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.

On an individual level maybe not, but when it comes to the wider economy absolutely these are relevant questions.

For example, it astounds me how people are juat looking at the monthly mortgage bill but ignoring the opportunity cost of the deposit in the buying cost.

If you’re really a landlord, you’d know how to spell “tenant”.

Houses in my area to rent are £800-1000. My mortgage is £440. I wouldn’t be able to afford to rent.

People are generally never given notice for social housing though. The vast majority are lifetime tenancies.

People are generally never given notice for social housing though. The vast majority are lifetime tenancies.

They would be better off saving any equity they have (if they downsize) for the repairs and maintenance on the smaller property. Not squandering it on 'travelling the world.'

We had a shared ownership property. It was owner 50-50 with a housing association. 50% mortgage - 50% rent.

When we started out we paid less for the rent than the mortgage. The rent was linked to inflation - so 7 years down the line we ended up paying more for the rent than the mortage.

At this point we thought it crazy. So we tried to buy the other half of the house. Our income had more than doubled since we'd bought. The house had reduced in value overall too. This had wiped out our equity, though we had some savings.

The Building Society looked at our numbers and thought it was nuts - they couldn't offer the mortgage as we only had 10% to put down. They offered 10% deposit mortgages to first time buyers only - but despite it being our first house we didn't qualify. We had to find another 5% from somewhere else.

In the end we borrowed it off parents because it was absoluetely insane to be paying more per month on 50% than if we owned the entire house!

The thing is other houses on the estate were HA only - and had similar terms on the mortgage. So whilst our house price had declined in that time the rents had increased. And still continue to increase year on year. They absoluetely were paying more in rent than we were paying in mortgage.

I know how much houses like ours on that estate have subsequent increased since. Given that the rent increases in a compound effect it will be much bigger than the increase on an initial mortgage as a first time buyer - on similar houses.

Most of the houses which were shared ownership have been sold on - probably as a result of this madness. Very few remain shared ownership - they are now fully owned because the HA couldn't resell them on the original terms as they were more than mortgaging the full house! The HA struggled to get tenants at one point for the rental only properties despite the area being desireable because the terms were poor.

The whole thing is absoluetely insane. The HA properties were supposed to offer an affordable alternative to lower income families. What actually happened was quite the opposite and pretty scandalous. In theory the HA was supposed to be not for profit. In reality it was pissing money up the wall. The staff were a whole new level of shit and they had more people defaulting (which the paying tenants had to cover) because they inflated rents so much. I have no words for how badly the whole thing was run and managed.

No words can describe how dreadful this Housing Association was and probably still is.

Anyone else thankful that OP is not their landlord? Some very strange emotions-driven thinking and a lack of basic understanding that I feel probably doesn’t translate to being particularly well suited to either the people side or the financial side

Of course it is, because otherwise the entire business model doesn't work.

But OP is just on a complete wind-up anyway.

My mortgage is 500 and to rent similar would be about 3 times that. Definitely cheaper each month to mortgage I think.

It's a bit of a shame that you take this stance, and your reaction regarding 'squandering' feels almost like a personal attack. It is certainly pretty aggressive.

I really do hope that they can do something nice together when they retire, and perhaps fulfil a long held dream.

My mortgage on a four bed semi is £750 a month. To rent at that price in our village you would get a two bed flat for £800 a month

When did you take out your mortgage?

Our mortgage on a three bed house is less (monthly) than a one bed flat that is up for rent in our village.

Yes, mortgages are cheaper per month round here (Kent) compared to renting the same sized house/flat. Obviously you need a deposit to buy a flat/house though, and you're liable for your own repairs.

I mean you can add as many passive aggressive laughing faces as you like, but it doesn't make what you are saying true.

Lets say I have a 1 bed flat renting for £1000pcm and in the space of a few months it needs a new boiler and new cooker at lets say 3k.

Do you really think at renewal (not that there is renewal from May) that I can put the rent up £250 per month to get my money back in the next year. The flat would sit empty - and rightly so.

It quite simply doesn't work like that.

But surely when deciding to buy a btl (or retain one if an accidental landlord) you look at your mortgage costs, maintenance costs etc vs the market value of the rent to decide whether or not it’s a good investment?

The price of replacing the boiler every now and again, or giving the place a bit of an overhaul every few years is factored into those initial calculations and therefore already covered by the rent over a period of time.

Costs are in no way related to rental income.

Lets look at it another way.

1. Person x owns a 1 bed flat and has no mortgage on it.

2. Person Y owns a flat in the same complex which is exactly the same but has a £800 pcm buy to let mortgage on it.

The costs between person x and person y are hugely different, but person Y isn't able to get more for her flat just because she has higher costs.

I mean that should be obvious.

It's cheaper to buy most things than rent them due to the transfer of risk and capital .

Costs are related to rental income when deciding whether or not to invest in a rental flat! Of course they are!

If Person Y’s buy to let mortgage offer is only just covered by the rental income with not enough surplus after maintenance costs to generate an attractive yield then it’s not a good investment and they should either not buy it or sell it if they became an accidental landlord.

Person X needs to weigh up the yield, after maintenance costs, against alternative investment options for their significant amount of cash tied up in the rental property.

That's not what was said though.

It has been said a number of times "you can just pass the cost on."

You can't!

@limeandwater It really depends on area, and your own situation. For many, it's true that mortgage is cheaper.

Of course, it's not static. Rents go up whereas your mortgage is within your control and you'll soon find that rents keeps going up and up and you end up having more equity and can negotiate better mortgage deals. Perhaps even an interest-free one (you would need to have plans how you will pay it off, either downsizing or other means).

I was in that lucky generation that could get a 95% mortgage in the 1990s, think it was 6-7% interest rate. Not cheaper but about the same as renting. But I was happier paying 'myself' as it were as the equity growns.

This is not a boast, but just to show how important owning is. We now live in a 7-bed period house with a large garden with a value of around £2.8M. We have a mortage of around £800k on it (because we have bought another property that we're letting out etc) with a mortgage (we were lucky to grab it at the time) of around £1,700 per month. For that around here, you'd be lucky to get a 2-bed cottage!!

For the same house in terms of size and location? I’d have thought fairly obviously rent would be more expensive because you’re potentially covering the landlord’s mortgage, plus landlord’s costs (insurance, management fees etc), plus some profit for them.

You pass the costs on when doing the initial calculations for the rental.

I have had investment flats over the years (don’t any more). I always weighed up maintenance costs at the outset. If the numbers didn’t stack up and I couldn’t cover the maintenance costs out of the forecast rent, then I didn’t buy the property. There was always more than enough cash built up in the property accounts to cover things like replacing the boiler, full redecoration every 5 years or so etc.

I bought a house last year in the same area where I’d been renting, and my mortgage is actually higher than what I was paying in rent, so it’s not always the case that mortgages are cheaper. The house is slightly bigger than our previous place, but not by much. We also put down a fairly large deposit, but we’re in a desirable area with high property prices. Mortgage rates are also higher than they have been previously so it's more likely you'll have higher repayments these days.