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.

Not at all.

If somebody is starting out as a LL and has a BTL mortgage it is quite common after mortgage, tax, repairs, to be lose for the first few years.

I rent out an extension of my house and that pays for the full mortgage of the house, that's in London.
In my experience, for London, that's is definitely true in most cases.

It depends to start with on exact circumstances. A Landlord might be making a return on capital as well as rent, so their assessment will look at both potential return streams. The point I would emphasise though is if you borrow x amount, over time the real repayment on a mortgage will be impacted by inflation. Over five years your mortgage payments should be broadly the same. Rent on the other hand has a really nasty habit of rising sharply.

It’s quite clearly because rents go up, usually ever year, whereas the amount you borrowed just goes down and the mortgage - not accounting for interest rate changes, which can and do go up and down - stays the same.

Maybe on day 1, mortgage might be £2k and rent £1.9k but fast forward three years down the line and the mortgage is still £2k and the rent is now £2.05k. Fast forward ten or fifteen years and the mortgage is still £2k (with a now favourable LTV which protects the owner somewhat from interest rate shocks) and rent is £2.6k.

This is exactly why you end up in the position where people love to moan/ brag “I wouldn’t be able to afford my house were I buying/ renting now..!”

Well also, if you’d invested the amount you’d saved for deposit you’d ve making a decent income off that which would counteract the rent, and no maintenance costs

I understand what you are trying to achieve.
The fairest way to compare would be if your mortgaged the property TODAY at 100% of current market value, and compared it to the rent you would get pcm. However, in that equation you are then ignoring the length of the mortgage vs the length of a tenancy and the inevitable changes YoY.

For example, when I purchased my house, I was paying £672pcm (25yr term) mortgage and a further £198 pcm on a seperate loan that was my deposit (5yrs terms). I also had insurances for another roughly £50. So my pcm cost was £920 for the first 5 yrs. I could have rented the property for £1200.

However after Yr 5, my mortgage rate changed and the 5 Yr loan was gone. I was then paying £1102pcm. I could have rented the property for £2000+. But the value of my property increased in that time so perhaps my mortgage would have increased if I relocked at 100%.

But you can't always look like for like.. it doesn't make true sense. You can really only compare was the incurred / lost cost is at a point in time.

I have 4 bed detached near. Rental is bit bigger actually. Assuming the rental was bought with some developer deals on. These are relatively new builds.
Rent - 1700
Buy with 10%, 4.5 rate - 1625
Then adding costs of owning house... Yeah, OP wasn't wrong really. Unless one has big deposit or buys on a good deal.

Flats in the same building 2 bed
Rent 1000
Buy 750 BUT then you have 2k service charge (for what for on that ones, ok it includes building insurance, but man...), 100 ground rent + usual owning property costs

Oddly the costs on these are quite the same at the end, but yes, you are payong off your own

Somebody who gets it!

True for me, my mortgage is still cheaper than the rent I was paying 6 years ago, blows my mind.

Well the mortgage payments may be lower but you then have other costs - maintenance and repairs etc and take on more risk. However, you also build up equity in the house so overall it is hard to fully compare. Also rental properties often come furnished.

but yes in lots of places mortgage payments are lower as the rental needs to cover the mortgage of the landlord plus other costs - rental agency fees, landlord insurance, repairs and maintenance, maybe furniture.

Losing money is an end goal?

Property isn't a lose-leader. If you aren't charging rent to cover a BTL mortgage, you are doing it wrong.

DD is renting a house for 800 per month. The house is worth 130k . If she got a 100% mortgage at 4.5% over 25 years she'd be paying 722 a month. So on that basis mortgage is cheaper....not forgetting she'd own the house at the end of those 25 years.

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

BTL landlords who assume that house price inflation will give them a windfall when they sell up

But you haven't explained it.

It really has broadly always been the case that a mortgage is cheaper than renting in comparable properties.

My anecdata evidence for this, as well as endless general observations. 30 years ago we bought a 2 bed terrace with a 5% deposit. The mortgage was £180 pm.

