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All a great and good till you do the math. In the UK you can own a house 2 hours away from work or you can rent a house 3 hours away from work. Rental prices

All a great and good till you do the math. In the UK you can own a house 2 hours away from work or you can rent a house 3 hours away from work. Rental prices in the UK are well above the rate needed to service a mortgage so if you can get a mortgage it's much cheaper. To give you an idea the 3 bedroom flat I live in has a mortgage repayment of around 800pounds a month but a rental income of 1700pounds a month.

switch007 11y ago
Which part of the UK can you rent for £1,700 but mortgage for £800? The housing market varies greatly in the UK, e.g. London is an extreme outlier. It's usually only useful to talk about specific locations
- collyw 11y ago
  Probably anywhere if you bought the house 15+ years ago.
- lhopki01 11y ago
  London is more extreme but it's the case in almost the entire UK that rents are higher than mortgage payments.
  - switch007 11y ago
    Perhaps so. e.g. in Greater Manchester rent might be £470 for a 2 bed terraced house whereas the mortgage would be about £300-400, depending on interest rate, but a mortgage payment isn't a direct comparison to a rent payment: you need life insurance, buildings insurance, contributions to a repairs fund, service fees if a flat, upfront costs to be amortised over the duration of ownership etc (but those payments are not necessarily the difference). Also, the set of people who are renting and unable to get a mortgage I imagine is quite large.
    - sokoloff 11y ago
      What does life insurance have to do with owning a house? Is that required for a mortgage in the UK?
maxaf 11y ago
Wow, now that's the major difference from NYC. A mortgage payment for anything decent anywhere in Manhattan is far beyond my current means, yet I afford the rent easily enough. I wonder why the UK is so different? Are landlords simply profiteering off a bad situation?
- deleted 11y ago
  [deleted]
- UVB-76 11y ago
  I find the inverse to be strange, i.e. the notion that the rental value of a property should be less than the cost of a mortgage. Not least because landlords incur overheads over and above those an owner-occupier does. There is a large 'buy-to-let' industry in the UK, whereby millions have taken out mortgages to buy properties for the sole purpose of renting them out. The rental income pays the mortgage, and usually provides some profit on top, all while the value of the property itself continues to appreciate.
  - awinder 11y ago
    In the US anyways you have favorable tax treatments for interest and property taxes, but rent (of private properties like houses) tends to exceed principle + interest + taxes in many areas. I find that to be fairly weird, because you've essentially got a very low out of pocket expense at that point (or even nearly net positive) in raw money exchanged, yet principle is recoverable on sale and tax deductions offset a portion of property taxes. Basically if buying a house and renting it out immediately turns a profit, that's a renter-saturated market, and it seems best to be on the non-saturated side of the market
  - dagw 11y ago
    Not least because landlords incur overheads over and above those an owner-occupier does. But isn't there also an economy of scales argument to be made. If you own dozens of buildings and hundreds of flats, you should be able to keep your pr. flat cost lower than someone who just bought one flat.
dharma1 11y ago
While rental can be above mortgage repayments in the UK (particularly London), 2x is unusually high. It sounds like the mortgage in question is only for a small part of the total value of the flat.
- dan1234 11y ago
  My mortgage is £350/month but the house next door is rented out at £750/month so it does happen, but then I had a reasonable deposit and got a low rate.
  - sokoloff 11y ago
    I think the best apples-to-apples comparison would be to compare the mortgage payment, property taxes, and insurance calculated as if the full market value of the property was mortgaged. That takes out the variance from deposit variances and purchases made many years ago.
    - freshyill 11y ago
      Isn't that how it's usually done? My mortgage payment is somewhere around $2,700/month, but I'm pretty sure that covers insurance and taxes.
      - sokoloff 11y ago
        Yes, but I'm talking about something else. If landlord A puts down 50% of the purchase price and landlord B puts down 20%, their mortgage amounts (and montly cashflows) will be different, but the inherent value proposition to the landlord will be about the same. Likewise, if someone bought 10 years ago and their value doubled (but their mortgage stayed the same), that property will "appear" more profitable to that landlord than if they sold that rental to another landlord. That's why I think the "property holding costs" should be based on the full, mark-to-market, cost of the property today, and be based on a 100% financing mortgage rate. There's also a strong argument that we shouldn't include the principal paydown part of the mortgage payment when doing this analysis, as that's a forced-savings (and cashflow) item, not an inherent profitability impact.
atwebb 11y ago
Not untrue in the states either, it's common for the rental price on a house to be 1.5-2x the mortgage payment or more, especially with rates the way they are. I'm not talking about major, top ten city, I'm not familiar with the pricing there. I'm speaking from experience in 2 "B" tier cities. Rents in our neighborhood are around 2-2.2x our payment of mortage+insurance+taxes, though we put 20% down so the payment is a little lower. In our previous location it was around 1.5x and rents are rising.
- charlesdm 11y ago
  That's the premium you get for owning property in a B city. Imagine having a portfolio of 50+ properties in Detroit in this day and age. Imagine owning high value property in a city like Detroit - it'll be hard to sell, hence the premium.
  - atwebb 11y ago
    I guess so, our current city is redhot property wise so anything is expensive relative to what it was, the other city has a very large portion of renters which lends to the increased cost I'm guessing.
e12e 11y ago
At ~3% interest rate (ie: less than one should plan for in case of change in the economy), a 25 year mortage comes to approx 480 GBP/month per 100K. Are you saying your 1700GPB/month rental property sells for ~200k? Certainly rent should come at a premium to buying (eg: in the example above, down payment isn't considered as an investment -- mostly because you'll need somewhere to live. If you sell your house, were will you live?). As far as I've been able to figure out in Norway, you'll generally end up paying more (total) per month if buy than if you rent. But like all things in life, if you can afford the monthly total of rent+downpayment, you'll be better off than renting due to the presumed price increase of the house. Worst case, you'll pay it down and live "for free" the rest of your life. I think it's interesting to look at median yearly wage and house prices. How many years wages does it cost to buy a place to live outright? And as the article states, how can it be more expensive now, than it used to be?
- lhopki01 11y ago
  Close 275k but with a slightly larger than 10% deposit. 2% interest rate but the point that it is cheaper to pay a mortgage than rent is valid even if interest rates go to 8 or 9%. Also you consider that in a vacuum. What do you think happens if interest rates go up? All the buy-to-let people that require the rental income to pay for the property will also raise their rental rates. There are enough of them that they will move the market.
  - e12e 11y ago
    Certainly sounds like the difference between rental and mortage is much bigger where you live, than here. One obviously need to look at the concrete market one is buing/renting in.
seanmcdirmid 11y ago
Interesting, this is quite the opposite from Beijing. 7500 RMB/ month rent translates to around a 20,000 RMB/month mortgage (not exactly since down payments are much larger). But we are also at peak proper bubble.

