I O Mortgage Now Cheaper Than Renting

[Realistbear]

http://www.dailymail.co.uk/news/article-2003566/Finding-hard-renting-house-Its-cheaper-buy-British-cities.html

Finding it hard renting a house? It's cheaper to buy in four out of five British cities

By Perry Winkle, Daily Mail Reporter

Last updated at 7:28 AM on 15th June 2011

Low interest rates and house price falls have made it cheaper to buy a home than to rent one in four out of five British cities, research indicated today.

The cost of renting a typical first-time buyer property is 9.7 per cent more than buying a similar home, based on an interest-only mortgage charging a rate of five per cent, according to property website Zoopla.co.uk.

Given the hideous cost of renting a 2 BR hovel in my area (around £1k pm) I think an IO deal (renting from the bank) makes sense. Rentingf from the bank (IO) at least gives you a purchase option when you feel its a good time to buy. On the other hand, if the market drops you will still be renting from the bank. On balance....nah......just rent from a LL.

Edited June 15, 2011 by Realistbear

[Lepista]

Doesn't take into account maintenance costs, and is therefore a complete load of tripe.

[worried1]

I suppose they haven't gone down the cheap reporting route of comparing the rental costs with a 1% tracker mortgage, but they are still missing quite a lot.

In my area you could buy a 1 bed flat for £200k or rent it for £850 per month. With a 15% deposit, you'd pay almost exactly the same on a 5% I/O mortgage that you would in rent. Fine, mine is not one of those areas where it is 'cheaper to buy', but when you consider the lost interest on the 15% deposit, the bills to pay when things break, stamp duty, fees etc, it is actually a lot more expensive to buy.

If they took these factors into account, I'd bet it would not be 4/5 cities where buying is cheaper, more like 0/5.

[exiges]

And this is the problem with ZIRP. With no rate rises on the horizon, the interest on a property is significantly lower than renting it, making people buy simply because it's "cheaper"

Nice one Merv, dolt.

[shindigger]

Doesn't take into account maintenance costs, and is therefore a complete load of tripe.

[Monkey]

Can someone do the maths for this for me please.

my current rent is £950, and assuming there is no rent rises in 25 years i will have paid £285,000 in 25 years.

the house i am in is Valued (based on a similar house round the corner which is up for sale) £350,000. if i purchased what would my final outlay be if I/Rs stayed at a constant ***% for the full term (as i have assumed the rent will not rise).

as instantly i am £65,000 better off.

BTW the house i am in was purchased by the LL in 2001, for £210,000, all the houses were build in 1999/2001 and bought for between £190,000 and £250,000, i would pay £210,000 for where i am, but no more really. i like it but not that much

[South Lorne]

Doesn't take into account maintenance costs, and is therefore a complete load of tripe.

...or price falls ...placing borrower into negative equity and / or loss of deposit....

[Van]

And there are mortgage deals out there with silly rates like 2.5% from Norwich & Peterbrough with 25% deposit. ING will give you 3.69% with 20% deposit fixed for 2 years. While these sort of deals are around it makes buying a LOT cheaper than renting, and why prices will remain sticky high until rates rise.

[bobthe~]

And there are mortgage deals out there with silly rates like 2.5% from Norwich & Peterbrough with 25% deposit. ING will give you 3.69% with 20% deposit fixed for 2 years. While these sort of deals are around it makes buying a LOT cheaper than renting, and why prices will remain sticky high until rates rise.

Not sure about that. I would have to pay 2 grand in moving costs (lots of stuff) and then 4% stamp duty and probably a load to solicitors as well.

To be balanced about the moving cost, I would also have to pay that if the LL turfed us out.

Edit to add: Are these deals fee free?

