4 ms·

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

by 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.
      - e12e 11y ago
        Ah, but "forced-savings" doesn't work if that means you can't afford to eat. So it's very much relevant to the "young people can't afford to buy a house". True, it's slightly different problem - but it's also (probably) why people are forced to rent, driving up prices for rent vs buying a house/apartment. This also include the saving you need to do before you get a mortgage (which is harder to do if rent prices are inflated...). It's of course true, that even with a catastrophic collapse in the housing market, the money sunk into the principal are rarely truly lost. At some point the market is likely to recover to the point that it is worth something. If you can afford to wait.
- e12e 11y ago
  When did you purchase your house? Because we're talking about people moving into the market. If you managed to buy a house that only costs you 350 GPB/Month for both interest and downpayment, that's great. But is that what it would cost you if you bought your house today? (I'm not saying it'd wouldn't, but it's relevant for the discussion to know for sure).
  - dan1234 11y ago
    Bought in 2011 for £90,000. Current Zoopla estimate is £110k
- imtringued 11y ago
  This raw number doesn't tell us very much. We still don't know the length of the mortgage, whether the house is larger or the condition of the building and a whole lot of other variables that I didn't mention.
mollmerx 11y ago
Particularly in London, houses are overvalued to the extent that rents are comparatively cheap vs. the rest of the country. Rental yields in London are significantly lower than they are in e.g. Manchester.
- Ntrails 11y ago
  Yet you miss the key issue - which is mortgage availability. I end up where I can afford to buy my own flat and rent it out to someone who is not myself at the rent I am paying and make a profit. But I would not be offered sufficient mortgage to simply own it myself despite the fact that the rent I pay is higher than the mortgage would be (and indeed even accounting for 2% rate rise I'd be fine).
lhopki01 11y ago
Even with a 10% deposit it's still only repayment of 1100 a month. The point is that rents are higher than mortgages which gives the case of having money means you can save money. And that's before you consider the massive asset you own then.
- dharma1 11y ago
  Noticed you said the property value is £275k? £275k property with £1700/pm rental yield is very, very good. Average rental yield (before tax) is around 4-6% of property value per year. Generally speaking though, your point is true of course. Having enough capital to buy a property in London instead of renting (especially if you bought a few years ago) will save you a lot of money in the long run, provided that property prices don't go down between your your buy/sell dates.

by 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.
    - e12e 11y ago
      Ah, but "forced-savings" doesn't work if that means you can't afford to eat. So it's very much relevant to the "young people can't afford to buy a house". True, it's slightly different problem - but it's also (probably) why people are forced to rent, driving up prices for rent vs buying a house/apartment. This also include the saving you need to do before you get a mortgage (which is harder to do if rent prices are inflated...). It's of course true, that even with a catastrophic collapse in the housing market, the money sunk into the principal are rarely truly lost. At some point the market is likely to recover to the point that it is worth something. If you can afford to wait.
e12e 11y ago
When did you purchase your house? Because we're talking about people moving into the market. If you managed to buy a house that only costs you 350 GPB/Month for both interest and downpayment, that's great. But is that what it would cost you if you bought your house today? (I'm not saying it'd wouldn't, but it's relevant for the discussion to know for sure).
- dan1234 11y ago
  Bought in 2011 for £90,000. Current Zoopla estimate is £110k
imtringued 11y ago
This raw number doesn't tell us very much. We still don't know the length of the mortgage, whether the house is larger or the condition of the building and a whole lot of other variables that I didn't mention.

mollmerx 11y ago

Particularly in London, houses are overvalued to the extent that rents are comparatively cheap vs. the rest of the country. Rental yields in London are significantly lower than they are in e.g. Manchester.

Ntrails 11y ago
Yet you miss the key issue - which is mortgage availability. I end up where I can afford to buy my own flat and rent it out to someone who is not myself at the rent I am paying and make a profit. But I would not be offered sufficient mortgage to simply own it myself despite the fact that the rent I pay is higher than the mortgage would be (and indeed even accounting for 2% rate rise I'd be fine).

lhopki01 11y ago

Even with a 10% deposit it's still only repayment of 1100 a month. The point is that rents are higher than mortgages which gives the case of having money means you can save money. And that's before you consider the massive asset you own then.

dharma1 11y ago
Noticed you said the property value is £275k? £275k property with £1700/pm rental yield is very, very good. Average rental yield (before tax) is around 4-6% of property value per year. Generally speaking though, your point is true of course. Having enough capital to buy a property in London instead of renting (especially if you bought a few years ago) will save you a lot of money in the long run, provided that property prices don't go down between your your buy/sell dates.