Why It’s Cheaper To Buy Than Rent: Difference Of 132 A Month On Three
19:43 EDT, 14 September 2012 | Updated:
To buy or not to buy: A major report shows that mortgages on three bedroom properties are now less expensive than the cost to rent
Once, renting a house was the logical way to save up to buy a home of your own but not any more.
In fact, it is cheaper to pay a mortgage on a three-bedroom house than it is to rent a similar property, a major report reveals today.
On average, a homeowner spends around £130 per month less than a typical tenant who is renting an identical property, according to Halifax.
This gap the largest ever recorded by the bank means a homeowner is £1,560 better off by the end of the year, equal to one months take-home pay for the average full-time worker.
And while the homeowner will have shrunk their mortgage during the year by making monthly repayments, the tenant has simply lined their landlords pockets.
The report reveals how millions of families, young couples and students are being penalised by the highest rents ever charged in Britain.
Meanwhile, homeowners are benefiting from cheap mortgage deals following the Bank of Englands decision to cut interest rates to an historic low in March 2009.
The report from Halifax, published today, looked at a three-bedroom house, which currently costs £157,400 on average.
For the homeowner, the average monthly mortgage payment, including other buying costs, is £600. For the tenant, the monthly rent bill is £732.
Owning v Renting
How Much Cheaper Is It To Rent Than Buy
- Greater London – Â£251 cheaper
- South East – Â£54 cheaper
- South West – Â£108 cheaper
- East – Â£117 cheaper
- East Midlands – Â£98 cheaper
- West Midlands, Â£35 cheaper
- Yorkshire and the Humber – Â£5 more expensive
- North West – Â£4 more expensive
- North East – Â£72 more expensive
- Wales – Â£11 cheaper
- Scotland – Â£130 more expensive
Aneisha Beveridge, Hamptons’ head of research, said the pandemic was responsible for reversing this six-year-long trend.
“A year ago, lenders were either increasing their rates or withdrawing higher loan-to-value mortgages altogether,” she said.
“For first-time buyers in particular this pushed up the cost of paying a mortgage, if they could get one at all, to well above the cost of renting.”
Ms Beveridge added that it was likely that the balance would swing back somewhat towards buying, particularly as mortgage rates come down, but this would likely be partly offset by rising house prices.
“And while interest rates are falling, they’re still considerably above where they were pre-pandemic on higher LTV loans,” she said.
“Despite this, we expect the gap between renting and buying to close over the remainder of this year, moving back towards longer-term levels in 2022.”
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Buy Or Rent Compare The Costs
Many American renters want to buy houses regardless of the cost of homeownership. For some, its a rite of passage and confers unquestionably grown-up status. For others, its the security of ownership: the home is theirs for as long as they want it.
Of course, finances inevitably play a part. Youll probably need to save a down payment and closing costs. Youll also have to cover thmonthly cost of homeownership.
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Is Rent Or A Mortgage Payment Cheaper
Some markets are better to rent in, and some markets are better to buy in. In my market, rental rates are extremely high compared to what you can buy a house for. I think this makes my area great for landlords that want to make money with rental properties, but it makes it hard for people who want to rent houses. Here are some numbers on renting versus buying in my area.
Buy a house for $200,000
- Mortgage payment with 3.5% down: $928
- Taxes and insurance: $200
- Total cash needed: $7,000
Rent a house worth $200,000
- Rental payment: $1,600
- Total cash needed: $3,200
There are a lot of things to consider when deciding whether to rent or buy in this situation. The monthly payments are more when you rent, but there is more cash needed to buy the home. Now, if you can use a VA loan, you may be able to put less money down, which might make buying a better option. When you buy a home, you do not have to make a payment until the second month you own the house. That would save you another $1,328. Even though you are paying more cash with buying a house, that cash is going towards the house.
When you put less than 20% down, you must pay mortgage insurance on most loans . When enough equity is built into the home, you can sometimes remove the mortgage insurance or refinance into a loan without it.
This is how landlords make money and why they buy rental properties.
Extreme Weather Is Getting More Frequent Do You Have The Insurance You Need
As the impact of climate change continues to worsen around the country, storms and major weather events are becoming more frequent. If you want to protect your home and its financial value, its important to have insurance that fits your needs.
Homeowners insurance covers losses and damages that occur to or on your property. Your policy can provide the funds to make repairs or replacements and protect you from certain liabilities. While it may seem like an extraneous cost when things are going well, its value is undeniable when theyre not.
