Mortgage or apartment rental: what is more profitable now?

The question of whether to rent an apartment or take out a mortgage regularly arises among young families who want to live separately from their parents, or among those who have come to conquer the capital and want to stay in Moscow for a long time. Which option to choose? What is the best way to act in 2023? Moskovskaya Pravda learned about this from experts.

Since last year, rental prices in the capital have decreased by an average of 10%. In turn, the cost of apartments in the Moscow region is also declining, but at a much lower rate. In addition, the Central Bank tightened the requirements for developers who offered mortgages at near-zero rates. So, according to the mortgage broker, co-founder of the Association of Mortgage Brokers, Candidate of Economic Sciences Elena Molokova, the current mortgage rates make renting more attractive.

“The numbers show it. The size of the monthly mortgage payment and the cost of rent are comparable only in cases where the borrower has a good down payment, and the loan amount is relatively small, the expert said. Let’s compare. Buying a one-room apartment in Moscow on a mortgage in the Tsaritsyno area of ​​​​34.2 square meters will cost about 8 million rubles. The average mortgage rate today is 11.5%. If you take a mortgage for 30 years, then with a minimum down payment of 15%, payments will amount to 67,340 rubles per month. The same apartment in this area can be rented for 32,000 rubles. The difference in payments is almost 35,000 rubles. It turns out that the loan is more than twice as expensive.

Meanwhile, according to Elena Molokova, when buying an apartment in new buildings, many banks today give a deferral of payments for the construction period, and this makes a mortgage more affordable and more comfortable compared to rent. And state support programs allow you to buy an apartment by taking a mortgage at a rate of 1 to 8%. ⠀

However, when making a decision, it should be taken into account that the weighted average rate on mortgage loans between objects in the primary and secondary housing markets fluctuates greatly. So, according to Frank RG, as of February 1, 2023, for new buildings it was at the level of 4.82%, and for the “secondary” – 9.66%, said Sergey Solovykh, Head of Wealthy Clients at Fontvielle.

“The most positive scenario is when the monthly loan costs are in the region of 6-8% per annum,” the expert believes. “But to these costs, you need to add related expenses like insurance premiums, as well as provide start-up capital for a down payment and funds for repairs, which usually make up about a third of the cost of an apartment. As a result, it is worth calculating how much housing will cost, taking into account all expenses, adding them to the mortgage rate.

According to real estate expert Vitaly Rusakov, a mortgage in the capital is justified and profitable if the family has the opportunity not only to receive a stable financial income, but also to use various social programs, including maternity capital, family mortgage benefits, and the like.

– With an average mortgage loan rate, excluding preferential programs, the amount of loan payments in Moscow can be in the range of 40 – 60 thousand rubles per month. This is almost comparable to the average salary in the metropolitan area. By the way, according to the estimates of the National Bureau of Credit Histories (NBKI), in order to have comfortable conditions for paying off mortgage-related debts in Moscow, the average minimum family income should be at least 81 thousand rubles, the expert said.

As for rent, according to Vitaly Rusakov, this option is beneficial for young people who have not yet decided how and where they will live or work. Also, rental housing is in demand among those who came to the capital to settle down and are still looking for the best options.

– According to one analytical agency, in Moscow 74% of tenants prefer to rent housing for a period of 1 to 5 years. About 20% are temporary residents with a stay of less than 1 year: students, businessmen, tourists and others. And only 7% of tenants are those who plan to rent housing with a perspective of up to 10 years, inclusive, – said the expert.

Nevertheless, the choice between a mortgage or rental housing, both in Moscow and in Russia as a whole, must be made based on individual preferences and life factors, Yuri Isaev, Brobank.ru service analyst, notes:

– Even financial benefits can be considered in two ways. First, when evaluating the long term. After 15 – 25 years after the payment of a targeted loan for the purchase of housing, a person receives real estate in full ownership. Moreover, with a high degree of probability, its price will be more than the amount borrowed. Which, in turn, will partially cover the overpayment on the loan. Secondly, current expenses. Renting an apartment requires less monthly expenses than a mortgage. Naturally, when comparing identical properties. Accordingly, if you rent an apartment, you will have to spend a smaller amount every month.

