Rule of Thumb?: When buy-and-sell is not a loss

andre_xs

Hi All,
maybe this is a somewhat unusual question, but we were wondering whether there is a rule of thumb or alike at what point buying and selling a house is not a loss anymore, because one reached the break-even point (assuming that owning a house "saves" money in terms of not having spent it on rent but instead paying off the mortgage).

Here's something I have in mind:
In our example, the home would costs ~ £300,000
Costs of the purchase (fees, move, stamp duty, etc.): ~£12,000 (estimate)
Currently we pay rent: £1500/pcm
We would have to pay mortgage (plus insurance) roughly the same amount, i.e. £1500/pcm

Let us assume we live in the property for 5 years.
Then we saved 12 x 5 x 1500 = £90,000 in rent.
Instead this money was used to pay off the mortgage (incl paying interest of course).

Suppose we'd need to sell after the 5 years, e.g. due to changed income, and return to renting a place.

When I use online mortgage calculators, an estimate is that of the £1500 mortgage repayment £900 are for interest, and £600 paying back the mortgage. Thus, we would have paid back 5 x 12 x 600 = £36,000 of the mortgage. Paying back the remaining mortgage in full after 5 years costs ~£10,000 (HSBC figure on our agreement in principle), i.e. we would have reduced our mortgage sum effectively by £26,000.

Costs of selling the property (this time more expensive due to EA fees, moving, etc.; but no stamp duty!): £14,000

I am aware that of course house prices are unpredictable, but let us assume they just stay the same. Of course, there can be a crash. And of course, they can increase (the property would be in a sought-after little town just outside the M25). I'm aware of that. Let us just take the *assumption* that it stays constant.

In sum, we would have spend £26,000 (estimated) just on fees, stamp duty, moving, etc. We would have reduced the mortgage amount by £26,000.

Thus, given these are only rough estimates I would conclude that after 5 years one has roughly reached the break-even point of all the fees and costs on the one hand and having reduced the mortgage on the other hand. Potential changes to house prices are on top of that - either up or down.

Is that calculation roughly correct? Or did I miss something fundmental? It is not about +/- £1,000 or so, more about +/-£10,000.

Many thanks &
Kind Regards,
Andre

mrginge

a mortgage pays for a house.
Rent pays for a house, insurance, general maintenance ...etc
Average tenancy lengths are around 3 years iirc.

You should factor all equivalent costs in if you want a true comparison.

andre_xs

True, maintenance costs of a flat/house are probably pretty unpredictable. If the roof or heating breaks down, it may quickly get expensive...

Thus, most likely in my example one wouldn't be even after 5 years...

Thanks,
Andre