Cheaper to buy than to rent

Fire_Fox

breadlinebetty wrote: »

I don't know which part of the planet you reside, but in the UK rents are far more expensive than mortgages. Surely you know that interest rates are at an all time LOW - hence the low repayments!!

So how is a mortgage inflated when interest rates are soooo low??? Hello??? On top of that, people can take out a fixed rate mortgage (which we've gone through before.....) so while rents will continue to rise, rise and rise - your mortgage repayments will stay the same.:money:

Your suggestion about people finding somewhere cheap to live......there aren't many cheap places around. And those that are cheap are dumps! And if they were to pay rent for a slum (more than a mortgage would cost them!) the little they had left over to put in a savings account wouldn't help them much...because interest rates are soooo low!!!!!:money:

There are plenty of cheap decent places to live, do some research online instead of lumping the entire UK together!

breadlinebetty wrote: »

You still seem to be missing the point :

IT'S OFTEN CHEAPER TO PAY A MORTGAGE EACH MONTH THAN IT IS TO RENT.

FACT.

Therefore, it's pretty stupid to pay MORE in rent and try to save WHEN INTEREST RATES ARE SO LOW, isn't it?

It makes economic sense to pay a mortgage each month.....

If you shop around for good mortgage deals (something you CAN'T do with rents!) you should be able to find the one you keep asking me about.......

It's you who is missing the point. What makes economic sense is not to look further than the headline figure when weighing up your profits, any accountant, landlord or business person will tell you that. Stretching yourself to buy a property and stay there until you have paid the mortgage off has always been a good idea, as long as you can afford basic maintenance. Basic over 25 years will generally include a few major works - rewire, roof, new windows perhaps.

But staying put for 25 years died with my parents' generation - now people divorce, they relocate for work, they trade up to a larger place, equity release. Not only do you have repairs, maintenance and improvements to consider, but you have to factor in the costs of buying and selling, stamp duty, buildings insurance, service charges if a flat, recessions, unemployment, and so on. None if these stay static for the life of a mortgage and none of these hit tenants in the pocket.

You could of course choose to buy a house that is unlikely to need a lot of work, or live in a slum and only do the redecoration and repairs right before selling. But that sort of negates the point of not renting a dump whilst you save a deposit or not really having much choice!

Idiophreak

Fire_Fox wrote: »

recessions, unemployment, and so on. None if these stay static for the life of a mortgage and none of these hit tenants in the pocket.

Whoa, hang on, so if I move to rental, I never have to worry about recessions or unemployment again!? Huzzah, why did nobody tell me this sooner!

littlegreenroundthings

My first house:
£110,000 Semi-Detached, Freehold 25 Nov 2011
£60,000 Semi-Detached, Freehold 28 Jul 2001
£47,000 Semi-Detached, Freehold 12 Jul 1999

Not even Mctosspot can argue that the median salary has kept pace with this

cwcw

InMyDreams wrote: »

Lets take the average three-bedroom house, which currently costs £157,400 according to the link posted in this thread. You are right, I'm not totally up on what rents are, but that report says this would cost £732 to rent. I challenge you to find me a fixed rate mortgage that would cost less, and I'll even let you ignore any arrangement fees, other associated buying costs, deposit requirements and pretend you can borrow the full £157,400.

25 year fix at 5.24% costs £939 a month. BUT, the interest element of said repayments are £685 a month, so equivalent to £47 cheaper a month in "rent". You'd be paying £254 a month down into equity, which is the equivalent of paying into savings when renting. It's basically forced savings into an average paying account (house price inflation currently running around 1% a year, so comparable to average savings rates).

Also remember interest is front loaded, so 5 years into the 25, the interest only element is around £611 a month. I dare say the £732 a month rent will have gone up a few times over 5 years...

mrginge

cwcw wrote: »

25 year fix at 5.24% costs £939 a month. BUT, the interest element of said repayments are £685 a month, so equivalent to £47 cheaper a month in "rent". You'd be paying £254 a month down into equity, which is the equivalent of paying into savings when renting. It's basically forced savings into an average paying account (house price inflation currently running around 1% a year, so comparable to average savings rates).

Also remember interest is front loaded, so 5 years into the 25, the interest only element is around £611 a month. I dare say the £732 a month rent will have gone up a few times over 5 years...

Still referencing a niche product with limited availability. Can you compare to mainstream products over a more reasonable term instead?

InMyDreams

cwcw wrote: »

25 year fix at 5.24% costs £939 a month. BUT, the interest element of said repayments are £685 a month, so equivalent to £47 cheaper a month in "rent". You'd be paying £254 a month down into equity, which is the equivalent of paying into savings when renting. It's basically forced savings into an average paying account (house price inflation currently running around 1% a year, so comparable to average savings rates).

Also remember interest is front loaded, so 5 years into the 25, the interest only element is around £611 a month. I dare say the £732 a month rent will have gone up a few times over 5 years...

OK, I did say I would let breadlinebetty ignore any arrangement fees, other associated buying costs, deposit requirements and pretend you can borrow the full £157,400. But is the £47 per month going to cover all the additional expenses of ownership once you've got your pad? Buildings insurance, maintenance... even if it did, and even if you were allowed to take out interest only on 100%, you wouldn't be paying off any of your capital, so wouldn't own the house at the end.

But actually she was also insistent that the monthly cost would be cheaper *and* you would own your house at the end, so your example doesn't count. This repayment mortgage would be over £200 per month more expensive (plus the extra costs mentioned in my last paragraph). If the renter could afford that *this year* then they can also afford to start to save towards a deposit.

