I also live in London, and bought a house in April 2016. So I’ve thought about these calculations a fair bit, and happy to share some thoughts here:
One quick note on your calculations is that stamp duty has been massively, but temporarily, cut due to COVID. You note it’s currently £3k on a £560k flat. Normally it would be £18k. You can look at both sets of rates here.
When I looked at this, the calculation was heavily dependent on how often you expect to move. Every time you sell a home and buy a new one you incur large fixed costs; normally 2-4% of purchase price in stamp duty, 1-3% in estate agent fees, and a few other fixed costs which are minor in the context of the London property market but would be significant if you were looking at somewhere much cheaper (legal fees etc.). All of this seems well accounted for in your spreadsheet, but it means that if you expect to move every 1-3 years then the ongoing saving will be swamped by repeatedly incurring these costs.
There’s also a somewhat fixed time cost; when I bought a home I estimate I spent the equivalent of 1 week of full-time work on the process (not the moving itself), most of which was spent doing things I wouldn’t have needed to do for rented accomodation.
All told, for my personal situation in 2016 I thought I should only buy if I expected to stay in that flat for at least 5 years, and to make the calculation clear I would have wanted that to be more like 10 years. As a result, buying looks much better if you have outside factors already tying you down; a job that is very unlikely to be beaten, kids, a city you and/​or your partner loves, etc.
This is a much closer calculation that will come out with your numbers, because I don’t think a 7.5% housing return is a sensible average to use going forward. I had something like a 2% real (~4% nominal, but I generally prefer to think in terms of real) estimate pencilled in for housing, and more like a 5% real (7% nominal) rate pencilled in for stocks. There’s a longer discussion there, but the key point I would make is that interest rates fallen dramatically in recent decades, boosting the value of assets which pay out streams of income, i.e. rent/​dividends. It’s unclear to me that the recent trend towards ever lower rates can go much further, and markets don’t expect it to, so I didn’t want to tacitly assume that.
So far, that conservative estimate was much closer, London house prices rose by roughly 1.5% annualised between April 2016 and March 2020. Then a pandemic hit, but happy to exclude that from ‘things I could have reasonably expected’.
I also live in London, and bought a house in April 2016. So I’ve thought about these calculations a fair bit, and happy to share some thoughts here:
One quick note on your calculations is that stamp duty has been massively, but temporarily, cut due to COVID. You note it’s currently £3k on a £560k flat. Normally it would be £18k. You can look at both sets of rates here.
When I looked at this, the calculation was heavily dependent on how often you expect to move. Every time you sell a home and buy a new one you incur large fixed costs; normally 2-4% of purchase price in stamp duty, 1-3% in estate agent fees, and a few other fixed costs which are minor in the context of the London property market but would be significant if you were looking at somewhere much cheaper (legal fees etc.). All of this seems well accounted for in your spreadsheet, but it means that if you expect to move every 1-3 years then the ongoing saving will be swamped by repeatedly incurring these costs.
There’s also a somewhat fixed time cost; when I bought a home I estimate I spent the equivalent of 1 week of full-time work on the process (not the moving itself), most of which was spent doing things I wouldn’t have needed to do for rented accomodation.
All told, for my personal situation in 2016 I thought I should only buy if I expected to stay in that flat for at least 5 years, and to make the calculation clear I would have wanted that to be more like 10 years. As a result, buying looks much better if you have outside factors already tying you down; a job that is very unlikely to be beaten, kids, a city you and/​or your partner loves, etc.
This is a much closer calculation that will come out with your numbers, because I don’t think a 7.5% housing return is a sensible average to use going forward. I had something like a 2% real (~4% nominal, but I generally prefer to think in terms of real) estimate pencilled in for housing, and more like a 5% real (7% nominal) rate pencilled in for stocks. There’s a longer discussion there, but the key point I would make is that interest rates fallen dramatically in recent decades, boosting the value of assets which pay out streams of income, i.e. rent/​dividends. It’s unclear to me that the recent trend towards ever lower rates can go much further, and markets don’t expect it to, so I didn’t want to tacitly assume that.
So far, that conservative estimate was much closer, London house prices rose by roughly 1.5% annualised between April 2016 and March 2020. Then a pandemic hit, but happy to exclude that from ‘things I could have reasonably expected’.