Short-term house ownership vs rental (UK)

[kt]

I would appreciate your help in running some figures regarding owning a house for 2 years vs renting. Most people/articles suggest you need to be able own a house for 3/5/7 years for it to be worth buying.

my maths goes like this:
rental currently approx: £6,000/year (comparable property to buying)
buying (20-40% deposit, short term on mortgage): £4,800

apparently the issue is purchase costs (no stamp duty for my price range), however I think allowing £4,000 is more than plenty for this and certainly cannot ever see these topping the £12,000 I'd effectively lose if renting.

What am I missing? Excuse my naivety if it is starkly obvious.

[Jack]

Do you have real estate agents in the UK? In the US at least, they [try to] charge 6% of the purchase price.

[ducknalddon]

It's different in the UK, only the seller has an agent and with a bit of haggling you can get the fee down to 1.5% (to be paid for by the seller).

[ducknalddon]

I would appreciate your help in running some figures regarding owning a house for 2 years vs renting. Most people/articles suggest you need to be able own a house for 3/5/7 years for it to be worth buying.

Two years seems quite short to me, there is a risk of the price falling and you will probably have other unexpected costs.

[richinlondon]

The other question will be what the stamp duty threshold of the property you're purchasing is. i.e. if it's £350k then you'll be paying at the 3% rate, which unless the property rises in value by 5+% in that time (to allow for other buying and selling costs), otherwise you'll have lost out in that department. Also depending on the size of deposit you have - if you've got at least 25% then you'll get a decent rate mortgage. Anything less probably won't make it worthwhile. Always best to run the numbers though. Do you have a spreadsheet for working out the calculations?

[daverobev]

Don't do it. It's easy to get stuck with something you don't want.

I've owned two houses in the UK; the first one turned out to have horrible neighbours and took a while to sell (until the right people saw it - it was the right size for them, decent house, and the people who bought it were thicker skinned than me!).

The second one.. I still own, despite living in Canada. I moved in with my wife-to-be in 2008. Ah, 2008.

Now, I rented it out pretty quickly, and (touch wood) been mostly lucky with tenants (it's managed - again, I live in Canada), but it is not "convenient", and I have to pick a time to sell - because it's hassle trying to sell when you have a tenant (can only have viewings in the last 2 months of tenancy), and obviously if it's empty you're not making any money!

Just... don't do it. Find something cheaper to rent, shove the rest into a savings account (you won't lose much to inflation in 2 years!).

UNLESS you want to keep it as a rental. In which case - buy a place you'd have no trouble letting out, rather than your own perfect home!

TL;DR: RENT!

[daverobev]

On the other hand, I know of this lovely little house only 30 mins from London on the train, eh? ;)

Seriously - the renting of my house has worked out nicely, it's almost paid off, and should provide me a modest income for my early retirement - but that isn't what you're asking.

[Alberto]

The cost of purchasing a house with a mortgage is somewhere around 10% of the house price, between different taxes and fees paid to a lot of people. If you are experienced or you can pay the full price in cash you can reduce this amount, but there are always expenses. When you sell it, there are more expenses.

A house that you can rent for GBP 6000 per year would sell between GBP 90000 for a bargain and GBP 120000 for a rip off. As a rule of thumb a house that sells for 17 times it's yearly rent it's a fair deal, less than 17 is cheap, more than 17 it's expensive. This matters because mainly depending on this multiple you get how many years does it take you to get even. buy/rent = 15  -> 3 years, buy/rent = 20 -> 7 years. This is in comparison to renting a house of the same quality and investing the deposit in an index tracker fund to get a 7%.

If you buy to sell in two years there is no doubt that you will lose money. The only way not to would be paying the full price in cash AND getting a good deal of a house, and even then you would come about even.