Is renting really more expensive than buying?

Hank_Rearden

I'm not talking about the investment side of it, but just the cashflow.
Lots of people on here seem to suggest that it's always cheaper to buy.

Last three properties I've been in:
Cottage "in the country" - £650/month. On market for £300k. At 4% that's £1000 on an interest-only mortgage.
3 Bedroom house in NE London - £1500/month. On market for £600k. At 4% that's £2000 on an interest-only mortgage.
2 Bedroom flat in W London - £1350/month. Very similar flat on market for £450k. At 4% that's £1500 on an interest-only mortgage.

Note that I've stacked the deck in favour of buying in at least a couple of ways:
low interest rate.
interest only (which isn't really the cash consideration)
ignoring the maintenance costs etc, etc.

Have I just been very lucky?

Procrastinator333

Hank_Rearden wrote: »

I'm not talking about the investment side of it, but just the cashflow.
Lots of people on here seem to suggest that it's always cheaper to buy.

Last three properties I've been in:
Cottage "in the country" - £650/month. On market for £300k. At 4% that's £1000 on an interest-only mortgage.
3 Bedroom house in NE London - £1500/month. On market for £600k. At 4% that's £2000 on an interest-only mortgage.
2 Bedroom flat in W London - £1350/month. Very similar flat on market for £450k. At 4% that's £1500 on an interest-only mortgage.

Note that I've stacked the deck in favour of buying in at least a couple of ways:
low interest rate.
interest only (which isn't really the cash consideration)
ignoring the maintenance costs etc, etc.

Have I just been very lucky?

Some places rent > mortgage. Some places mortgage > rent. But once you kick in to the higher LTV bands, I would be surprised if rent is ever < mortgage.

But short term I think you are right and I'm doing the same thing. My current rent is less than the interest element of the mortgage we would require to buy this place. We are renting and banking the difference to the deposit fund. Couple that with falling prices and I think now is a good time to keep sitting out and building that deposit. Long term, hpi and lower mortgage rates with higher ltv bands will wipe the floor with renting.

twadge_face

Hank_Rearden wrote: »

Have I just been very lucky?

No, you've nailed the reality of it.

Renting is definitely not half as daft as some of the bulls would make it seem.

Fortunately we're no longer in the 10-20% YoY bubble increase hell which was the last decade so it's possible we can take our time before those stats look more attractive to us.

The bulls don't like it one jot though. :eek:

twadge_face

Procrastinator333 wrote: »

Long term, hpi and lower mortgage rates with higher ltv bands will wipe the floor with renting.

That sounds optimistic. When do you really think such products will become available again?

Also I can't help but think that the final part of your argument relies on further EPIC hpi.

Surely we're in flat-hpi-world, where inflation in all but house prices will hit us all around.

chucky

Hank_Rearden wrote: »

Lots of people on here seem to suggest that it's always cheaper to buy.

they're fools if they believe that it's always the case

PasturesNew

Last place I rented was £350, asking prices were £70k at the time. Right now a slightly better one's for sale at £55k, those are now renting at £375/month.

One I spotted the other day, a flat, for sale and for rent. Rent £600/month, to buy £100k (£90k now)

I think the cheaper the place, the higher the rent. So it is cheaper to rent a posh/big place, but in studio flatlet/1-beds it tends to be more expensive to rent.

Procrastinator333

!!!!!!_face wrote: »

That sounds optimistic. When do you really think such products will become available again?

Also I can't help but think that the final part of your argument relies on further EPIC hpi.

Surely we're in flat-hpi-world, where inflation in all but house prices will hit us all around.

I can see how I phrased it was misleading - Not saying banks will lend at 95% again. Trying to say when a buyer has a higher deposit they have access to much lower interest rates. That is part of the equation that in the end makes buying the right long term decision. Though I caveat that with the facat that I also think now is the time for the FTB with low deposit to sit on the side and build that deposit while prices fall.

Doesn't rely on epic hpi at all. It only actually requires house prices to rise nominally. Can continue to fall in real terms. I do think prices have anythign up to another 2 years of gradual falls, but in the end they will go up again, certainly nominally and most likely in real terms too.

Nominal rises can destroy the renter too. As many have said, rents rise with inflation. Once you have purchased the cost relates to interest rates and while they may go up or down, the interest rate is not linked to inflation.

But again, for me, now is the time to sit out, build that deposit, bank the savings on rent vs mortgage, skip a step or 2 on the ladder (saving all those moving costs), but then to firmly jump on the housing ladder. I reckon we have something between 12-24 months more renting to do.

EDIT: Just to clarify, interest rates are in theory linked to inflation - though not if you are the BOE apparently. What I should have said is that the impact of inflation compounds over time. The interest cost on a mortgage does not compound.

Thrugelmir

Procrastinator333 wrote: »

Nominal rises can destroy the renter too. As many have said, rents rise with inflation. Once you have purchased the cost relates to interest rates and while they may go up or down, the interest rate is not linked to inflation.

We are living in unusual times while a fundamental financial rebalancing takes effect. Ultimately normality will resume.

Though renting is currently the best short/medium term option for many.

DaddyBear

The bottom line is that in the short term renting is nearly always cheaper, however, in the long term buying is far cheaper.

stumpycat

Renting is paying someone else's mortgage, plus a bit of profit; ok in the short term, and handy when you move around a lot, so it it has its uses.
But, having been really lucky and bought an almost derelict flat and done it up, it got us a good place to live and a big leg up on the housing ladder.

Loughton_Monkey

Hank_Rearden wrote: »

I'm not talking about the investment side of it, but just the cashflow.

Well OK. If that's the way you want to play it.

Let's think of everything that way. For a start, absolutely and utterly never buy shares in Tesco. Sainsburys shares are cheaper.

I shall never buy a car again. They want £55K for a new one, and I can lease for only £10K. And I tell you what. Next year they'll want £58K for a new one, and my lease will still be £10K. Boy am I in the money!

I shall never pay another £2,880 for my pension contribution. I've found another company who will do me a pension for just £100 a year! Just as good if I ignore the Investment side of things.

And as for my mortgage, I've been quoted £6,000 for an 'interest-only' mortgage, while the bank next door wants £6,050 for a 15 year repayment mortgage of the same amount. Thanks to your post, I'm thinking only of the cash flow side of it, and not the investment side. So I'm going for the £6,000 one. It's cheaper!

I'm not stupid!