Most people pay around $90 a month for homeowners insurance, though it depends where you live and what you need. Many types of damage like wind, hail, and lightning, are covered under a standard homeowners insurance policy. But some events fall under a separate deductible, like flooding. Just an inch of water can bring up to $25,000 in damage, so it may be worth getting an additional policy to make sure youre protected.
Read up on all things insurance to figure out what you need for your home, and how to get it. If youre looking for a fast insurance experience thats entirely online, head to Better Cover to see how they can help.
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Thanks To Skyrocketing Home Prices Renting Is Now Cheaper Than Buying
Posted by ft Editorial Staff | Aug 2, 2021 | 0
After trying their hand at 2021s competitive, increasingly pricey housing market, many would-be homebuyers are eyeing rentals with a renewed appreciation.
Across the U.S., the typical monthly rent payment is on average $600 cheaper than a mortgage on a comparable home, according to LendingTree.
Here in California, the spread is even wider, with renters saving on average:
- $1,200 per month in San Francisco
- $1,100 per month in San Jose
- $1,000 per month in Los Angeles
- $900 per month in San Diego
- $800 per month in Sacramento and
- $600 per month in Riverside.
With renting so much cheaper than buying, agents and brokers who rely on a steady influx of new homebuyers may be getting nervous.
But this analysis does not take into account several factors that influence renters into becoming homebuyers, including the:
- long-term annual savings produced by the mortgage interest deduction
- return on investment realized through home value appreciation
- peace of mind provided by owning your own home and
- strong pull exerted by the American Dream of homeownership.
Further, this buyer-versus-rent cost comparison is always changing, a fact real estate professionals know better than most. Here in California, the last time buying a home with a mortgage was consistently cheaper than renting was in 2018-2019.
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Why Tess Silwa Chose To Buy Her First Home With Better Mortgage
Better Mortgage is proud to be a digital-first mortgage lender, because it helps them communicate quickly and efficiently with everyone they work with. Thats part of what drew Austinite Tess Silwa to the company when she decided it was time to buy her first home.
Tess began house hunting with her partner in 2019. When browsing for lenders online, she was instantly impressed by Better Mortgages competitive rates. Tess says she decided on Better because the team was responsive and helpful, and didnt make her feel like she had to come in knowing the loan process already, as so many other lenders had. If youre new to homeownership and not sure whats next, get a lay of the land with the 8 steps to buying a home.
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The Mortgage Payment Isnt Everything Not Even Close
While an advertisement might highlight the monthly mortgage payment, especially when mortgage rates are low, its just the tip of the iceberg.
I assume a lot of folks could afford a monthly housing payment of $1,012 in most parts of the country these days.
Thats well below the U.S. Typical Monthly Rent of $1,843 as of July, the latest data reported.
In fact, its nearly half of the typical rent Zillow is reporting, which tells me a mortgage is a screaming bargain, at least on the surface.
But the $1,012 mortgage payment isnt your all-in monthly housing expense. Its really just a starting point.
After all, the typical U.S. home is valued around $300,000, so a $240,000 loan amount assumes a 20% down payment.
One of the biggest reasons more renters arent homeowners is due to a lack of down payment funds.
Many renters could probably muster a $1,012 monthly mortgage payment, but how many could come to the table with $60,000 cash?
Sure, there are low and no down payment mortgage programs out there, but even then theres more to it.
The Rental May Not Be All
Because renters typically move home more often than homeowners, you might want to add some of the associated costs to your calculations. These might include application fees, security deposits, pet deposits/fees, move-in fees and brokers fees, as well as something for the more frequent removal expenses that come with renting.
If youre less than perfectly organized, you may also occasionally be hit with penalties imposed by your landlord. One company that manages many properties lists 13 such penalties, including:
You may never have to pay these and the other nine listed. Or you may get demands regularly. That should largely depend on how good a tenant you are. Well assume youre a perfect tenant.
If you choose somewhere with optional amenities, you may face separate monthly charges for a parking space, yard maintenance, access to gym or pool and other services and facilities. But lets assume youre frugal and pay none of these.
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Renting Vs Buying A Home: Pros And Cons
The rent vs buy issue is much more than a financial one. There can be big differences between the lifestyles of renters and homeowners, which you need to consider alongside your finances. Here are some of the advantages of both renting and buying a home that considers both lifestyle and financial issues.
Owning A Home Can Offer Financial Stability
Theres a certain amount of permanence to owning a home. Yes, you could decide to sell five or ten years down the road, but its not as easy as renting a new place.
That stability often translates to social, health, and community benefits for you . It provides a sense of security and safety.
Renting, on the other hand, comes with more flexibility. That can be a good thing if you arent settled in an area yet or are constantly moving as part of your career, but it can also mean uncertainty. When you rent, a landlord could raise your monthly payments or ask you to move before you wish.