So even if this product did exist without arrangement fees and deposit requirements (which it doesn't) it still wouldn't do what Betty is describing. She's yet to find me one that does. I can't, and I have searched.

breadlinebetty wrote: »

You still seem to be missing the point :

IT'S OFTEN CHEAPER TO PAY A MORTGAGE EACH MONTH THAN IT IS TO RENT.

FACT.

You've yet to come up with the figures, betty so we'll have to agree to disagree. And magicking up a huge deposit doesn't count. We don't all have rich relatives to help us out.

breadlinebetty wrote: »

If you shop around for good mortgage deals (something you CAN'T do with rents!) you should be able to find the one you keep asking me about.......

You can't 'shop around' for houses to rent? Maybe not once you are settled and don't want to move and the rent goes up. But there are plenty of 'settled' homeowners that are struggling to 'shop around' for mortgages too, once their current deals have ended. They are stuck with their bank's SVRs which also risk going up. Just a half percent rise of the SVR would be over £65/month, equivalent to nearly 9% increase on monthly rent. Oh yeah, sorry, you were going to fix for 25 years with that elusive mortgage no-one seems to be able to find.

breadlinebetty wrote: »

They borrowed £80k (paid a very very large deposit of £250k) and are paying back £600 a month repayment mortgage. That property would fetch £1,500 a month income. So there's an example for you.

Err, that doesn't mean anything! They put down over 75% deposit! Why not put down 100% deposit and then mortgage is 'free'? How is that a fair comparison? I thought we established that we were assuming no deposit. I have always said, if you have a decent deposit and can afford the repayments, then buying is a reasonable way to go. The point of this thread (I thought) was to point out that people with no deposit think they would be better off buying with a 100% mortgage if they were allowed, because 'buying is cheaper than renting'. My point is that no, it's not, *unless you have or can save a deposit*. And even then you are taking risks, but at least they are risks you can hopefully afford to take and *hopefully* (but not guaranteed) will pay off in the long run.

Idiophreak

InMyDreams wrote: »

The point of this thread (I thought) was to point out that people with no deposit think they would be better off buying with a 100% mortgage if they were allowed, because 'buying is cheaper than renting'. My point is that no, it's not, *unless you have or can save a deposit*

I don't think the 100% mortgage argument was really the point of the thread. They don't exist, so discussions around that is pretty hypothetical.

I see your point, however, regarding the deposit and that people can't "magic" them out of nowhere...but, you know what, a lot of people in rental have money, a lot have means of raising money (parents, trust funds etc) and a bunch more could get hold of a deposit by other, if slightly "iffy", means - credit cards, personal loans and so on. And then there's a myriad of government and private schemes to assist people to buy with low/no deposits.

Trouble is, it's hard to draw any hard and fast rules that make this thread in any way conclusive...You can't say
"If you raise 10% deposit, buying will be cheaper", because local markets vary so wildly - as do people's credit ratings.

So I think the conclusion for the thread is *if you can afford to buy*, buying *may* be cheaper than renting. You'd like to think anyone looking to buy a house would actually do the maths to work out if that was the case in their own circumstances...

InMyDreams

Idiophreak wrote: »

I don't think the 100% mortgage argument was really the point of the thread. They don't exist, so discussions around that is pretty hypothetical.

To be fair, you are probably right. But when you see articles in the press like the one that started this discussion off, it frustrates me that it doesn't tell the whole story... you can't just ignore the potential returns of the deposit if you were to invest it in something else either. And it encourages people with no deposit to feel unfairness that banks won't lend 100% as they think they would save so much money if they could. I was trying to point out that even if a hypothetical 100% mortgage still existed, it still wouldn't necessarily help those who can't save for a deposit.

Idiophreak wrote: »

Trouble is, it's hard to draw any hard and fast rules that make this thread in any way conclusive...You can't say
"If you raise 10% deposit, buying will be cheaper", because local markets vary so wildly - as do people's credit ratings.

So I think the conclusion for the thread is *if you can afford to buy*, buying *may* be cheaper than renting. You'd like to think anyone looking to buy a house would actually do the maths to work out if that was the case in their own circumstances...

I couldn't agree more. I'm sure hoping that it *will* end up cheaper *in the long run*, otherwise I wouldn't be doing it! But those returns require *extra commitment* now, it's not cheaper! In order to realise those returns, I need to spend extra now, not less. (Or go with a short term mortgage, recognising that once rates rise, so will my costs, whilst the price of my house may go down. So you still need to put aside extra to mitigate those scenarios anyway.)

That's why headlines like 'Why it's cheaper to buy than rent: Difference of £132 a month on three-bed house' grate on me, because they are inaccurately comparing *today's* monthly costs which will confuse people (such as breadlinebetty) trying to do their own maths. And there *are* risks which shouldn't be taken lightly. Just ask many of those 'lucky' people who managed to get 100% (or more) mortgages in 2007. I'm sure they did their maths too, helped by media frenzy.

starsandmoon

In my case buying has proved to be cheaper than renting. I bought a house in 2009 with a 20% deposit so payments are £320 a month (terrace in roughish neighbourhood). Rental is £450 a month for similar houses in my area although after various insurances and maintainence its only just cheaper.

The main thing though is I can decorate as I want, dont have the possibility of having to move because the landlord wants to sell up and one day I will be mortgage free.

Theres pros and cons for renting versus buying. I needed a home near to work/school and one I could afford. Ive got a repayment mortgage. I was offered an interest only mortgage on a new build and although tempted that house was a want not what I needed and in reality unaffordable so I was sensible and bought affordable. I did like the new build though, sigh.

ess0two

Idiophreak wrote: »

Whoa, hang on, so if I move to rental, I never have to worry about recessions or unemployment again!? Huzzah, why did nobody tell me this sooner!

Dont forget if you rent also,you save on having to replace the roof and boiler every 5yrs.