However, in addition to this, it is important to take into account two more nuances related to the financial direction, the expert warns.

– Firstly, a mortgage at the stage of processing a transaction requires significant savings. First of all, we are talking about the initial payment. It is necessary to have an amount sufficient to pay at least 20% of the cost of the purchased apartment. There will also be associated costs in the form of insurance, appraisals and other possible additional services. For rent, even taking into account the first and last payments, as well as paying for the services of a realtor, spending is less, – explains Yuri Isaev. – In addition, it is often not possible to quickly move into real estate purchased with a mortgage. Regardless of what kind of housing we are talking about – a new building or a “secondary”. In the vast majority of cases, repairs will have to be made. It requires significant financial costs and usually lasts quite a long time. Accordingly, at this time you still have to rent an apartment.

Personal factors are also important in the process of choosing between renting and mortgages.

– If the work does not require a daily personal visit, for example, completely remote, the family does not have children for whom the change of kindergarten and school is a critical factor, then you can give preference to rent. Otherwise, it is better to consider the option of a mortgage, the expert believes.

Dmitry Golev, commercial director of Optima Development, agrees with him.

– Making a choice in favor of renting, a person is “doomed” to pay for someone else’s housing, and he will do this forever, while the mortgage will end sooner or later. In my opinion, the choice is obvious. It happens that people do not take into account the growth in the cost of rent over time and come to the opposite conclusion, but this is a serious mistake when calculating for long periods, the expert explains. — Unlike many Western countries, where clients prefer to rent housing, in Russia, rent is more often perceived as a temporary phenomenon. Yes, generations Y and Z tend to be apartment oriented as they are young, mobile and prefer to move to a more “fashionable” location whenever possible. But this happens until they start a family – at this moment the thought comes that you need to acquire and equip your own housing.

If you use a preferential mortgage, then, according to Dmitry Golev, monthly mortgage payments for an apartment in a finished new building are comparable to the rental price for it or slightly exceed this amount. Moreover, the higher the down payment, the more profitable the mortgage is:

– So, the average check of a transaction for a one-room apartment in Moscow today is 12.5 million rubles. With a down payment of 20% and a preferential mortgage for 20 years, the mortgage payment will be 74.5 thousand rubles, and if you make 50%, then only 46.5 thousand. That’s about the same amount they’re asking for rent.

When making a decision, another expert, deputy head of Nmarket.PRO Andrey Garifullin, recommends using one of the mortgage calculators, which are many on the Internet.

– For example, if you take a request for an apartment worth 10 million rubles and a rent of 45,000 rubles a month, then if you have the necessary down payment, savings for repairs and furniture and the use of programs with state support or subsidies at a rate of 4 – 6% – it is more profitable take out a mortgage. If there is no down payment and savings, then you need to very carefully evaluate your debt load, stability of work and the compliance of the apartment with your needs for a long time, the expert is sure.

Nadezhda Korkka, managing partner of Metrium, considers a tranche mortgage to be one of the noteworthy options.

— This tool allows you to purchase housing in a house under construction and make symbolic payments until it is put into operation, then the rate changes to the base one. It is especially profitable to purchase apartments at the stage of excavation, because at the initial stage of construction, developers usually set a discount of 25-30%. And before the housewarming, you can live in rented housing, since until that moment mortgage payments remain minimal, the expert explains.

Of course, real estate prices in the capital today are high, but it is not worth counting on the fact that after waiting for some time, it will be possible to save on mortgages, says Maxim Naumov, an expert on the real estate services market.

– Today’s housing prices in Moscow may seem overvalued. However, if the family is thinking of living in it for a long time, it is still possible that the cost of housing will rise in the future, which may justify the cost of a mortgage.

In general, the choice in favor of rent or mortgage depends on many factors, which experts have listed in sufficient detail. But there are no special features in connection with the current economic conditions among them. Of course, own housing is better than rented. And if you save at least 50% of the cost of an apartment for a down payment, then choosing a mortgage will most often be the best solution. Because, despite the obvious savings in renting a house, an apartment in which you have to pay for living will never become yours. At the same time, rental rates will almost certainly increase over time, while mortgage payments remain at the same level for the entire term of the loan.

Alena Bodrienko.

Photo by Alexander Avilov / Moskva Agency