Rent vs Buy Calculator

The wrong question, asked correctly

"Is renting throwing money away?" is the wrong question. Mortgage interest, maintenance, insurance and transaction costs are also money that does not come back. The right question is which option leaves you with more net worth over a specific time horizon. This calculator answers that one, and the answer depends heavily on inputs most people do not think about carefully. On the defaults it reports Buying Saves More by 103,198.24 across seven years, but that figure rests on a 4% annual home-value assumption and excludes transaction costs entirely, which is exactly the kind of assumption that decides whether the figure means anything.

The price-to-rent ratio: a quick first filter

One common first filter is the local price-to-rent ratio: property purchase price divided by twelve times the monthly rent for an equivalent home. On the calculator defaults that is 350,000 divided by 21,600, or about 16.2. Ratios under 15 tend to favour buying, above 20 tend to favour renting, and 15 to 20 is the grey zone where other factors dominate. Expensive cities can run far above that band and low-cost areas far below it. Running this simple ratio before the detailed calculation gives a sense of whether the answer will be obvious or close.

The five costs people forget when buying

Mortgage payments are the obvious cost. Here is what tends to get left out.

Transaction costs. Buying carries purchase taxes, legal fees, survey and lender charges, and selling adds agent fees on top, all of which vary enormously by jurisdiction: some markets charge a fraction of a percent to sell, others several percent. This calculator models none of them. If a move happens within five years, round-trip transaction costs often exceed any equity built up, which is the single biggest reason short horizons favour renting.

Maintenance. A commonly cited planning range is 1% to 2% of property value a year for running repairs, plus occasional large capital items. This calculator assumes 1.5%. On a 350,000 home that is 5,250 a year, with lumpy spikes when a roof, heating system or kitchen each run into five figures.

Opportunity cost of the deposit. A 70,000 deposit invested at 6% a year would grow to roughly 125,000 over ten years. That is the return the deposit money is not earning while it sits in the walls, and the calculator does not charge the buy side for it.

Insurance. Buildings and contents cover, sometimes mortgage or income protection alongside it. Not modelled here either.

Resale gains are uncertain. This tool assumes 4% nominal growth every year, which is a strong assumption rather than a fact. National house-price indices covering around sixty economies, some backdated to around 1970, show long runs of both growth and decline; individual properties routinely lag or lead their national index by wide margins, and nominal growth is not real growth once inflation is deducted.

The two costs people forget when renting

Renting is not cost-free either.

Rent inflation. The figure entered is today's rent, but rent moves. This calculator holds it flat for the whole horizon, which makes the model conservative on the renting side: a ten-year projection at today's rent understates what renting actually costs. Long-run series tracking house prices and rents together show both moving over time rather than either standing still.

Tenure uncertainty. Many rental agreements run six to twelve months with no guarantee of renewal, and each forced move carries costs: removals, a new deposit, and agent fees where those are still charged. Across a decade of renting those add up to real money that owner-occupiers do not face, and none of it appears in the rent figure entered here.

When renting can come out ahead

Despite the cultural pressure to buy, renting can come out financially ahead in several situations: a move expected within five years, a high price-to-rent area, a career likely to require geographic flexibility, tax-advantaged retirement contributions not yet filled (which can offer better tax treatment than home equity), or a deposit that would have to come from liquidating investments with tax consequences. Running this calculator with honest inputs often shows that an emotional preference for buying does not survive contact with the numbers.

When buying tends to win

Buying tends to come out ahead over longer stays, in markets where the price-to-rent ratio is low, where a large deposit would otherwise sit in savings earning little, where the property has genuine scope for improvement, or where the rental market is unstable enough to force frequent moves. Security, personalisation and a place to put down roots are real considerations even though they do not appear in this calculator, and the emotional side carries a value the arithmetic cannot reach.

The financial-flexibility argument

Owner-occupiers tend to hold more wealth but less of it in liquid form. A 500,000 home is not 500,000 in the bank; reaching it means selling, which is slow and costly, or remortgaging, which adds debt. Renters with comparable net worth typically hold more of it in investments that can be sold quickly, which means more options when circumstances change. Neither position is universally better, but the liquidity difference is part of what a decade of owner-occupation actually costs.

What this calculator doesn't capture

The tool models financial outcomes over the horizon entered, using fixed assumptions for the mortgage term, home-value growth and maintenance. It does not model transaction costs, property taxes, insurance, rent increases or tax treatment. Nor does it capture the commute difference between areas you would rent and areas you would buy, the quality gap between typical rentals and typical owner-occupied homes in a given market, or the value of security of tenure. Any of those can legitimately tip the decision. The financial number is one input into a broader judgment rather than the whole answer.