Rents V Mortgage Costs

[Tonester]

To add a bit of backing to the 'rent is cheaper than buying' argument...

Say you were to have 100% mortgage at 5% for current market on the house you own or pay rent to a landlord. Which would come out as cheaper?

For me in Cambridge area, a mortgage on £150,000 house would be £876 a month repayment (£625 of which interest). Renting the same place would be probably £700. Therefore it is still cheaper to own a house than to rent IF house prices stay level.

There are some additional aspects like maintenance, but what about another scenario. Say mortgage was only £110,000 on the same house (with capital growth and deposit making up the difference). Mortgage would be £655 (£455 interest) and therefore around £250 per month cheaper. Would the £40,000 lump sum be able to generate £3,000 each year after 40% tax and most of it out of an ISA? That would be hard.

I think my point is, if my area's rent prices are typical then renting is still more expensive than owning, and only a house price drop of more than 4-5% a year will swing it. If house price crash does play out then 4-5% will be easily surpassed but I'm not sure I buy the argument that rent is cheaper than buying yet.

[FreeFall]

West London - 1BR to buy would be about 150k as well. But then you have ground rent, building insurance, and maintenance charges - that would add approx 1k pa to the costs, so about 976 pcm on a repayment mortgage.

Rent for one of these is 650-700 pcm at the moment.

Suits me just fine. Especially as my current flat is only 350pcm...mind you, it is a dump.

[2005]

It's difficult to tell where I am because there seems to have developed a sort of 2 tier rental market.

There are the regular BTl who rent out new builds etc

Then there are lots of houses where people have moved but couldn't sell the previous house and are hanging on and renting it for six months (presumably because an EA has told them things will pick up soon).

The second lot are asking rents equivalent to a mortgage - bridge loans can be so expensive can't they? So the gap between rent and buy is narrow when looking at typical family homes.

The first lot - newbuilt BTL - it is still cheaper to rent than buy.

[Mr_Sminty]

To add a bit of backing to the 'rent is cheaper than buying' argument...

Say you were to have 100% mortgage at 5% for current market on the house you own or pay rent to a landlord. Which would come out as cheaper?

For me in Cambridge area, a mortgage on £150,000 house would be £876 a month repayment (£625 of which interest). Renting the same place would be probably £700. Therefore it is still cheaper to own a house than to rent IF house prices stay level.

There are some additional aspects like maintenance, but what about another scenario. Say mortgage was only £110,000 on the same house (with capital growth and deposit making up the difference). Mortgage would be £655 (£455 interest) and therefore around £250 per month cheaper. Would the £40,000 lump sum be able to generate £3,000 each year after 40% tax and most of it out of an ISA? That would be hard.

I think my point is, if my area's rent prices are typical then renting is still more expensive than owning, and only a house price drop of more than 4-5% a year will swing it. If house price crash does play out then 4-5% will be easily surpassed but I'm not sure I buy the argument that rent is cheaper than buying yet.

Quite complex comparing Buy vs Rent . Buying involves large upfont costs, fees, maybe furnishings plus yearly maintenance/insurance and council tax, profit from rise in value is subject to CGT, stamp duty etc. Also how does rent inflation fluctauate as much as base IR?

I created a spreadsheet a few months back that tried to do this and allows you to add different variables, didnt get much response so havent improved on it, though it is now on the site

http://www.housepricecrash.co.uk/xls/

mortgage_calculator.xls

GIve it a go

[Surrey cash buyer]

Surrey - I rent a 5 bedroom detached at £1800 pcm. There is one identical that has been for sale for many months asking £580K. So say it is worth £520K then the interest would be £2167 pcm + insurance + maintenance.

So renting makes sense for me. I don't like the insecurity however so I'll buy again as soon as I am offered an attractive house at a very attractive price.

[Time to raise the rents.]

I think my point is, if my area's rent prices are typical then renting is still more expensive than owning, and only a house price drop of more than 4-5% a year will swing it. If house price crash does play out then 4-5% will be easily surpassed but I'm not sure I buy the argument that rent is cheaper than buying yet.

Not wanting to beat you down too hard here, because I like your argument, but what you said above is the opposite of what is true.

If renting is more expensive than buying (which it is, I agree), then the only thing that will swing it the other way is further HPI.

Only making places more expensive to buy will increase their monthly cost above renting.

We therefore have another case for further HPI.

[msgin]

Cambridge, we pay £1350 for a house bought 18 months ago for £400,000, there is also a service charge which landlord pays.

[zsuzsanna]

Rent £475.00 per month.

house for sale next door (identical) £150 000.00

Renting makes sense for me.

Edited November 3, 2005 by zsuzsanna

[Tonester]

Cheers for the feedback. Looks like several places have higher buying costs than renting whereas in other places (like Cambridge) it's a bit more neutral (certainly at the lower end). Perhaps this explains the stable prices seen currently in Cambridge. In places where rent is a lot cheaper than mortgage I can only assume the landlord has a big deposit and not realising the returns he could get, or that the house is vastly overpriced!

The market is finding it's value in current conditions but I think the lag in supply (lots of new buildings going up and not selling), rising unemployment, high amount of debt will certainly change conditions for the worse. Interest rates is the key unknown quantity for me, and I think that will be the key.

[damconsult]

I rent 3 bedroomed fully furnished detached house near Bury for £600 per month. The last house on my estate sold for £230,000. There 2 properties currently for sale, both at £210,000 (house and bungalow) for the last six months. It is still cheaper to rent!!!

