Which is best for optimum housing costs? Buying or Renting? To try and influence the argument with specific data, I decided I would put together a 40 year summary of my own experience on how much it has cost to own my own house.
I live in Edinburgh, Scotland, where the housing market has been pretty sound for more than 50 years. Edinburgh’s population grew 20% 2000 – 2006, and has grown another 20% since then. Also home occupation has changed. In the 1960’s many people lived with their parents, often 3 generations in one house. Now many houses are occupied by just 1 or 2 people. The market is pretty vibrant. Certain niche areas (big old houses), tend to command almost ‘London’ prices.
In general, in the UK our houses tend to be smaller, with less ground, and cost a lot more money than in the US! So housing costs will not be the same the world over.
House 1 – Owned by future husband. (I was renting)
This was a small apartment (2 bedroom) in an old block in a pretty scruffy area. Bought June 1975, £3,000, Sold June 1978 for £5,000. Low cost 30 year, 100% mortgage, probably paid only interest, My future husband was a student, his income was only summer jobs, student grant and rent from spare room. Cost of ownership in the period, share of ‘huge’ roof bill = £600, paid from savings. Overall profit £1,400.
House 2 – Our first home together, just married…
This was a small 3 bedroom semi-detached house with garage. Bought £15,500, used the £2,000 surplus from House 1. Endowment Mortgage £13,500. (That means we paid only the interest, and an insurance policy premium) I worked for a bank 2.5% mortgage. Total outlay about £50 per month. 1982 I stopped work, down to one salary, and mortgage jumps to £150 per month. Net income about £550 per month, and extra mouth to feed….
Only major outlay during this time £2,500 for new windows. Paid from savings.
House sold May 1985, £31,500. Profit £13,500.
House 3 – 2 babies – bigger house needed!
A 4 bedroom detached house with garage. Bought £45,000. A downstairs toilet as well as a bathroom, we thought we were in heaven! Endowment mortgage around £300 per month. Net income initially about £800 per month, then I went back part-time. Income increase £450 per month.
Major outlay £4,000 new windows
House sold Jan 1995 £83,000. Profit £34,000
House 4 – 2 growing lads – more space please
A 5 (small) bedroom detached house with double garage. Bought £95,000. Endowment Mortgage cost £400 a month What was good about this one – an electric garage door with access straight into the house. Simple things! We’re still in this one, more than twenty years on, and have spent quite a lot over the years. For instance we had only been in the house a few weeks, when water starts pouring through the lounge ceiling, onto our nice new furniture…
The major expenditure over the years include a bathroom upgrade £5,000, a replacement boiler £5,000. A total refurbish of the kitchen along with a couple of external doors £10,000. Replacement windows, and major floor repairs £12,000. Block Paving in driveway and in front of house £8,000. Roof Repairs £6,000. Repairs to outside wall of house £2,000. New gutters, external board £4,000. New garage door £1,500. External decoration £3,000. Internal decoration £4,000. Total £52,500. Allowing for things omitted. Say £60,000
In 2003/4 we cleared the mortgage in a couple of tranches.
Alternative Housing Costs
Looking at rental costs. For the last few years, rents for a house like ours are about £1,000 a month, maybe even more. So I broadly stepped up our rental costs from £100 a month in 1975, every four years to £200, £300 etc up to £1000 in 2011, and then kept them at that rate. A scary lifetime cost of £292,800
Over the years our total mortgage costs add up to £85,000. We have paid out in repairs / upgrades, a total of £67,000. Total outlay £152,000, for an asset worth £300,000. We also received the payout from 2 endowment policies for about £30,000. Yes we have had additional buildings insurance but even today that is less than £200 p.a. Although the figures factor in actual building repairs, they don’t include washing machines, dishwashers, but we have only had a few over the years. Certainly no more than £3,000.
Hence the overall benefit in 40 years – Difference between Rent and Mortgage(inc repairs)£140,000, plus value of house £300,000 = £440,000. Pretty good investment really.
Note: the bump in the mortgage costs covered a 5 year loan for a new bathroom. (I know, I know, I wouldn’t do it now – it made sense at the time!) You can see when we cleared the mortgage ahead of time. Yippee!
However, it isn’t really a precise picture without including the repairs / maintenance. So chart below includes maintenance costs, to more accurately reflect outgoings.
I posted a bit about this on a Rockstar forum. I was asked if I had considered Opportunity Cost. So I recalculated a cumulative view. The answer is that the lines do crossover with rental moving £100k into positive territory, but not enough to cancel out the residual value of the house (£300k) .
House 5 – Next Move – We’re retired, don’t need the space. Where next?
Hence it’s about to get interesting. Why? In the last 20 years, the housing market has moved on such a lot.. As mentioned right at the start, Edinburgh is a very vibrant housing market, and the numbers of people living in each house has reduced (occupation rate, I think it is called). So smaller units are pretty popular!
Today in Edinburgh, a 2 bedroom apartment will cost around the same price as our bigger house, and indeed may cost more, depending on what type of apartment we go for, and what location we choose. Young friends have just bought a 2 bedroom conversion in a lovely old house. £400,000. They were paying £1,200 a month renting a similar property. Prices in that category are going up. A new 2 bedroom in a new block will cost around £300,000. At least it’s not London, where my son has just bought a 10 year old apartment for £550,000.
I’m 61, I expect to live another 30 years (longevity runs in my family). My husband is 68, the stats say he will make 83. So for 15 years, we need a 2 bedroom home, preferably with a study. Then when I am on my own, I suspect I will be quite happy with a small 1 bedroom apartment.. I would like to anticipate that I will not need residential accommodation but you never know….
So, is it time to consider renting.? All the arguments that are put forward by many bloggers, about renting being the best method of managing your housing costs, start to become important.
- Flexibility – the ability to easily terminate the lease and move elsewhere. In my case, it might be nearer my family. Or given Scotland Independence and Brexit, it could be any country that we can get a visa to live in. The major decision factors are a pleasant climate and decent (not too expensive) health care.
- All your money is tied up in the bricks. If we sell our house we have a lump sum of £300,000. We invest it, and get 5%, that would pay our rent. Opportunity cost now becomes interesting.
- No responsibility for maintenance. This becomes more appealing as we get older.
I did another post recently on Optimising Retirement, but I hadn’t considered this.
Food for thought.
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