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The Pring Perspective

Mar 2009 “It’s just money down the drain”!

Stephen Pring You know that moment when someone says something and, although you’ve known it all along, the truth of what they say suddenly hits you the moment they say it? Well, I’d like to share a particular moment with you that happened to me as I was showing a couple round a house and it crystallised for me why buying a property, rather than renting, should always be the preferred option if possible.

The couple were in their late 20’s and have been in rented accommodation for a year. They had sold their property and put the money in the building society so that the interest would pay their rent while the property market settled down and they looked for their next home. Not so long ago they would have been earning a decent rate of interest on the money but now, as we all know, it’s rather pitiful and not nearly as safe as it once was! They’ve secured a good 5 year fixed rate mortgage so they know with certainty what they are going to be paying when they find their next home and I asked them why they thought NOW was the time to buy. This is what they said….

“We’ve watched house prices go up and come down over the last few years. Of course it’s all relative but even if they do dip a little bit more we can get a great house for our £200,000 and it’s time we put down our roots.”

All well and good you might think and that all makes good sense but then came the moment of revelation….

“If we buy at £200,000 and the price drops a bit more in the short term” they said “it will certainly rise again over the next few years and whatever we pay off our mortgage, the money’s for our benefit. We’re currently paying £850 per month in rent. In the next 5 years that is over £50,000 of our money going to someone else to help them pay off THEIR mortgage”!

If you read that sentence again slowly, it’s bound to hit you like it hit me. It does, doesn’t it!!

Ok, so they buy a house at £200,000 and if they had to sell it again swiftly for any reason they might find they sell it for £190,000 and they’d lose £10,000. That’s the worse case scenario. The chances are however that they won’t have to. It may well be that the market picks up! Lots of people who have sold and gone into rented over the last 18 months have the same idea and demand for properties is certainly rising again. Mortgage rates are incredibly low and most predictions are that they will remain at these levels for the foreseeable future (as will the interest rates for your savings in the bank!).
Over the next 5 years will that couple lose out? I don’t think they will for one minute….unless of course; they pay over £50,000 in rent! It’s not rocket science is it?

There are always sellers and buyers and there are more and more potential buyers who think that property is a good, long term investment again. After all, do you really trust the bankers and share dealers to look after your investments and inheritance? They certainly don’t have a great track record of late do they! Bradford & Bingley, Northern Rock, HBOS, Lloyds and Royal Bank of Scotland to name but a few (all former “blue chip” companies) have lost billions or become literally worthless? Share values can disappear overnight, taking your hard earned money with them. Wouldn’t you rather live in and enjoy your investment at the same time? When you own a property, it’s a tangible asset as well as a home. It’s something to be proud of and it’s something you know will be there to benefit your family in due course – it is not a piece of paper that a banker or share dealer is going to gamble with. I know which path I follow and it takes me straight to my front door!

And what about our young couple? Well, they feel they’ve stagnated long enough paying rent (and someone else’s mortgage!) and they just want to get on with their lives.

I rather suspect that put like that, it doesn’t just make good sense; it makes PERFECT sense!