[bubble]

Renting a 4 bed semi in north London for £1430/month - landlord was advertising the property for sale at £480k, even agent thought that was ridiculous and thought a more sensible number was £380k - I figure, based on a 5% mortgage cost that I'd need to buy the property for around £345k for it to be break-even vs. renting and the reality is in a down market you don't really want to be buying it for much more than £300k - a far cry from the £480k advertised - will rent for now...

[sanddancer]

Currently rent a 1 bed flat for £800 pcm in west London. Two other 1 beds in the same building (pretty much identical to ours) both on sale for £199,950. Assuming I paid full asking price and had no deposit, a repayment mortgage over 25 years at 5% would be £1,169 and the service charge is £600. Interest only mortgage is £880 a month so not much different from the rent, but I wouldn't want an interest only mortgage.

[Nico]

The cost of renting will be down to local market conditions, but we have discussed this many a time on this forum and there is no doubt that (for most areas at least ) renting is the most economically viable option in the current market. There are of course many other considerations other then pure economics.

I live in south London, and rent a one bedroom ground floor garden flat. My flat was purchased for £150,000 in April 2005, when we were still very much at the peak of the market and was refurbished to a very high standard (new kitchen, etc.). I pay £650pcm rent. The rent alone would barely cover the interest payments (!). (I won't question the landlord's logic).

My girlfriend rents a house flat in west London for £1,200pcm - I estimate the market value to be around £350,00 - again, this would not cover the interest payments on the mortgage

As a general rule in London, renting is around 25% cheaper than a repayment mortgage.

[CrashConnoisseur]

Only making places more expensive to buy will increase their monthly cost above renting. [TTRTR]

...or falling rents due to increasing supply.

[Free Thinker]

Rent is £750 pcm.

Property value about £200K-210K.

Interest only would be £833-£875 pcm at 5%.

But who wants and interest only mortgage in a flat/sliding market?

[laughing_goat]

The place we rent was originally up for sale for £350,000, we rent it for £800 PCM.

Using the HSBC mortgage rate of 5.7%APR, I worked out an IO mortgage would cost £1,662.50.

we would have to have a deposit of £180,000 in order to get our payments down to £800 per month IO.

If £180,000 was put in an ING direct account it would generate £491.67 PCM (1/2 taxed at 40% and 1/2 at 22% - as only Mr Goat pays the high rate of tax, I come just under it and assuming it ain't fiddled).

So our interest payments on a mortgage would need to be £308.33 or less in order to make it worth while buying the house, that adds up to a mortgage of £65,000.

Add the £65,000 to the £180,000 gives you a sum of £245,000. Hmm

This all assumes a stagnant market of course.

Now I am fairly sure that my LL doesn't have a mortgage anymore, so can afford to rent it for this amount of money, a new BTLer would almost certainly not be able to afford this in the long term, but would struggle to "raise the rents" (sorry TTRTR, I hope my maths is better than my jokes) as they would be competing with LL's such as mine.

Does this make sence?

[starship fighter]

rent £550 pcm, similar house on opposite side of the road on the market for £190,000 and neighbours' house sold last year (to a btl!) for £185,000. it's a no brainer for me!

[Tonester]

Certainly puts it in perspective. I can only assume a lot of these landlords have put on large deposits for these houses and can cover mortgage costs (currently).

[Goat]

Certainly puts it in perspective. I can only assume a lot of these landlords have put on large deposits for these houses and can cover mortgage costs (currently).

Some can, some will be in the S***.

[TW11]

I'm paying 750 pcm for a flat.

Moved in Sept 04 landlord wanted 800 - I offered 750 for the year - he bit my hand off.

Just renewed for another year - landlord didn't even hint at raising the rent.

Identical flat upstairs for sale at 215K

No brainer.

[Shamus]

In Dorset I rent a large 2-bed flat at £600 per month.

Bought last year for £165k, sold this year (as we speak) for maybe £162500 or less?

Mortgage on £165k is £687.50 (Interest Only), £964.57 (Repayment).

I guess we won't bother buying just yet

Leave that to the amateur BTL mugs who seem to be having fun paying out all those fees to own the property then realise it wasn't such a good plan hence why they are buying between themselves at the moment!!!

PS:- If you are a BTL'er remember prices always go up and up so take no notice of the above!!!

[no accountant]

Simliar to others above, flat in north london worth 360k, rent it for £1300 (shared) IO @5% = £1,800. Another no-brainer.

and landlord kindly pays the stamp duty, maintainance, prop management fees, insurance, and service charges (service charges are £1,500pa.)

[Realistbear]

I am renting near Stratford-upon-Avon. Paying 750 a month for a large 3-bedroom, 2 bathroom bungalow in a large walled garden--valued at 450k.

Renting is the way to go in this market. I believe the average house is dropping by at least 2000 a month around here and as I plan to get back into the market in a couple of years that is effectively free rent and then some.

I am watching a quarter mile stretch on the way to work where there are now 10 houses up for sale. There were 8 three months ago. Those 8 are still there and two more have joined. There is no way prioces are going up as Halifax would like people to believe. How can they with so many homes for sale and nothing moving?

[Archie Gemmill]

I currently rent a 4 bedroom house in Hampshire for £1150 pcm. I think it would sell for in excess of £500,000. A mortgage on 95% of that amount would be over £2.5K pcm.

[a j]

My rent is £625 per month with similar flats selling for £150k. I think the savings from renting is this area increase as you look at more expensive properties. A flat which would be on the market for £220k would be advertised for rent at £700 - £750 per month.