is buying really cheaper than renting?

regi3457

We live in a house and were just having a look around at potentially buying a house in Ireland. We were more window shopping than anything and looking at numbers to see just how much cheaper buying is supposed to be.

We rent in co Laois in a house worth around 180 000 euro. We saw a similar nicer house but farther out of town for the same price. If we were to put down a 10% deposit and take out a mortgage with BOI the bank rep said our repayments (variable) would be 900 euro which is what we pay in rent at the moment. Now I know your repayments initially are mostly interest so when you make your payments over the first 5 years you pay the bank just the same as I pay my landlord right? Also with a mortgage don't you need additional insurance? I don't know how much that can be but surely that would make the repayments and insurance much higher than the rent payment we make each month right now?

I must add that in our case we would have the means to save up the full 180k in 5 years so we could cancel our mortgage early hypothetically speaking but in the interim from now until 2022, would it be wiser to keep renting or to buy a house? It seems to me that we would have the full 180k sooner if we carried on renting but maybe I am missing something. Anyone care to tell me what I am missing? I suppose property goes up over time but not always so surely speculating about this is not the way to go.

sbsquarepants

Bank of Ireland website has a very handy buy versus rent calculator.

Seems a no brainer though that buy would be your best option, especially if you'd be in a position to pay it off that quickly.

The life insurance thing isn't much - you'd cover a mortgage that size for the region of 30 - 40 quid a month.

wordofwarning

regi3457 wrote: »

Anyone care to tell me what I am missing? I suppose property goes up over time but not always so surely speculating about this is not the way to go.

Do you know how much it costs to run a house? I just get the impression, you have not sat down with a BIC and scrap of paper to realise you pay LPT, home insurance, maintenance, life assurance if you are a couple, decorating, gardening etc. Owning a home is a lot more expenses than just a mortgage

Skerries

but eventually the mortgage does go down in comparison to what you earn and after the full mortgage is paid you are not paying the equivalent of rent and you are left with a valuable asset
so a person in their 60's would be rent free (apart from usual home expenses) and have a nest egg in case they need to use something like fair deal

Bob24

"buying cheaper than renting" doesn't really make sense.

You can compare mortgage repayments with a given deposit to the rent you would pay for the same property, but that is only valid today as either rents or interest rates can go up and down in a years time and change the balance of which one is "cheaper".

Adding to that obviously buying is not the same thing as at the end of the day you get to keep the asset, but with it you get more responsibilities and risks: paying property tax , paying management fees, spending more on maintenance, and possibly most importantly taking the risk of going into negative equity of the asset price goes down (which for some people might mean being unable to move to another property if the one they own doesn't suite any-more, or being in financial distress if at the same time they lose their job).

So really 2 different beasts meaning a direct comparison of which one is cheaper is not necessarily relevant.

david75

From Germany up through all the Scandinavian countries renting is the MO.
We have a hangover about property thanks to the brits.

Samuel T. Cogley

david75 wrote: »

From Germany up through all the Scandinavian countries renting is the MO.
We have a hangover about property thanks to the brits.

Not sure about Germany but the Scandinavian countries have the social walfare systems in place to deal with 80 year olds with no assets. Ireland is a laissez-faire regime and although I'm sure there are more efficient ways of saving for retirement I wouldn't want to be in a situation where I'm paying market rate, adjusted for inflation for a property when I'm 70+.

The rental structures in those countries are also completely different with proper security of tenure and bare-shell lets.

Right2Write

regi3457 wrote: »

We live in a house and were just having a look around at potentially buying a house in Ireland. We were more window shopping than anything and looking at numbers to see just how much cheaper buying is supposed to be.

I must add that in our case we would have the means to save up the full 180k in 5 years so we could cancel our mortgage early hypothetically speaking but in the interim from now until 2022, would it be wiser to keep renting or to buy a house? It seems to me that we would have the full 180k sooner if we carried on renting but maybe I am missing something. Anyone care to tell me what I am missing? I suppose property goes up over time but not always so surely speculating about this is not the way to go.

