Rent or buy
Rent or buy? What the numbers say, and what they can't
"Renting is dead money" is one of the most repeated lines in personal finance. It is half true: rent buys you nothing you keep. But a lot of what homeowners pay is dead money too, in the form of mortgage interest, stamp duty, fees, repairs and the cost of selling. The honest comparison sets all of that against renting and investing the difference. Here is what that looks like.
The example
A first-time buyer in England choosing between buying a £300,000 home with a 10% deposit and a 5.2% mortgage, or renting a similar home for £1,250 a month. Rents rise 3% a year, house prices rise 3% a year, and any money not tied up in the home earns 4% a year after tax. Owning costs include 1% of the home's value a year for repairs, insurance, legal and mortgage fees, and 2% to sell at the end.
Owning costs more each month, at first
The mortgage, repairs and insurance come to about £1,893 a month, against £1,250 for rent. So in the early years the renter has about £640 a month spare, which they invest, along with the £33,500 deposit and fees they did not spend.
That is why, after one year, the renter is ahead by about £4,500. The buyer's equity is reduced by the cost of buying and the 2% it would cost to sell.
But buying pulls ahead, here from year 2
Two things work for the buyer every month: part of each payment repays the loan, and the home (hopefully) rises in value on the whole £300,000, not just the deposit. Meanwhile the rent keeps rising and the mortgage payment does not. On these assumptions buying is ahead from year 2, and after ten years the buyer is about £69,500 better off.
The single biggest factor is house prices. Change that one assumption and the answer can flip completely.
What changes the answer
Here is the same comparison after ten years with different house price growth:
| House prices rise each year | Better off after 10 years | Buying ahead from |
|---|---|---|
| 0% | Renting, by £26,100 | Never, within 10 years |
| 1% | Buying, by £3,000 | Year 10 |
| 2% | Buying, by £34,700 | Year 4 |
| 3% | Buying, by £69,500 | Year 2 |
| 4% | Buying, by £107,500 | Year 2 |
The other assumptions matter, but less:
- Rent rises. At 5% a year instead of 3%, buying ends up £88,300 ahead; at 1%, £52,500.
- Investment returns. If the renter earns 6% a year instead of 4%, buying's lead shrinks to £50,200 and arrives a year later. At 2% it grows to £86,200.
- The mortgage rate. At 4.5% instead of 5.2%, buying is £90,300 ahead.
- Stamp duty. A buyer who is not a first-time buyer would pay £5,000 here, pushing break-even back a year.
How long you stay matters
Buying and selling are expensive, so buying needs time to pay off. On the main example, buying is only about £1,000 ahead after two years, but £21,300 ahead after five. If you might move within a couple of years, for work or a relationship, renting often makes more sense, even when buying looks better over a decade.
What the numbers can't tell you
- Security. Owners cannot be asked to leave by a landlord and can make the home their own.
- Flexibility. Renters can move quickly and are not exposed to a fall in house prices or a big repair bill.
- Discipline. The renter only comes out well if they actually invest the difference. Many people find a mortgage a useful forced saving.
- Risk. A buyer has a large, borrowed bet on one property in one place. A renter's savings can be spread out.
Neither choice is wrong. The aim is to know roughly what each costs you, so you choose for the right reasons.
Run it for your own situation
The rent vs buy calculator runs this comparison with your own figures. Pick your area, property type and number of bedrooms and it fills in typical local prices and rents, works out stamp duty for England, Scotland or Wales, and shows your net wealth year by year down both paths.