switch007 11y ago

Which part of the UK can you rent for £1,700 but mortgage for £800? The housing market varies greatly in the UK, e.g. London is an extreme outlier. It's usually only useful to talk about specific locations

collyw 11y ago
Probably anywhere if you bought the house 15+ years ago.
lhopki01 11y ago
London is more extreme but it's the case in almost the entire UK that rents are higher than mortgage payments.
- switch007 11y ago
  Perhaps so. e.g. in Greater Manchester rent might be £470 for a 2 bed terraced house whereas the mortgage would be about £300-400, depending on interest rate, but a mortgage payment isn't a direct comparison to a rent payment: you need life insurance, buildings insurance, contributions to a repairs fund, service fees if a flat, upfront costs to be amortised over the duration of ownership etc (but those payments are not necessarily the difference). Also, the set of people who are renting and unable to get a mortgage I imagine is quite large.
  - sokoloff 11y ago
    What does life insurance have to do with owning a house? Is that required for a mortgage in the UK?

maxaf 11y ago

Wow, now that's the major difference from NYC. A mortgage payment for anything decent anywhere in Manhattan is far beyond my current means, yet I afford the rent easily enough. I wonder why the UK is so different? Are landlords simply profiteering off a bad situation?

deleted 11y ago
[deleted]
UVB-76 11y ago
I find the inverse to be strange, i.e. the notion that the rental value of a property should be less than the cost of a mortgage. Not least because landlords incur overheads over and above those an owner-occupier does. There is a large 'buy-to-let' industry in the UK, whereby millions have taken out mortgages to buy properties for the sole purpose of renting them out. The rental income pays the mortgage, and usually provides some profit on top, all while the value of the property itself continues to appreciate.
- awinder 11y ago
  In the US anyways you have favorable tax treatments for interest and property taxes, but rent (of private properties like houses) tends to exceed principle + interest + taxes in many areas. I find that to be fairly weird, because you've essentially got a very low out of pocket expense at that point (or even nearly net positive) in raw money exchanged, yet principle is recoverable on sale and tax deductions offset a portion of property taxes. Basically if buying a house and renting it out immediately turns a profit, that's a renter-saturated market, and it seems best to be on the non-saturated side of the market
- dagw 11y ago
  Not least because landlords incur overheads over and above those an owner-occupier does. But isn't there also an economy of scales argument to be made. If you own dozens of buildings and hundreds of flats, you should be able to keep your pr. flat cost lower than someone who just bought one flat.