My instinct is that you're right to be cautious, particularly if you're well paid enough and can save at a healthy rate as well as paying the current rent. There's always people pumping up the pressure to buy in Ireland (often for some unspoken self interest) but it makes sense I think to buy when a) you find the place you will happy living in and b) you can pay as much as possible from savings. People talk about buying a house as an asset but first and foremost it should be a home. I'm a bit out of touch with current mortgage arrangements but it certainly used to be the case that there are penalties for people who want to pay off their mortgages more quickly. Which is why it makes sense to put as much savings as possible towards the purchase in the first place. It may also depend on where you live and pressure on prices there - is the demand small or large. This affects the rate at which prices may change and influence your decision.

Skerries wrote: »

you are left with a valuable asset
so a person in their 60's would be rent free (apart from usual home expenses) and have a nest egg in case they need to use something like fair deal

That's another question isn't it? You save for this asset and then later in your years, having saved for it the state then leverage a proportion of it's value. Whereas people who don't provide for themselves this way just get the same service but the taxpayer stumps up!!

pilly

There are a LOT more additional expenses than just insurance. As mentioned above by wordofwarning plus replacing machinery, maybe a heating boiler, guttering, drains, etc. etc.

I can't even think of them all.

I am both a LL and a tenant at the moment and have to say I much prefer being the tenant. I know exactly how much rent I have to pay a month and don't have any other house related expenses to worry about.

In your unique case OP where you reckon you'll be able to buy the property straight out in 5 years I'd continue on with your saving and buy when you've enough money.

Think about it, say buy a house now, you're saving away and all of sudden the boiler packs in and then the plumber says oh "this is a major problem, all the pipes have to come out and we need an electrician". Screws up your savings.

jester77

You have a lot of extra bills with owning. My annual insurances for the house (life, content, building, liability, etc) are 1500 per year. Then you have things like property tax, bins, tv license, etc that might already be part of your rent. And then there is the maintaining of the property. The heating, water and air circulation systems cost a few hundred per year to maintain and service. And that is before you keep the place in shape. Replacing furniture, maintaining garden and surrounds, painting rooms, and so on quickly add up.

Samuel T. Cogley

On the bills front, I'm not sure of beyond the Pale but within Dublin you could have a mortgage and a run of bad luck where everything needed to be replaced over a 2 or 3 year period and still come no where near what you'd pay in rent. With renting you're also assuming the LL will be arsed fixing the washing machine/fridge or whatever in any sort of timely manner.

pilly

Samuel T. Cogley wrote: »

On the bills front, I'm not sure of beyond the Pale but within Dublin you could have a mortgage and a run of bad luck where everything needed to be replaced over a 2 or 3 year period and still come no where near what you'd pay in rent. With renting you're also assuming the LL will be arsed fixing the washing machine/fridge or whatever in any sort of timely manner.

OP already explained that rent and mortgage would be the same so we're talking about that situation.

Samuel T. Cogley

pilly wrote: »

OP already explained that rent and mortgage would be the same so we're talking about that situation.

They also explained that they'd be repaid in 5 years so I think a more general discussion is fine. Although interest rates may impact it, rents could also change - AFAIK OPs location is not a RPZ.

Even if it takes them a bit longer - say ten years to clear the mortgage the answer is pretty obvious.

robp

david75 wrote: »

From Germany up through all the Scandinavian countries renting is the MO.
We have a hangover about property thanks to the brits.

Arguably high ownership is the norm. If you look at the rates Ireland is more similar to Spain and Italy than the UK. Germany is an outlier. that been said there is lot to be said for renting.

BoatMad

cheapest costs ever for us, was when we rented for two years , owing a house is expensive

Parchment

Skerries wrote: »

but eventually the mortgage does go down in comparison to what you earn

Thats not the case for everyone.

BoatMad

Parchment wrote: »

Thats not the case for everyone.

its not the case at all , its a throwback to high interest rate , high inflationary situations that are not likely to be hear again inside the Eurozone. Its way long term renting is seen as practical in Germany , because high price inflation is largely absent and there is no " realisable asset " in reality

only in this benighted republic , are we fixated with an abode as an investment

In the last 4 years of renting our shoebox, my partner and I have spent 59,000 euros. I'd much rather be 60k into my mortgage, than just being glad Ive had a roof over my head for the last 4 years.

Yes home ownership is more expensive then renting, its not just the same as swapping the rent payments for the mortgage payments and being quids in, but at the end of the mortgage, you get to keep the asset. You also get to modify it anyway you want. Paint it any colour you want, and get rid of the sh1tty bargain basement fridge freezer the LL put in because they had to put in a fridge freezer.

