Rent vs Buy: The Math Most Calculators Get Wrong

The naive version of the rent-vs-buy comparison stacks your monthly rent against your projected mortgage payment and calls it a day. That comparison is incomplete on both sides — renters are not paying for maintenance or property tax, and buyers are giving up what their down payment could otherwise have earned. Here is the fuller math.

The Hidden Costs Renters Don't Pay

A mortgage payment is only part of the cost of owning. Add property tax, homeowners insurance, and ongoing maintenance, conventionally estimated at 1–2% of home value per year for repairs, upkeep, and eventual replacement of major systems (roof, HVAC, appliances). On a £350,000 home, that is £3,500–£7,000 a year that a renter simply does not carry, because it is the landlord's cost, priced into the rent they charge.

The Hidden Cost Buyers Forget: Opportunity Cost

A down payment is capital removed from other uses. If a £70,000 down payment could otherwise have been invested at a historical long-run market average, that forgone growth is a genuine cost of buying, even though it never appears on a mortgage statement. Add one-time transaction costs on both ends — closing costs of roughly 2–5% of the purchase price when buying, and selling costs (agent commission, closing costs) of roughly 6–8% of sale price when you eventually sell.

The Breakeven Horizon

Because buying carries large one-time transaction costs, it typically only outperforms renting after several years of ownership let the fixed costs amortise and equity build. The breakeven point, the number of years after which buying's total cost drops below renting's, depends heavily on local price-to-rent ratios. In markets where home prices are high relative to rents, the breakeven horizon stretches out significantly; in markets where rent is expensive relative to home prices, buying can break even much sooner.

The U.S. Consumer Financial Protection Bureau and most mortgage guidance converge on a rough rule: if you are confident you will stay put for 5+ years, the math increasingly favours buying in most markets; under 3 years, transaction costs alone often make renting the cheaper option regardless of monthly payment comparisons.

Source: Consumer Financial Protection Bureau. Owning a Home

What Actually Changes the Answer

• How long you'll stay: the single biggest lever — short expected tenure almost always favours renting once transaction costs are included.
• Local price-to-rent ratio: a high ratio (expensive homes, cheap rent) favours renting; a low ratio favours buying.
• Mortgage rate environment: higher rates increase the interest cost of buying disproportionately in the early years of a loan, when payments are interest-heavy.
• What you'd do with the down payment otherwise: the higher the realistic return on alternative uses of that capital, the higher the true cost of tying it up in a down payment.

Using the Calculator

The rent vs buy calculator runs both sides of this comparison over your chosen time horizon, including maintenance, opportunity cost of your down payment, and transaction costs, rather than just comparing today's rent to today's mortgage payment.