Its all about the money! Living in rented accommodation temporarily can pay huge dividends if you rent while you wait for prices to correct.

I was out with my friend last week as he was looking for a flat to let. He was looking to spend up to £2,000 per month on rent. I was amazed at what you could rent at this figure. We basically saw Footballer Wives type mansions and luxury penthouse apartments well worth in the region of £1m. I worked out the yield on these properties at their current value and it worked out to be roughly 2%.

Now if my friend was to buy one of these properties he was trying to rent at say £1m on a 100% mortgage his monthly mortgage payment would be £4,167 per month. When you add insurances, service charges and maintenance you could easily push this figure up to £5,000 per month.

Now I ask you – would you like to pay £2,000 per month or £5,000 per month? Well it’s a no brainer!

So the mantra of “its always better to buy than to rent” doesn’t hold true at the top end and I wonder if it even holds true at the middle end. But renting full time is not a good wealth creation strategy as you’ll never own. So you have to wait for property prices to drop to a level where the rental value is roughly the same as the monthly ownership cost level.

When will this happen? Who knows! But I reckon it will happen when the monthly ownership costs fall to £3500 per month which would mean a 30% fall in house prices if interest rates stay the same. If interest rates fall however then the price correction will not be so severe. If interest rates fall to a 3% base rate then there will be no need for a price correction……..but we can all dream!!!!!!

Ajay.

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