Breakdown
How it works
Buying wins when house price growth and the forced saving of mortgage principal outweigh transaction costs, maintenance and the return the renter earns on invested cash. Renting tends to win for short horizons (transaction costs dominate), in markets where rent is cheap relative to prices, or when investment returns beat property growth.
Formula
Worked example
400,000 home, 60,000 deposit, 4.5% over 25 years, 1,600 rent, 3% growth, 5% investment return, 10 years: buying ends slightly ahead; drop growth to 1% and renting wins.
Frequently asked questions
What is the price-to-rent ratio rule?
Price ÷ annual rent. Below 15 buying is usually better; above 20 renting usually wins financially. 400,000 ÷ 19,200 = 20.8 — marginal, which is why the assumptions decide.
What horizon should I use?
How long you realistically expect to stay. Under 5 years, buying rarely recovers stamp duty, legal and selling costs.
Does this include tax?
No. Owner-occupiers usually pay no capital gains tax on a main home; renters may pay tax on investment returns outside tax wrappers, which favours buying slightly more than shown.
What maintenance figure should I use?
1% of the property value per year is the standard rule, higher for older houses, lower for new flats (but add service charges).