Actually cheaper to keep renting??!

Reue

Hello guys,

Hopefully looking for some people just to cast their eyes over my calculations and check im coming to the right conclusions or point out anything I may have missed.

Im currently renting a property with my partner and we are saving for a deposit. Starter homes in our area are £200k, our rent is £695 (very unlikely to be raised) and our current deposit saved is £20k.

Ive used Barclays mortgage calculator just as a rough guide for what monthly repayments would be. Starting at year 0 (today) and assuming a continued saving of +£10k per year. Taking the total "cost" of the house to be: total cost of mortgage + deposit amount + rent paid out to get to that date.

Heres what ive come up with so far:



This seems to show that despite spending £33,360 on rent by year 4, it would still be cheapest to wait until then before buying a house in the long run.

Any thoughts? Thank you!

Suarez

How is the mortgage repayment decreasing?

Reue

Suarez wrote: »

How is the mortgage repayment decreasing?

Hi Suarez,

The decreasing amount is from 2 reason:

- As deposit amount is increased, the amount borrowed is decreased and so theres less capital + interest to repay

- As deposit amount increases, it decreases the % (Value of property) borrowed which gives access to more mortgage options with lower interest %s.

As an example, there are only 2 mortgage offered with LTV of 10% (£20k deposit, Year 0) at about 5.3% APR. Where as with LTV of 25% (£50k deposite, Year 3) there are some 30 mortgages available with much lower APRs.

Tixy

Is the mortgage for 25years in each case? or are you comparing a 25year mortgage in B to a 24year mortgage in C , 23years in D etc?

Certainly a higher % deposit and so lower ltv does tend to mean you might get a better APR in the first few years.
But am not sure your calculations for buying now take in to account that over time you will have a lower ltv in say 5years time, and so at that point should be able to find a better deals mid way through the mortgage. The figures assume you will stick with 1 bank and 1 product throughout the mortgage term.

In reality people switch every few years to the best deal they can get.

Of course your figures also assume that house prices and interest rates will stay the same for the next 4 years.

ukcarper

The only thing I would say is you it looks like you are saving more than the difference between rent and mortgage payment if you added that to mortgage payment what effect would it have on end figures.

Reue

Tixy wrote: »

Is the mortgage for 25years in each case? or are you comparing a 25year mortgage in B to a 24year mortgage in C , 23years in D etc?

Certainly a higher % deposit and so lower ltv does tend to mean you might get a better APR in the first few years.
But am not sure your calculations for buying now take in to account that over time you will have a lower ltv in say 5years time, and so in the future and so will should be able to find better deals mid way through the mortgage. The figures assume you will stick with 1 bank and 1 product throughout the mortgage term.

In reality people switch every few years to the best deal they can get.

All calculations are based on a term of 25years.

I know its likely to remortgage, but I was trying to keep it fairly simple just for comparison purposes.. Or would the remortgage mean it is actually better to buy now with 10% deposit than wait 3 years for a 25% one??

Reue

ukcarper wrote: »

The only thing I would say is you it looks like you are saving more than the difference between rent and mortgage payment if you added that to mortgage payment what effect would it have on end figures.

Im not sure what you mean, sorry :S

StuC75

The OP is assuming the affect of buying in X years time, so with 10k extra on the deposit the amount of the mortgage needed and so the payments will be lower when based on 25yr term. Although quite how they have arrived at those figures is a little confusing as no mention of rates used (although better ltv ratio would give better deals)..

Does seem to be missing other factors though..
What interest rates are at & will be when do buy. What may happen in the market to prices.

Would they still want to buy a 'starter home' at 200k in 5 years time?

Will rental costs increase in this time? if people are holding off buying then rentals are more in demand, so costs may go up? what if even just at 3% per year?

What interest is being earnt on the deposit funds?

ukcarper

Reue wrote: »

Im not sure what you mean, sorry :S

You are increasing deposit (saving) by £10k a year so you are paying rent of £695 a month and saving £830 a total of £1525 a month if you paid that off mortgage it would reduce term considerably and therefore overall cost.

In fact at 6% a 15 year mortgage would be about £1520 a month a total cost of £275k + £20k deposit.

Tixy

Reue wrote: »

I know its likely to remortgage, but I was trying to keep it fairly simple just for comparison purposes.. Or would the remortgage mean it is actually better to buy now with 10% deposit than wait 3 years for a 25% one??

It would certainly be closer, haven't worked out it out exactly, but it would lessen the size of any saving.
Assuming all other things remain the same throughout the life of the mortgage then in option 1 you wouldn't pay 25 years at £1181, you'd perhaps pay that for a few years, and then your ltv should mean you'd get a better APR and so a cheaper monthly payment.

StuC75

Have you tried accounting for the fact that at present you are saving £10k per annum (833 per month). So the rental scenario takes up more of your funds.

If you were to buy now what would happen to the difference of (695rent + 833 saving) - 1,185 mortgage.. is there scope to use this as an overpayment and so reduce mortgage costs in the long term.