Similar houses on the same street were £300-350 to rent, which we couldn't afford. So we saved up about £2500 over a few months while living with parents for the £1600 deposit and fees.

Its surprising if you've been in the business for 21 years that you think otherwise. There must be something very atypical about the properties you deal with.

It’s definitely true for us. Renting a 3 bed around here is £1500+ a month. - our mortgage is just under £700 a month. We did have a really good deposit of about 15% though, maybe a bit more I can’t remember exactly.

Nope.

You can't directly compare rent to a mortgage.

You compare cost of housing. So rent != mortgage costs. It equals your interest portion of a mortgage.

You’re posing an essentially unanswerable question here.

mortgages are not a set monthly amount, or “rate”, in the same way a rent payment is.

A mortgage loan is for the amount of the property than you cannot afford upfront. That could be anything from 95% to 1% (theoretically) of the property value. That will affect how much your mortgage payment is.

You get to choose the term of the mortgage (within reason) so you could choose anything from ten years (large monthly payments) to 35 years (potentially tiny monthly payments).

Once you’ve had the property for a few years you’re likely to remortgage, be in a better position because you owe less now and get yourself onto a cheaper deal.

If you’re struggling on a monthly basis, you can call up to extend your term and thus lower your monthly payment.

After 20-39 years, your mortgage will be paid off and your outgoings reduce again, AND you own a valuable asset. The cost to you was just servicing the loan throughout that time. The rest was going into your asset.

Rent is based on the value of the property and is ongoing into perpetuity. It will never reduce like a mortgage it will only ever increase with market rates. You don’t obtain an asset at the end of it.

So overall it’s very possible to have a mortgage lower than rental rates on your property because of the flexibility of being able to adjust your mortgage term to make it longer for the early years of ownership. It WILL reduce in the future as well because you won’t owe as much AND in ten years time you’ll owe less money, earn more money, and the value of your property will have increased.

So yes. I’d say a mortgage is cheaper in the long run. But “per month” you could make a mortgage cost more than rent depending how you have it set up.

In terms of considering the deposit.
How much is the deposit, say 10%, going up compared to your capacity to save for a 10 % deposit of what the house is worth in two years.
Can your saving compete with how much the value of the house goes up (and also keep paying an increase in rent)?

Also, if you invested the exact same deposit and continued to pay rent (and add savings to your invested deposit if you can), would it end up to your benefit in ten years?

It is interesting. I prefer the security of paying to eventually own property.

I have read that older people on the aged pension are better off if they own their own home.

It's not ideal, but it's not the end of the world for a year or two.

But you are therefore covering the costs in the total "project period" because you might make some losses, but you'll have the equity to cover said losses. So to your own example, you aren't being realistic.

I understand why, for comparison only, you say deposit should be excluded (I think most of the people here understand that in theory).
BUT if you're excluding the deposit, then you ALSO have to factor in that the mortgage has an end date whilst the rent does not.... so there's really not a straight comparison in that sense and people look into monthly outgoing costs.

Also rent involves costs and inconvenience

You could have to move every year if landlord decides. rent likely increases. Plus time and money invested looking for new property and packing and moving again and again

Most start renting at market rate in area - then a few don't raise.

If they own the property outright and the teannants are good ones it can be worth getting less in rent and having the stablity and covering rapair costs.

Most landlords aren't going to want to make a loss overall though.

I never get MN hatred of landlords. There was a decade we had to save deposit ( no bank of mum and dad for us ) and had to move round country with work for careers. Without landlords willing to rent to us we'd have been fucked.

There's been quite a bit that landlords say have driven them out the market in recent years the results seem to be scarcity of accomodation and rising rents in areas affected. Landlords are providing a service for a profit - while I wish rents were lower and standards higher - I think expecting them to make losses will just mean renting gets even harder and more expensive.

Yes, a year or two. Not long term, and not on average across the full market otherwise, obviously, the whole thing doesn't work.

But none of this is a fair comparison is it because people are speaking in abstract and from experience! What are you hoping to get out of this thread when you already that the answer is “sometimes paying a mortgage is cheaper than renting; sometimes it isn’t”?