dharma1 11y ago

While rental can be above mortgage repayments in the UK (particularly London), 2x is unusually high. It sounds like the mortgage in question is only for a small part of the total value of the flat.

dan1234 11y ago
My mortgage is £350/month but the house next door is rented out at £750/month so it does happen, but then I had a reasonable deposit and got a low rate.
- sokoloff 11y ago
  I think the best apples-to-apples comparison would be to compare the mortgage payment, property taxes, and insurance calculated as if the full market value of the property was mortgaged. That takes out the variance from deposit variances and purchases made many years ago.
  - freshyill 11y ago
    Isn't that how it's usually done? My mortgage payment is somewhere around $2,700/month, but I'm pretty sure that covers insurance and taxes.
    - sokoloff 11y ago
      Yes, but I'm talking about something else. If landlord A puts down 50% of the purchase price and landlord B puts down 20%, their mortgage amounts (and montly cashflows) will be different, but the inherent value proposition to the landlord will be about the same. Likewise, if someone bought 10 years ago and their value doubled (but their mortgage stayed the same), that property will "appear" more profitable to that landlord than if they sold that rental to another landlord. That's why I think the "property holding costs" should be based on the full, mark-to-market, cost of the property today, and be based on a 100% financing mortgage rate. There's also a strong argument that we shouldn't include the principal paydown part of the mortgage payment when doing this analysis, as that's a forced-savings (and cashflow) item, not an inherent profitability impact.

atwebb 11y ago

Not untrue in the states either, it's common for the rental price on a house to be 1.5-2x the mortgage payment or more, especially with rates the way they are. I'm not talking about major, top ten city, I'm not familiar with the pricing there. I'm speaking from experience in 2 "B" tier cities. Rents in our neighborhood are around 2-2.2x our payment of mortage+insurance+taxes, though we put 20% down so the payment is a little lower. In our previous location it was around 1.5x and rents are rising.

charlesdm 11y ago
That's the premium you get for owning property in a B city. Imagine having a portfolio of 50+ properties in Detroit in this day and age. Imagine owning high value property in a city like Detroit - it'll be hard to sell, hence the premium.
- atwebb 11y ago
  I guess so, our current city is redhot property wise so anything is expensive relative to what it was, the other city has a very large portion of renters which lends to the increased cost I'm guessing.

e12e 11y ago

At ~3% interest rate (ie: less than one should plan for in case of change in the economy), a 25 year mortage comes to approx 480 GBP/month per 100K. Are you saying your 1700GPB/month rental property sells for ~200k? Certainly rent should come at a premium to buying (eg: in the example above, down payment isn't considered as an investment -- mostly because you'll need somewhere to live. If you sell your house, were will you live?). As far as I've been able to figure out in Norway, you'll generally end up paying more (total) per month if buy than if you rent. But like all things in life, if you can afford the monthly total of rent+downpayment, you'll be better off than renting due to the presumed price increase of the house. Worst case, you'll pay it down and live "for free" the rest of your life. I think it's interesting to look at median yearly wage and house prices. How many years wages does it cost to buy a place to live outright? And as the article states, how can it be more expensive now, than it used to be?

lhopki01 11y ago
Close 275k but with a slightly larger than 10% deposit. 2% interest rate but the point that it is cheaper to pay a mortgage than rent is valid even if interest rates go to 8 or 9%. Also you consider that in a vacuum. What do you think happens if interest rates go up? All the buy-to-let people that require the rental income to pay for the property will also raise their rental rates. There are enough of them that they will move the market.
- e12e 11y ago
  Certainly sounds like the difference between rental and mortage is much bigger where you live, than here. One obviously need to look at the concrete market one is buing/renting in.

seanmcdirmid 11y ago

Interesting, this is quite the opposite from Beijing. 7500 RMB/ month rent translates to around a 20,000 RMB/month mortgage (not exactly since down payments are much larger). But we are also at peak proper bubble.