rent -v- mortgage payment(17 Posts)
Asking for DD who has been renting flats since she left home years ago. Is there an on-line tool that can let you enter costs like mortgage payment, ground rent, standing charge for ongoing stuff like lift maintenance etc set against rent charges? so you can work out whether you'd be better off buying rather than renting. She is on a low wage, but I'd help her out. We hate seeing this 'empty rent charge' thing, when we could perhaps be buying something that would, in the long run, benefit the whole family.
I'm not sure about a online calculator but it's not a given that she would have all of those additional charges, is it? We've just bought our first house and don't have things like that yo pay on top. The big financial costs to us have been the fees for the purchase, and having access to funds for repairs etc. we had rented for 6 years together before this (and for years and years separately prior to meeting each other!).. In just 5 years of living together we totted up £80k of rent we had paid out. (In London though, I should add). That would be £80k off our mortgage now and it definitely sticks on the gullet despite not previously wanting the responsibility go owning etc. in the long run, if your daughter is going to stay in the area she would buy in (which was a factor for us against buying as we enjoyed the flexibility of renting) then it's worth the mortgage I would say. Plus, with rental prices as high as they are now you are getting very little value for your money - apart from the odd boiler break and fix we've not felt the 'benefit' especially of gabbing a landlord maintain a property - none of the properties we have lived in have been decorated during the tenancy for example.
Gabbing = having
I know there are others.. Gah.
She should buy if she can, no question. In ten years her mortgage payments will be the same whereas if she rents that will have gone up considerably. Rent is going in someone else's pocket.
I do worry that buying will tie her to the area and her current low paid job and stop her spreading her wings. But i guess we could rent out the apartment if she did move.
Yes, you could, but PLEASE make yourselves fully aware of all the responsibilities that you have as a Landlord before doing so. It's not as easy as just getting tenants in as the thread in active convos attests! I urge this as an 'ex' tenant who has frustratingly had to deal with various private landlords who have failed to meet even the most basic of obligations!
thanks for the info fix I would certainly not go into this with eyes shut. Any info is well received.
We rented our house when we emigrated and lost a significant amount of money I would never do it again. On the other hand my sister in the same situation has been OK. The difference being she had good tenants and we had very bad ones.
The other thing to bear in mind with buying is that the value of the house can fall as well as rise, so you can end up paying a mortgage on an asset that is losing value. Not so much of an issue when you live there, but a real problem when you sell. If the market as a whole goes down and you buy something new then it's now such a big deal but if it's something specific to your house or your area and you are moving that can be a big problem.
But yes, in general buying rather than renting is a better long term bet.
We have rented for 6.5 years.
Total rent we've paid is £118,000.
The rent hasn't really risen in that time.
We could have bought a similar property for £525k in 2007.
I'm not really sure what mortgage rates are now, 4%? But we'd have paid I guess:
Stamp duty: £22,300
Maintenance: (new shed, washing machine, roof repairs, etc.): £5k?
So we are better off on that by about £45,000.
However prices have gone up recently locally after being stagnant for a while, and I guess the house would now be £50,000 more expensive. So we are actually about £5,000 worse off.
Generally the first figure to look at is yield.
So if the house is worth £575,000 and the annual rent is £18,600, then the yield is 3.23%. That's low compared with mortgage rates, and suggests either that our rent is too low, or the house is overvalued.
In my opinion it's both.
On a flat the yield is typically going to be a lot higher. We rent a house and they don't attract good rental yields generally.
If you buy, you rent from the bank. But that does depend on your mortgage rate. Also if you have a big deposit, then you get lower mortgage rates and probably a better return compared to shit savings account rates.
I would say some properties are ludicrously overpriced, and some are more reasonable. You can't really generalise.
6.5 years is still short term. The figures for buying would look way better than renting over the long term.
At the end of paying rent for 25 years you are left with nothing but a huge hole in your finances and always the potential for being evicted or given notice. After paying off a mortgage for 25 years you will own the house or flat outright and have the chance to sell and downsize, have money for pension savings, security of your own home etc.
My dd is in the same situation but unfortunately we are not in a position to help her to buy. One big worry is that people who rent will never be able to afford to retire. With rent in this area averaging 1k per month for a small property you'd need a big pension to afford rent and living costs.
It's the fact that we can help her out with a big (ish) deposit that is kind of swaying it for me at the moment. My father died a couple of years ago and left me some money which is sitting in a savings account not earning me anything much at all. I just shift the max to an ISA every April. ISAs are not that great either, or so I've read.
We do live in one of the cheapest areas to buy in England, hence DD earning a low wage, as these things go hand in hand. There is not much opportunity for youngsters in this City.
Currently she is paying £120 a week for a one-bedroomed flat. Its in an old building and she cannot afford to put the storage heaters on. We already help her with £50 a week towards that rent. She earns £800 a month approx. The 2 bedroomed flat we would be looking to buy is currently £112,000 and has a B rating for energy. I don't know what the ground rent or service charges are at this point. She thinks she could rent out the spare bedroom to one of her friends (she's shared with this girl before and they get on well).
there's no online tool but the maths is not hard. Getting the facts will be more difficult but can be done.
if she lives in a draughty uninsulated building then it will be cold, although does she know how to use storage heaters and does she have the right tariff for them?
with over half her salary going on rent no wonder she needs help.Surprised she even got the place as she wouldn't pass credit checks.
as for ISAS, very few pay over inflation at the moment. Stocks and shares can give better returns but there are obvious risks.
Years ago I bought a flat with a reasonable service charge. In the years I lived there the service charge increased dramatically. It ended up being more per month than the (small) mortgage.
I know that I would not ever, ever advise anyone to buy anywhere that had a service charge
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