Mortgage vs Rent: Is It Cheaper to Buy or Rent?
A practical guide to comparing the true cost of buying versus renting — including hidden costs, the 5% rule, opportunity cost, and when each makes financial sense.
The True Cost of Each Option
The monthly mortgage payment is only part of the cost of buying. Renting appears cheaper per month but builds no equity. A fair comparison must account for all costs on both sides.
- Mortgage payment (principal + interest)
- Maintenance: ~1% of property value per year
- Buildings insurance (~£250–400/yr)
- Service charges / ground rent (leasehold)
- Stamp Duty Land Tax on purchase (one-off, 5% above £250k)
- Monthly rent (no equity accumulation)
- Contents insurance only (~£100–200/yr)
- No maintenance liability
- Deposit: 1–6 weeks' rent (not lost, returned at end)
- Flexibility to relocate
Property value: £280,000 | Deposit: 10% = £28,000 | Mortgage: £252,000
Rate: 4.5%, 25-year term → monthly payment: £1,401
Maintenance (1%/yr): £2,800/yr = £233/month
Buildings insurance: £30/month
Equivalent rental for same property: £1,300/month | Monthly saving from renting: £364
Calculations via the mortgage calculator.
The 5% Rule: A Quick Test
The 5% rule (developed by financial planner Ben Felix) estimates the annual unrecoverable costs of homeownership as a percentage of the property value:
| Cost | % of value | On £280,000 |
|---|---|---|
| Property / council tax | ~0.7% | ~£1,960/yr |
| Maintenance | ~1.0% | ~£2,800/yr |
| Cost of capital (opportunity cost) | ~3.0% | ~£8,400/yr |
| Total unrecoverable | ~4.7% | ~£13,160/yr = £1,097/month |
If you can rent an equivalent property for less than ~£1,100/month (≈5% of £280,000 ÷ 12), renting is likely the cheaper financial choice. If rent exceeds this threshold, buying may make more sense.
The Opportunity Cost of a Deposit
A £28,000 deposit is capital that could be invested instead. At a historical 7% annual real return over 25 years: £28,000 × (1.07)25 = £28,000 × 5.427 = £151,956.
This is the hidden cost of buying: the deposit earns nothing while tied up in property equity. Conversely, property itself may appreciate — at 2.5%/yr over 25 years, a £280,000 property becomes £280,000 × (1.025)25 = £280,000 × 1.854 = £519,120.
The net wealth outcome depends entirely on whether property appreciation outpaces the opportunity cost of capital — which varies widely by location and era.
When Buying Tends to Make Sense
- You plan to stay in the same location for 7+ years (break-even on purchase costs takes time)
- Rent is at or above the 5% threshold for your target property
- You value stability and the ability to customise your home
- You have a reliable income and adequate emergency reserves beyond the deposit
- You want an inflation hedge (mortgage payments are fixed; rent tends to rise)
When Renting Tends to Make Sense
- You may need to relocate within 5 years (transaction costs of buying/selling erode returns)
- Rents in your area are well below the 5% threshold
- The deposit could generate stronger returns invested elsewhere
- Your income is variable or your employment situation uncertain
- You are in a high house-price-to-income ratio market
Ready to run the numbers on a specific mortgage?
Open Mortgage Calculator →Frequently Asked Questions
Is it always better to buy than rent?
No. The answer depends on local rent-to-price ratios, your time horizon, the opportunity cost of the deposit, and personal circumstances. The 5% rule provides a quick financial test: if annual rent is less than 5% of the property's purchase price, renting is often the cheaper financial choice.
How long does it take to break even on buying?
Accounting for stamp duty, legal fees (£3,000–5,000), and mortgage arrangement fees (£1,000–2,000), the typical break-even period against renting is 5–7 years. In high-cost markets with slow price growth, it can be longer. Use the mortgage calculator to model specific scenarios.
Does rent money go to waste?
Not entirely. Rent pays for housing — a real service. The relevant comparison is whether the total cost of renting (rent paid) exceeds the total unrecoverable cost of buying (interest, maintenance, opportunity cost on deposit). Equity gain and property appreciation must offset the higher ownership costs before buying comes out ahead.
What hidden costs does buying have that renting doesn't?
Stamp Duty Land Tax (up to 12% above £1.5m), solicitor and survey fees (£2,000–4,000), mortgage arrangement and valuation fees (£1,000–2,000), ongoing maintenance (~1%/yr), buildings insurance, and opportunity cost of the deposit. Renters typically pay only rent, contents insurance, and a refundable deposit.
Evidence & Methodology
How This Page Is Grounded
Method
Compares modeled ownership and renting cash flows, including mortgage amortisation, unrecoverable costs and stated opportunity-cost assumptions.
Important limitation: Property growth, rent growth, maintenance, tax, fees and investment returns are uncertain and location-specific.
Primary Sources
- Mortgage repayment calculator MoneyHelper
- Buying a home: preparing to buy GOV.UK
- Investing: an introduction MoneyHelper
Quality Checks
Cash-flow signs, mortgage balances and equal-cost break-even examples are checked.
See how sources are selected and corrections are handled in our Editorial & Calculation Methodology, and which automated checks this page has to pass in How We Test.