BoatMad

Yes home ownership is more expensive then renting, its not just the same as swapping the rent payments for the mortgage payments and being quids in, but at the end of the mortgage, you get to keep the asset. You also get to modify it anyway you want. Paint it any colour you want, and get rid of the sh1tty bargain basement fridge freezer the LL put in because they had to put in a fridge freezer.

which is why long term home renting should be like conventional commercial leases , our issue here is the short-termism in renting and the largely amateur landlords. We need to drive out the amateur landlord

BoatMad

my partner and I have spent 59,000 euros. I'd much rather be 60k into my mortgage,

why , lets assume that over the period, there is another price crash , why would you wish to have 60K in a wasting asset

Samuel T. Cogley

BoatMad wrote: »

which is why long term home renting should be like conventional commercial leases , our issue here is the short-termism in renting and the largely amateur landlords. We need to drive out the amateur landlord

Have you seen what REIT's are charging for rentals? If we go over to companies as LL's the answer will be a resounding yes to it being cheaper to own, even the most tumble down money pit of a gaffe.

BoatMad

BoatMad wrote: »

why , lets assume that over the period, there is another price crash , why would you wish to have 60K in a wasting asset

Because I get to live in it once Ive paid it off.

Effects

david75 wrote: »

From Germany up through all the Scandinavian countries renting is the MO.
We have a hangover about property thanks to the brits.

What does a Scandy do when they no longer work due to age and still have rent to pay?

david75

I have friends same friends that we all probably have, that have second and third properties and they rent them out and it pays their mortgage and then some.

I still believe these people are the problem. Am I wrong?

BoatMad

Samuel T. Cogley wrote: »

Have you seen what REIT's are charging for rentals? If we go over to companies as LL's the answer will be a resounding yes to it being cheaper to own, even the most tumble down money pit of a gaffe.

I meant that we need a wholesale reworking of the long term rental lease structure

(A) no eviction under any circumstances once Lease terms are met, sale of property occurs with sitting tenant ( as in commercial sales )

(B) Long Term leases with break clauses, should be legally be required to be offered by landlords , lease sets out rent increases and agreed arbitration processes

(C) option of a repairing lease at lower rates

(D) removal of the issue of tenants and landlord fixtures issues . Tenants has a right to engage in modifications with agreement with landlord , and where such agreement is reasonably expected


(E) State needs to examine ways where retirees have security of rented tenure, irrespective of income

BoatMad

david75 wrote: »

I have friends same friends that we all probably have, that have second and third properties and they rent them out and it pays their mortgage and then some.

I still believe these people are the problem. Am I wrong?

yes they are, because they typical see renting as a short term process, they want to retain the ability to retake the building for their private use in the future

this is unlike commercial rentals, where the actual property itself is of no concern to the owners per se

Samuel T. Cogley

david75 wrote: »

I have friends same friends that we all probably have, that have second and third properties and they rent them out and it pays their mortgage and then some.

I still believe these people are the problem. Am I wrong?

In what way?

Yes they're a problem if you want to buy one of their houses/apartments but they're providing a service to two households wanting to rent and paying around 50% of the income back into the system that is used to finance housing people that can't afford to house themselves.

Samuel T. Cogley

BoatMad wrote: »

I meant that we need a wholesale reworking of the long term rental lease structure

(A) no eviction under any circumstances once Lease terms are met, sale of property occurs with sitting tenant ( as in commercial sales )

(B) Long Term leases with break clauses, should be legally be required to be offered by landlords , lease sets out rent increases and agreed arbitration processes

(C) option of a repairing lease at lower rates

(D) removal of the issue of tenants and landlord fixtures issues . Tenants has a right to engage in modifications with agreement with landlord , and where such agreement is reasonably expected


(E) State needs to examine ways where retirees have security of rented tenure, irrespective of income

That's all well and good but supply is the primary issue that needs to be addressed. Until that's done we could do with less fiddling well Rome burns from Central Government.

BoatMad

50% of the income back into the system that is used to finance housing people that can't afford to house themselves.

no they just pay into the general tax pool like the rest of us

Samuel T. Cogley

BoatMad wrote: »

no they just pay into the general tax pool like the rest of us

And where does the majority of the central tax pool go?

BoatMad

Samuel T. Cogley wrote: »

And where does the majority of the central tax pool go?

heath, education and social welfare