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.

No, I think you are just incorrect. It's okay to be wrong

Buy that’s impossible way to work it out.
As they only compares to like to like on the day of purchase. A mortgage isn’t profitable if you only own for 1 day.

If you buy a £500k property today, and mortgage is the same cost as rent, then that’s today. Say both are £1000 for convenience sake
But in 5 years time the fixed rate mortgage is still £1000, and the owner has 5 years equity. And the house value has increased to £580k. The Rental is now £1800 and the renter has no equity. And no property value increase.

After 20years. Owner has invested £50k in property renovation but also pay off house in full. So they now pay nothing monthly bar save for general maintenance. house value now £800k. So they also can downsize to smaller and pocket profit
Renters rent is now likely increased from £1000 to £3-4000 a month. They have no asset

If this has been your business for 21 years, and you are now having to ask Mumsnet about rent vs mortgage... I would guess you might be in the wrong business (and undercharging rent if you aren't covering your costs).

To be fair, perhaps I wasn't clear.

I accept that.

Surely that's a contents insurance issue - in both the rental and ownership that cost is similar.

It's ok to not cover costs for a lot of LL.

So we should use a false reality to justify your false assertion?

You also need to discount from the monthly mortgage cost what goes towards paying the capital, as that is not a cost of having a mortgage.

So, for a 100k house at 5% over 25 years, a mortgage would cost you ~£600 a month but only about £450 of that would be interest.

So for renting to be cheaper, you'd need to be able to rent an equivalent property at £450, not £600, and presumably find a landlord who is quite happy going bankrupt very very quickly.

It's not false, but I can't explain it again.

there are a number of people who state that a mortgage is often cheaper than the rent.

For our first house it was about the same in the early years till an insuarance payout due to DH being in accident not his fault meant we could pay a lump sum off then it went down and felt more managable. It also cost a fortune in fixing up.

We currently have a fixed repayment mortage and pay just under what we starting rate was decade ago - so overpay each month. We pay 550 a month - to rent a 3 bed in same area - we have a four but they are rare - is currently £1200 - 1300 .

However if we were buying now this house would be 100,000 more to buy than we paid.

I pushed to buy as neede stablity as kids started school and becuase I didn't want to be paying rent out of a pension. It wasn't easy as DH work area there lots of movements across country which is a pain. There are upkeep costs and maintance costs though so swings and roundabouts.

Of course a mortgage is cheaper, even if it's not cheaper lol if that makes sense.

For example, say both are £2k per month

£2k mortgage X 25 years = £600,000
£2k rent X 55 years = £1,320,000

I'm sorry, what?

What landlords in any sort of sane mind are there that are happy to make a loss on renting out property?

In the long term getting a mortgage will generally be cheaper especially if you start young and get lots of years of living in the house with just the maintenance after you pay off the mortgage.

Our mortgage is so much less than paying rent each month. About 50% less. It used to piss me off for years when I paid rent at how much I was paying whilst trying to save a deposit for a mortgage. Thinking if I wasn’t paying so much rent I would have a deposit so much sooner and my quality of life would be improved so much. Most people I know who share this kind of info are paying an awful lot less with a mortgage.

At the start it's quite normal.

It depends what your end goal is.

No, but you need to include all costs for a fair comparison. If someone buys with a 10% deposit of £30k that's £30k that they no longer have in the bank, so that is a cost. They could be investing that money elsewhere. One way to account for it is to say what if it was a 100% mortgage.

To make it clearer; I bought with a 40% deposit. So that drove down my monthly mortgage cost a lot. Ignoring that wouldn't make sense.

A couple of things that are being ignored here.

Firstly the long term maintenance cost of a house is around 2% of the value. Spending any less than that will reduce the value of the property in the long run.

Secondly, the market is currently in a very different position than it has been for the past generation. Buyers could easily lose money on recent purchases whereas renters are protected from that.

Why is it "the only fair way to work it out" if it doesn't represent real-world realities?

That's like saying "If you take the US out of the equation, which global power" etc...

It makes it a completely pointless exercise if you do that.

Because people don't get mortgages in the UK without a deposit.

Have you actually seen the figures for what people put down as a deposit in the UK?

It's tens of thousands of pounds. And they do it to get the preferential monthly payments so that they can meet the affordability ratings.

So I'm sorry, but your whole exercise here is COMPLETELY pointless if you're trying to take out the one factor that is the engine driving mortgage approvals.

Like I said - the number of people who get 100% mortgages aren't even a statistic that can be reported on, the figure doesn't exist in statistics.

Rent will always be at today's market prices. A mortgage becomes relatively smaller over the years.

Those saying 'my mortgage is £350' are unlikely to have taken out that mortgage in the last year.

I found the initial costs of owning higher than renting but that changes year on year.

If the system wants to assess risk, why is it happy to bank on an individual paying someone else’s mortgage (in many cases) on a temporary basis rather than invest in property that will be cheaper on that person’s pocket? I’ve never understood it.

My wife's youngest was working for NMW & paying about £500/month for a one bedroom flat. He rented for five years paying about £30,000 in total because he couldn't get a mortgage. He moved to a higher paid job & was then able to buy his own much nicer one bedroom flat with a 10% deposit & is now paying around the same in mortgage repayments as he was in rent.

Does it depend on when someone bought? We bought our house in 2016 and our mortgage is £579 (+£110 pm of rates) where the equivalent rent is £1,000.

Its usually the long game with mortgage being cheaper i.e. rent will be £1,500 by the time we retire but the monthly mortgage payment will be £0 (hopefully!)

Why are you speaking in these cryptic teasing posts @limeandwater ?

Is it to try and sound knowledgeable?! 😅😂

My mortgage is £1180 for a 4 bed detached whereas the tiny 3 bed next door is rented out for £1400 a month. Rent is more than mortgage round here for 2-3 beds due to high demand and low stock.

In the 2000s and 2010s some LLs definitely were prepared to accept an initial monthly loss in the short term, because they were expecting rent increases and capital gains in the long term.

My house would be £2K to rent based on nearby houses. Our mortgage is £950. When we first got it pre-Truss we were renting a 2 bed flat for £900 a month, and the mortgage on our 3 bed house was £750. To rent an equivalent house was about £1500.

So much affects it though. We went from 75% to 60% LTV quickly because it was a do-uper and we are in the very fortunate position to be able to overpay. We got a 25 year mortgage so obviously a shorter mortgage more expensive, longer would have taken it down more.