Key Post "Is it cheaper to rent or buy?"

It all depends on the deposit!

A local property was on the market with an asking price of €200,000 recently. It was taken off the market due to lack of interest and/or ability to secure finance.

It subsequently went on the rental market looking for a rent of €800. Again, lack of interest resulted in a drop (today) in rent to €750 per month.

Given the above information, I imagine the owner of the property would have had accepted an offer of €185,000 and the following are the figures:

Property Cost|€185,000
Deposit|€18,500
Acquisition & Furnishing Costs|€15,000
Savings Needed|€33,500
Mortgage Needed|€166,500

RENTING|
Cost to Rent - €750 per month|€9,000

BUYING|
Property Ins|€500
Property Tax|€314
Mortgage Interest - 4.5%|€7,492
Lost Interest on Savings - 2%|€670
Maintenance|€1,850
Total Cost of Ownership|€10,826

I used relatively high furnishing costs because the house is furnished to a pretty good standard.

As you can see, it is cheaper to rent this property than it is to buy - assuming a 10% deposit.

However, where a house is cheaper to rent than buy, there will usually be a deposit level where the story changes.

In the above example, with varying deposit levels, all costs would remain the same except for 'mortgage interest' and 'lost interest on savings'.

For buying to work out at the same price as renting, the total cost of these two expenses would need to be €6,336 (€9,000 - €500 - €314 - €1,850).

Therefore, looking at the above house from the perspective of someone with significant savings in the bank, you get the following potential figures:

Property Cost|€185,000
Deposit|€91,600
Acquisition & Furnishing Costs|€15,000
Savings Needed|€106,600
Mortgage Needed|€93,400

RENTING|
Cost to Rent - €750 per month|€9,000

BUYING|
Property Ins|€500
Property Tax|€314
Mortgage Interest - 4.5%|€4,203
Lost Interest on Savings - 2%|€2,132
Maintenance|€1,850
Total Cost of Ownership|€8,999

You're likely to get a better interest rate with the above deposit but I've excluded this from my calculation because interest rates are likely to rise (just as rents are).
 
Another thing to consider is that you can't always analyse the situation based solely on the numbers.

For example, in my opinion, the above house is renting for disproportional levels in relation to the house price. In Donegal, this is what would be considered a very high-end house. However, rental demand for such houses is low due to emigration to Australia and reduced employment in the area.

As soon as one, or both, of these reverts back to normal levels, the rent for the above house will rise significantly. Therefore, someone with significant savings may want to buy to 'lock in' their future cost of accomodation as far as physically possible.
 
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