Mortgage vs Rent Calculator

A back-of-envelope simplification: the total annual cost of owning (mortgage interest + property tax + maintenance) typically runs around 5% of the property value. If renting an equivalent property costs less than 5% of the property's price annually, you're renting "below the rule" and might come out ahead by renting + investing the difference. If renting costs more than 5%, ownership is likely competitive. Useful as a quick check before running detailed numbers.

Property price ÷ annual rent for an equivalent property. Below 15: buying typically wins. 15-20: roughly break-even. Above 20: renting typically wins, often dramatically. London and SF Bay Area sit around 25-30 (rent-favoured). Smaller US cities sit at 12-18 (buy-favoured). Ratios over 30 are a strong signal that home prices have detached from rental fundamentals — historically a precursor to corrections.

In high-price-to-rent markets, the down payment is enormous and the foregone investment returns on it (compounded for decades) dwarf the equity build on a property whose appreciation is more constrained at the high end. Plus monthly carry costs (tax + maintenance + insurance) scale with property value, making expensive properties expensive to hold even after they're paid off. The math doesn't moralise — it just adds up.

Yes — if a £400k property goes up 5% and you only put £40k down, your equity gain looks like 50%. The calculator captures this in the equity-build component. But the same leverage works in reverse: if the market drops 10% and you're selling, you can owe more than the house is worth (negative equity). The calculator doesn't model negative-equity scenarios; reality occasionally produces them, especially in the first few years of a mortgage.

In high-cost markets, the cost of buying (down payment, transaction costs, maintenance) often exceeds rent + invested-difference for shorter horizons. The break-even typically lands at 5-10 years depending on market. Below that, transaction costs of buying then selling eat into any equity built.

Real but not quantifiable here. A mortgage forces you to save (via principal payments) where renting + intending to invest the difference often fails behaviourally. The calculator assumes the renter actually invests the savings; for many people, that's optimistic. If you wouldn't reliably invest the difference, owning is psychologically a better forced-savings vehicle even when the financial math is closer.

Same logic as any long-horizon investment: 7-10% nominal for diversified equity, 5-7% for balanced stocks/bonds, 3-5% for bonds. The Realistic Returns toggle pulls actual CAGR for any asset you'd invest in. Don't assume your invested rent savings stay in cash — if they do, the calculator dramatically over-favours buying because cash returns lose to inflation.

Not modelled. Stability, customisation, neighbourhood roots, kids in school — all valid reasons to buy that the maths doesn't capture. Equally, flexibility, lower upfront commitment, easier moves for jobs or relationships are valid reasons to rent. Use this as one input among several, not a verdict.