Edited June 15, 2011 by bobthe~

[bendy]

And there are mortgage deals out there with silly rates like 2.5% from Norwich & Peterbrough with 25% deposit. ING will give you 3.69% with 20% deposit fixed for 2 years. While these sort of deals are around it makes buying a LOT cheaper than renting, and why prices will remain sticky high until rates rise.

not while there isn't people with 20% of sticky high prices to sink in.

[davidcameron]

5y fix at 3.99% from Yorkshire BS. 75% LTV + a fat fee.

Makes a lot of sense especially in London.

[Van]

Not sure about that. I would have to pay 2 grand in moving costs (lots of stuff) and then 4% stamp duty and probably a load to solicitors as well.

To be balanced about the moving cost, I would also have to pay that if the LL turfed us out.

Edit to add: Are these deals fee free?

Fair enough, but someone else might only have to pay £1k in costs and 0% stamp duty.

Yeah, there are fees, typically £1k. Still cheap, though.

Example: the flat I've bought can rent out for £1200pcm. I got it for £250k with a 25% deposit with a 3.89% rate (no fee), which works out as £976pcm on repayment, of which £607 is interest. So over the 2 years of my fixed rate I'll pay a total of about £14,000 in interest, vs £28,800 if I was renting, so I save £14,800.

[gf3]

5y fix at 3.99% from Yorkshire BS. 75% LTV + a fat fee.

Makes a lot of sense especially in London.

This is my Idea of a bad risky deal.

You can get a life time tracker for 2.8% the base rate would have to go up twice a year for 5 years to brake even.

OK lets say your right and you would have been better off on a fixed rate. There are a few questions you need to ask your self.

how much will you be paying after the 5 years?

If interest rates have gone up so much how much is your house going to be worth?

If you are now in negative equity your stuck with what ever Interest rates they give you.

[ader]

a few decades ago it was cheaper to buy than rent but lenders wouldn't lend to just any old tom dick or harry. rents are currently cheap.

Edited June 15, 2011 by ader

[hpc-craig]

Can someone do the maths for this for me please.

my current rent is £950, and assuming there is no rent rises in 25 years i will have paid £285,000 in 25 years.

the house i am in is Valued (based on a similar house round the corner which is up for sale) £350,000. if i purchased what would my final outlay be if I/Rs stayed at a constant ***% for the full term (as i have assumed the rent will not rise).

as instantly i am £65,000 better off.

BTW the house i am in was purchased by the LL in 2001, for £210,000, all the houses were build in 1999/2001 and bought for between £190,000 and £250,000, i would pay £210,000 for where i am, but no more really. i like it but not that much

Well according to the BBC Mortgage calculator, it would be £1181 per month IO. (That is assuming a VERY generous interest rate of 4.5% through out the term, and a 10% deposit). This works out to £354,300 over the 25 year term, and then you STILL have to find the balance of £315,000 (£350k less the £35k deposit) or sell your house to pay it off, and hope to pocket any difference to rent into retirement or buy a really really small place.

[efdemin]

Can someone do the maths for this for me please.

my current rent is £950, and assuming there is no rent rises in 25 years i will have paid £285,000 in 25 years.

the house i am in is Valued (based on a similar house round the corner which is up for sale) £350,000. if i purchased what would my final outlay be if I/Rs stayed at a constant ***% for the full term (as i have assumed the rent will not rise).

as instantly i am £65,000 better off.

BTW the house i am in was purchased by the LL in 2001, for £210,000, all the houses were build in 1999/2001 and bought for between £190,000 and £250,000, i would pay £210,000 for where i am, but no more really. i like it but not that much

This is the flaw in your calculations. The rent will almost certainly go up over 25 years, you need to factor in a % increase each year to account for inflation. What that % is is a good question, but looking back in history you can definitely say it is more than 0.

[stormymonday_2011]

The only slight flaw is that you have to get the banks to lend you the money in the first place.

Sadly for this little ruse they are no longer throwing their cash about and are unlikely to take a punt on you unless you put down a sizable deposit which means you carry all the risk if the housing market turns south with a vengeance.