Jamie Harris version Buying house vs investing

	A	B	C	D
1		Realistic	Source	Notes

7	Investing and renting
8	Initial money in to index fund	£84,000	For equivalence with deposit amount below
9	Annual return	7.5%	https://www.nerdwallet.com/blog/investing/average-stock-market-return/#:~:text=Over%20nearly%20the%20last%20century,know%20about%20stock%20market%20returns.	Kept John's lower bound amounts
10	10 yr total	£173,127	Calc
11	10 yr profit	£89,127	Calc
12	Initial monthly rent	£2,058	https://www.home.co.uk/for_rent/london/current_rents?location=london
13	Rent at 10 yrs	£2,974	https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/indexofprivatehousingrentalprices/august2020	John wrote: "Rent increases slower than house prices because houses are an asset." Acc the link on the left, UK rental prices have risen between just under 1% and just under 2.5% per year from 2015 to 2020 (corresponding to the pessimistic period below), which seems substantially less than the increase in housing prices
14	Average rent and bills over 10 years	£2,516	Calc
15	10 yr total rent	£301,914	Calc
16	Overall balance	-£128,787	Calc
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19	Buying			Assume sell after 10 years
20	Deposit	£84,000	15%. May want to try variations with larger proportion of price paid upfront.
21	Two bedroom flat cost (median rather than mean)	£560,000	May want to try variations with more or less expensive flat	https://www.home.co.uk/guides/house_prices.htm?location=london
22	Size of mortgage	£476,000
23	Annual return to housing	7.5%	https://landregistry.data.gov.uk/app/ukhpi/compare?from=1946-01-01&in=pac&location[]=E12000007&st=fla&to=2020-09-01&lang=en	Realistic = average from Jan 2000 to Jan 2020 in London. Pessimistic = Jan 2015 to July 2020. Optimistic = 4% added to match. It looks like the worst ever house price crash took less than 10 years to recover. So the worst case outcome is something more like 1?
24	10 yr house price	£1,154,178	Calc
25	Pay off time	25	Assumption
26	Interest rate (5 yr fixed rate, repayment)	3.20%	Barclays mortgage cost calculator
27	Follow on rate (6 yr on)	3.59%	Barclays mortgage cost calculator
28	Total monthly mortgage payment (first 5 yr)	£2,307	Barclays mortgage calculator
29	Total monthly mortgage patment (second 5 yrs)	£2,388	Barclays mortgage calculator
30	Total mortgage repayment at 10 yrs	£281,681	Calc
31	Sale money at 10 yrs	£1,154,178	Same as 10 year house price
32	Remaining mortgage balance	£331,914	Barclays mortgage calculator
33	Crude profit from house sale	£822,263	Calc
34	Profit from house sale minus deposit and repayments	£456,582	Calc
35
36	Other costs
37	Stamp duty	£3,000	money advice service	Dependent on value of property, only or additional home
38	Estate agent fees	£7,952	Which	Can vary from 1% to 3.5%
39	Legal fees	£1,450	money advice service	"Legal fees are typically £850-£1,500 including VAT at 20%. They will also do local searches, which will cost you £250-£300, to check whether there are any local plans or problems."
40	Valuation fee	£800	money advice service	"£150-£1,500 based on the property’s value"
41	Surveyor’s fee	£425	money advice service	"Surveys range from a basic home condition survey costing around £250 to a full structural survey from £600 or more."
42	Home insurance	£2,000	money advice service	Average is apparently £160 a year, but I bumped this up since some people don't have any
43	Maintenance/repairs	£17,000	Trainio
44	Furniture	£4,000	Guess -- £1k per room estimate
45	Sum of other costs	£36,627	Calc
46
47	Overall balance housing	£419,955
48	Overall balance investing	-£128,787
49	Investing diff to owning (raw)	-£548,743
50
51	Annual discount for net present value	3.5%	https://www.finance-ni.gov.uk/articles/step-eight-calculate-net-present-values-and-assess-uncertainties	Apparently 3.5% is "standard"
52	Net present value of gains, if not accessible for 30 years	-£188,447	http://johnhalstead.org/index.php/2020/05/23/dont-buy-a-house/	These calculations are to account for the idea that you can't access the gains until you downsize or die.
53	Net present value of gains, if not accessible for 50 years	-£92,413		I'm pretty sure the maths is a bit wrong here, but not too far off?
54	Net present value of gains, if not accessible for 70 years	-£45,319
55
56	Repeatable costs if buy second house
57	Stamp duty	£3,000
58	Estate agent fees	£7,952
59	Legal fees	£1,450
60	Valuation fee	£800
61	Surveyor’s fee	£425
62	Worst case early repayment charge for mortgage	£23,800	https://www.moneysavingexpert.com/mortgages/remortgage-fees/	More likely to be less than this -- or nothing -- because we wouldn't buy then resell immediately. See comparing timeframes tab
63	Porting cost for mortgage if increasing borrowing	£300	https://www.theadvisory.co.uk/house-selling/moving-with-a-mortgage/
64	Other mortgage related fees	£2,450	https://www.moneysavingexpert.com/mortgages/remortgage-fees/	Used midpoints of ranges, though some might not need to be paid
65	Sum of other costs	£40,177
66
67	Misc notes
68	Got rid of utilities -- no reason to believe would differ, renting vs buying
69	Got rid of "new kitchen" and "other major renovation" -- I believe that that was supposed to be included in the average annual figure for "maintenance/repairs"? In any case, looks like £6000-12000 in additional one of costs wouldn't even come close to swinging the balance between investing or buying a house
70	If PhDs mean I can't buy, that adds to the counterfactual cost of a PhD
71	Higher number of moves if you rent? Costs from deposits and moving? Could imagine that this adds several hundred at least to the renting costs.
72	I don't think whether you buy or not affects the fact that the government gives you a 25% bonus for the money you invest (up to £4000) in a Lifetime ISA -- that money can be spent on buying a house or saving for a pension.
73	Regarding net present value, the gains might not be the important thing. If you think that charities need money very urgently (e.g. hinge of history, rapidly diminishing returns), you might not invest/buy at all -- just donate now.
74
75	Conclusions from next pages
76	The only thing that risks making buying worse than renting+investing is if there's a major crash in house prices shortly after you buying. (Or maybe if there were multiple crashes, or just the historical data is a bad guide to returns on stock market and housing value)
77	Despite the large raw difference between buying vs renting and investing, these differences might mean surprisingly little, in terms of ability to do good in the world, if you apply a discount to the value of future money to calculate its net present value. If you want to apply a high discount rate, then the gains are practically zero.
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