Mortgage cheaper than rent?

[limeandwater]

On this forum and plenty of other social media sites to be fair - there are a number of people who state that a mortgage is often cheaper than the rent.

It's not true is it? In fact it is quite a long way from being true.

Mortgages used to be cheaper than renting, but it's definitely the other way around now where I am. We currently rent and we're having to prepare for our monthly housing cost to double when switch to a mortgage.

Of course you will always have tennants, I haven't suggested otherwise.

Dead money

Yes. No. Maybe. It really depends on the circumstances, mainly location. Rents are fairly inelastic compared to house values. They're generally very focussed on number of bedrooms, whereas purchase prices vary more. So you can have a 3 bed house worth £200k that earns X rent, but a relatively short distance away (next town perhaps), there could be another 3 bed house worth 350k that only achieves the same X rent.

I suppose you could argue that you should compare the interest part of the mortgage to rental costs, since the repayment is buying equity. The big advantage comes once there mortgage is paid off, whereas a renter is going to have to keep on paying.

People also tend to overlook the other costs associated with home ownership i.e. maintenance. When you rent, all that stuff is included - boiler servicing/replacement windows, flooring, roofing and external maintenance etc, etc. That all adds up, probably averages around 1k to 2k a year over the longer term?

The landlord would not be making a loss because the Tenent is paying for the landlords set which they will own at the end of the mortgage. It is essentially like the tenant putting money in a savings account for the landlord every month.

In my area mortgages are cheaper. Don’t forget that rent will always increase with the value of the home, whilst will be static with a mortgage. Therefore even 5 years after a purchase even if they were both the same to start off with, the rent will likely have increased by 10-20% whilst the mortgage is the same plus some equity built.

You're still not making a fair comparison.

You would need to know the cost of an interest only mortgage. And then take into account the value of the increase in the equity in the house ... how do you plan to do that?

Most people would be on a repayment mortgage so they are repaying a loan and also investing in an asset that will continue to grow.

I don't think so.

Mortgage £401. House next foor pays £900 rent..For exact same house. Just bought at the right time

It completely depends on the mortgage interest rate, mortgage length and size of deposit in terms of monthly payments and what length of time you want to do the comparison for, but for example in my area a 3 bed terrace is about 300k, on the same street a rental for a near identical property is £1400 a month.

The way I think about it is if you rented for 70 years (Ages 25 to 85) you would pay £1400 x 12 months x 70 years which would be £1,176,000 in total. This isn't even taking into account the fact that the monthly rent would most definitely increase over that length of time. Clearly this is a lot more than you would pay over a mortgage term even with a high interest rate and a deposit. In addition you would own the property at the end of the mortgage, which most likely will have increased in value, potentially to the point it may be worth more than the total cost of the mortgage to purchase the property, so you may eventually break even or be in profit by the time you sell.

Even taking into account stamp duty, repair costs etc for renting vs owning and buying with a mortgage ultimately will be significantly cheaper in the long run.

The best option though will surely depend on your personal situation, if you need to relocate fairly often if may not make sense to purchase with a mortgage every time especially if you are at risk of paying early repayment charges etc so its great that renting exists as an alternative.

I pay £1200 pcm rent. Flats in my building are worth £120-130k. Apparently a monthly mortgage with a 10% deposit would be around £500. So yes, my rent is more expensive.

Yes it’s true. A landlord buys a property at a higher rate than a residential mortgage and has to factor in many costs - estate agent fees, gas and electrical certificates, maintenance, insurance, sinking fund for redecoration and boiler replacement. So rent has to include all of this.

Someone with a mortgage and someone renting in the same area however will spend the same as these costs still stand if you have a mortgage on your property.

Its like an all inclusive compared to a bed and breakfast.

Also increasing prices mean mortgages become cheaper quite quickly after you’ve had a property for a few years.

It used to be very true, then house prices rose and it is no longer straightforward.

My second house mortgage was around £200 per month. Rent would have been around £350 and that was pretty standard.

For a while it seemed to reverse, but now rents seem to be going up and catching up with house prices. The only thing that doesn't seem to be catching up is the local housing allowance for people on benefits when are priced out.

Current house rent £509, mortgage £600.

Mums house worth around £150- £175k, neighbours rent with less bedrooms for £650 so renting is back to being more expensive. A few years ago the renters were paying nearer £400.

There are quite a few posts on here than indicate that Landlords can just pass costs on.

That's rarely the case.

I haven’t read the whole thread. I’m a landlord. The fairest comparison imo would be to calculate the mortgage cost on an interest only basis for 100% value (ie renting money) plus mortgage arrangement fees, solicitors and estate agent fees when selling, which is basically what an owner would have to do.

Total owner occupier cost - 292k
Monthly interest only mortgage at maybe 5% - you’re not getting good deals here as it’s a big risk - 1218
For this, you have to pay all repairs, buildings insurance, boiler maintenance, servicing, redecoration etc so maybe another - 130 a month if you’re lucky and everything is brand new - 1348

My rents for long term tenants are lower at 1200. I have a new tenant paying 1400.

I get far less than this once my costs are deducted. I have a lot more obligations than an owner occupier and tax to pay. Plus I have the risk of non payers, court and eviction fees etc.

In the short to medium term, it would therefore be cheaper for me to be an owner occupier. Who knows after 10 years. Most people will have moved on from the property.

I thought that was the whole point of buy to let?

What is the whole point?

Because the government are piling on obligations and costs on landlords. That’s why so many are exiting the market place. You have to have deep pockets and a very very substantial deposit to break even. Forget it even with 30% these days.

Mine is higher because we got a short term (10 year) mortgage with the aim of being mortgage free by the time the kids finish school. If we'd got a longer term it would definitely be cheaper than renting.

OP: Is mortgage cheaper than rent?
Everyone: Yes
OP: Sadly it doesn't work like that.
Everyone: Yes it does.
OP: You're wrong.
Everyone: It's definitely cheaper.
OP: Well that's not what I asked.

🙄

Ooh @limeandwater- you encouraged me to go check as there’s a posh block of flats near us and there’s a flat for sale and a flat for rent in same building. Assuming a 10% deposit and 25 year mortgage, it would cost you £2,005 a month to buy and the flat is for rent for £2,150 a month. They aren’t an exact comparison- while looks like same layout/sq footage, the one for rent has a balcony that is both north facing and facing the road, whereas the one for sale has a south east facing balcony which is facing the garden/neighbours garden. I would therefore assume the rented one would be slightly cheaper to buy if it came up for sale.

In our area, there doesn’t seem to be a lot of property for rent, so I guess the local supply and demand will really effect the rental prices.

That's not really how it went.

Quite, 30% you wont break even.

Especially in the South East.

(I’m now wasting too much time time on rightmove - I have picked two potential new properties should I win the euromillions tomorrow evening.)

Mine and my daughters mortgages are all below £350 a month. The cheapest house in the same areas as my daughters to rent are £550+ a month. My area would be £1000+ a month