsight to say you have done better than renting. But on the other hand if someone buys a London property at the top then the interest rates sky rocket sending prices spiraling down then it’s the renter who will gain. The government might have kicked the can down the road but when the London bubble bursts (this might be saved for after the next elections) it might look different.

    Buying is always good at the right price but what and when will that be. Property has been manipulated for so long it’s hard to tell what a good price is anymore.

  • 32 oldthinker November 29, 2013, 9:09 pm

    @mcwooster

    > when you leave your parents, you are short one house

    Yes, I need to live somewhere, but I also need to eat. Am I therefore also short of a farm and a vineyard? I reckon that most people would agree that I do not need to own a farm, now or ever, in order to eat three square meals a day. By the same token, I do not need to ever own a house in order to have a roof over my head: both food and housing are basic needs of millions of people, served by well-developed respective markets, so essentially the same logic applies. The ‘naturally short of housing’ argument is a fallacy that sounds convincing because it implicitly utilises the fact that many people will eventually own a house, while very few people will ever own a farm or a vineyard. Of course, if we assume that eventually buying a house is the natural order of things rather than a habit of the previous generation or two, then renters can be reasonably seen as shorting the housing market. But I do not agree with this assumption at all (which has not prevented me from owning several properties :-)).

  • 33 Andrew November 30, 2013, 9:55 am

    @ Emanon ltd, I think the key difference in most people’s minds between house and car purchase is that historically at least the former has appreciated (over mid to long periods and nominally speaking) whereas the latter is notorious for depreciating quickly.

    These facts alone don’t make it a wise choice to buy one and rent the other but I do think they play a large part in the emotive psychology that we see around these issues especially in the UK.

    @the investor, thanks for the post, I will sign post a few friends this way as I get ever more exasperated by people who claim rent is throwing money down the drain!

    @ everyone, interesting article on page 2 of the FT today about how London’s house prices may have peaked. Let’s hope so, something has to change before the life and soul is sucked totally from this great city of ours…

  • 34 BeatTheSeasons November 30, 2013, 11:25 am

    @ oldthinker

    That’s an interesting perspective and I hadn’t thought about it like that. Of course, until a few generations ago it was quite common to keep chickens or rabbits, grow your own vegetables, collect your own firewood, etc – as it still is in many parts of the world.

    You could say that the general progression from self-reliance to specialisation, whilst making us all richer overall, does increase risk for individuals by making us ‘short’ on a lot more necessities.

    When I look at the ermine’s simple-living-in-suffolk set-up with his paid for house, wood burning stove and community farm I see far greater financial resilience than you get from a portfolio of financial assets designed to cover expenses for the rest of your life. I think he calls it ‘seizing the means of production’!

  • 35 emanon November 30, 2013, 11:42 am

    @BeatTheSeasons

    Sidetracking somewhat but you could argue that capitalism/consumerism has made us less dependant on our own ability and has made us more reliant on the ability of others to provide for us – at a cost?

    I’m not a very political person but whoever can make us more reliant on ourselves (not the state) and bridge the gap between rich and poor gets my vote. Sadly no appears to have the guts to go against the grain..

  • 36 dearieme December 2, 2013, 4:28 pm

    “I think he calls it ‘seizing the means of production’!” That will work against him when King Anthony gives Peter, Duke of East Anglia, permission to seize Ermine’s patch. Having a shotgun won’t be much help. Nor gold buried under the dung heap.

  • 37 Investing novice December 29, 2013, 5:47 pm

    I have a general morgage related enquiry that I am not sure where to post, so thought here was as good as anywhere…

    I have c. £20,000 in cash that I am saving up to go towards a housing deposit at some point over the next 3 years hopefully. My question is whether I should leave this money in cash (it is currently getting c. 3% interest on average, invest it in a socks and shares ISA or do some mixture of the two? I understand that the latter is risky, and you should not really invest if you are likely to need the money in the next 5 years, but I would just like other people’s opinion on what they would do in my situation. I am currently living at home, so not paying any rent , and there is no pressure for me to move out, so if I did invest and it did go badly, and I had to delay my housing purchase it would not be the end of the world.

    Really stuck on this one so any opinion would be greatly appreciated!

  • 38 Tom February 22, 2014, 6:07 am

    Actually, a mortgage, and all forms of debt are money rented from your future self. The interest is the bank’s fee on money you borrow from yourself.

    I agree that “home ownership” which is really “mortgage paymentship” is a horrible financial choice that too many people make.

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