With mortgages, there are no surprises. Your terms and interest rates are all spelled out for you when you sign the initial paperwork.
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What Do The Most Recent Studies Say
I have thrown out a lot of numbers, but you dont have to believe just me. A recent study from Florida Atlantic University stated renting is cheaper than buying for most people. This study was shared by many news sites, blogs, and people on Facebook . However, I think there were some major problems with this study that were left out of those stories, and the . The study compared buying to renting with the following assumptions:
- A renter would invest all the money they saved from not buying a house into the stock market.
- A home buyer would put 20% down to buy a house.
- A home buyer would have 2% closing costs to buy a house.
- The home buyer would hold the house for 8 years and then sell, paying 6% in selling costs.
- Property taxes would be 1.5% of the property value each year.
- Maintenance and insurance expenses would be 2% of the annual house value.
- Homeowners would pay 25% of their profits to taxes.
There are some major problems with these assumptions.
- The homeowner would not pay any taxes on their gain because of the tax-free capital gain rule on selling a house you live in for 2 out of 5 years.
- Most homeowners do not put 20% down. 70% of first-time homebuyers who get a loan put less than 20% down.
- Property taxes are often much lower than what this study assumes for insurance and maintenance costs.
- Very few people will ever invest all the money they would have used to buy a house in the stock market. They would spend it.
Its Cheaper To Buy Than Rent In Nearly Half Of The Countrys Biggest Cities
While rental prices have risen over the last few months, mortgage rates have remained low. Now, todays homebuyers can get a starter home for less than the cost of renting in 24 of the 50 largest U.S. cities.
A starter home is defined as a studio, one-bedroom, or two-bedroom dwelling, and their prices can vary.
In July, the national average rent increased 10% year-over-year, while the 30-year fixed rate mortgage continued to sit close to historic lows below 3%. For example, in Birmingham, the average monthly cost for a home was $728, which was 33% less than its median monthly rent of $1,089. That saves homeowners $361 a month and over $4,000 a year.If youre open to relocating, it may be worth taking a look at our roundup of the most affordable cities to buy in. They each have a lower cost of living that aligns with home prices and household incomes in the area.
Buying a home can do more than just save you money. You could gain home equity, which you can access with cash out with a refinance. Figure out if its time to make the move with help from these tips on renting vs. buying.
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Bonus: Reasons You May Want To Pay Rent Instead Of A Mortgage Payment
Of course, buying a home isnt the best option for everyone. Depending on your situation, renting may actually be a better choice than buying a home.
For example, if youre just starting your career and expect to move in the next few years, it might not make sense to purchase a home. If you have bad credit or dont have enough funds for a down payment, now may not be the right time. And thats okay renting can come with benefits, too .
However, if youd like to one day own a home, theres no better time than the present to start preparing!
Renting Still Cheaper Than Buying In Big Capitals
In regional South Australia and Western Australia it was cheaper to pay a mortgage than pay rent on eight out of 10 properties.
In contrast, just under 5 per cent of loan repayments in Sydney were cheaper than rental payments and less than 8 per cent in Melbourne.
Regional New South Wales was more finely balanced with renting cheaper for just over half of properties.
Mortgage repayments were cheaper than renting for eight out of 10 homes in Logan in outer-Brisbane and Ipswich in regional Queensland and nearly nine out of 10 homes in far-west NSW, which includes Cobar.
In outback Western Australia, it was cheaper to buy than rent for nearly 96 per cent of homes.
Ms Owen said reduced interest costs have not led to cheaper mortgage serviceability relative to rents in all instances.
“This is especially the case in Sydney, where property values have increased markedly against low interest rates, pushing up loan principals and outpacing growth in rents.”
Ms Owen added that just because an area sees cheaper mortgage costs than rents does not mean people necessarily want to buy there.
For example, in regional Northern Territory and outback Western Australia, rental costs tend to be higher because accommodation is in higher demand from temporary workers such as fly in, fly out mine workers.
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Is Buying Always Better
When deciding whether it is better to rent or buy a house, you have to consider where you want to be in one, five, or even ten years. The longer you stay in a location, the more sense it makes to buy a home. Real estate prices have historically always gone up, but they can also decline in the short-term. The longer you live in a home, the better chance it will go up in value. If you plan to move in one year or two years, it may be smarter to rent. Here are some other considerations when buying or selling a house.
Having said all that, even if you are planning to move soon, you can always rent the house. If you get a good deal, you can sell it. If you took your time buying and not just choosing the house that felt right, owning a home should not stop you from moving or exploring.