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.

I live in a council flat. My rent is £450pm. If I bought it, my mortgage would be around £200pm.

My NDNs are renting privately from my ex-neighbour who bought his flat outright 15 years ago for £18k. They're paying £700pm.

I think it was just 5 years after I bought mine that the landlady bought this house.

300k. So in theory I guess I'm spending about the expected amount a year.

What's the value of the property?

You are giving up the interest on the deposit though, which basically means the mortgage cost is the same.

I'll make it interest only without conpounding for clarity

Imagine a 100k house.

You borrow 90k @ 5% = 4500 pa = 375 a month

You give up 5% interest on your 10k deposit = 500 pa = 41.6 a month

Total monthly cost = 416.6

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You borrow 100k @ 5% = 5000 pa = 416.6 a month

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You borrow 50k @ 5% = 2500 pa = 208.3 a month

You give up 5% interest on your 50k deposit = 2500 pa = 208.3 a month

Total monthly cost = 416.6 a month

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In reality the mortgage interest and the deposit interest probably won't be the same (unless it's an offset) so there will be advantages or disadvantages to using money for a smaller or larger deposit, choice of investment product and so on, but the general principle applies - the money you "save" by putting down a deposit is broadly offset by the investment income you lose.

That makes the value of the flat around 45k?

i know I couldn’t afford to rent my home. But it’s worth including the additional costs of owning a property to make a true comparison rather than just the monthly repayment.

In the last 2 years our house has cost us around 10,000 just in essential maintenance.

Obviously we benefit from this in the longer term but it certainly clouds the picture a bit

Around £80k, I think, give or take. But of course you get a big discount for buying your council home from the council. I think I could buy mine for about £30k now because I've been here for so long.

Could it be down to the type of mortgage rate you got? The othets maybe got their mortgage rate before the rate got high again?

We bought a flat in the same block we rented. Both Identical apart from rented one was 1st floor and our bought one is ground floor. Our rent at the time (2018) was £775 for a 3 bed, our mortgage was £498 for the first 5 years, and went up to £670. A friend rents a similar property just down the street and pays £1100pcm. Even with all my bills combined, I still pay less than they do. So, yes I believe a mortgage is cheaper.

Market value is about £70-£80k depending on condition etc. As a long term tenant I could buy it from the council for £30k.

My mortgage is cheaper than rent but when you buy you need to factor in other costs. Our front door needed fixed that was £300. Our roof needs cleaned thats £550, my garden had drainage iasues that was another £500. Yearly services for the boiler are £70. Any issues we have to fix. My bathroom radiator needed replaced due to corrosion that was another £200. My house is only 7 years old so these bills are nowhere near as high as older bills. You also need to factor in insurances mine are £65 a month on top of the mortgage.

It goes without saying, if you’re ten years+ into a mortgage it will be cheaper than rent. If you put down a big deposit similarly.

But if you buy a house these days with a smaller deposit then initially your payments are probably not far off what you’d be paying in rent.

My DS has just bought a house. His repayments are £1K a month. Rent would be £1-1.2K so not far off.

Pps telling you their mortgage payments are £400 a month are negating the fact that these days you could only borrow around £80K with repayments of £400. Very few people could buy a house with only an £80K mortgage.

Even taking that into consideration its often still much cheaper. The identical, adjoining property to me was just rented after less than a day on the market for £1100 p/m. My mortgage is less than £400 p/m. I did put down a decent deposit, however have just done a quick check with my bank, and even if I only put a 5% deposit of what I bought it for ( so approx £8000) the mortgage was still only £650 p/m.

While, yes, you have to have that deposit, anyone letting will also have had to put at least 5 weeks rent as a deposit, not to mention all the other random fees.

Anecdata but pretty much everyone I've discussed it with says their mortgage is much cheaper than the equivalent property would be to rent. Not sure why OP is so disbelieving of this...!

I do think investors are going to start moving to commercial property in the next few years.

Baffled by this thread... The OP seems to know and verify all the answers and responses laid out, so why ask the question if they know the answer?

What costs is it ok not to cover?

Just general costs.

It's ok as a LL to lose money some years.

It depends when you got your mortgage. I pay £1100 mortgage and my neighbour pays £1700 rent for a house with one less bedroom and no driveway. My mortgage is “cheap” because I’ve lived in my house for 15 years and only have 5 years left to pay. If I bought my house today with the same deposit I had 15 years ago then I’d be paying closer to the rent figure but probably less.

Rent has to be more than the landlord’s mortgage by definition.

Anywhere really with a hefty deposit!

😂

I only pay £600 quid per month for my penthouse at One Hyde Park.

I did put £80 million deposit down though.

Could you be more specific?
If the insurance goes up, should the landlord take the hit on the profit or should it be passed on to the tenant?
If the carpets are replaced should any of this be passed on?
If the agent fees go up should any of this be passed on?
What are general costs ? What do you mean?

We rented before buying our first home a good few years ago. Rent on a 3 bed house was £600, it was average price at the time although we rented for 7 years so by the end rental process had increased. We bought a 3 bed and our mortgage was £555pcm.
We moved 3 years ago. Sold the house to a landlord, who has rented it out for £1200pcm. Same house that we were paying £555pcm mortgage.

You do understand that's how it works?
Your example is patronising in the extreme but that's exactly how it works
Jo and sam have a house each. They've both owned for a few years. They sell both houses and buy one between them. There is a decent amount of equity in both houses. This creates a hefty deposit and brings the mortgage right down

Most of the time rent will be more than a mortgage on the same property.

Rent has to cover the mortgage payment made by the landlord, and the cost of property maintenance/repairs, and the cost of landlord safety checks like boilers/fire/energy certificates etc.

If the rent don’t cover all of those things, why would the landlord bother to own and rent out the house?