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Should you buy or keep renting?

Enter a home, the rent of a comparable one and a few assumptions. You see year by year whether buying or renting leaves you with more — with the renter investing what the house would have cost — and when buying catches up.

Your situation

The home

• Purchase price
• Down payment
• Mortgage interest rate — The yearly rate on the loan, fixed for the whole term.

Renting instead

• Rent per month — For a comparable home, without energy and other bills — you pay those either way.
• Rent increase per year

Your plans and the market

• How long you stay
• House price change per year
• Money you don't spend on housing — The renter keeps the down payment and the buying costs. Each month, whoever pays less for housing puts the difference aside, and both do the same with it.
• Investment return per year — After fund costs. Global share index funds have returned roughly 6 to 8% a year over the long run, with deep falls along the way.

Mortgage

• Term
• Repayment — Annuity: the same payment every month, mostly interest at first. Linear: the same repayment every month, so the payments start higher and fall.

Buying and selling

• Buying costs — Transfer tax, notary, valuation and advice, as a share of the price — paid from your own money.
• Selling costs — Estate agent and fees when you sell, as a share of the sale price.

Owning

• Property tax per year — Taxes on owning the home, as a share of its value — only those a tenant would not pay.
• Maintenance per year — Repairs and upkeep, as a share of the value; 1% is the usual rule of thumb.
• Other owner costs per month — Building insurance, service charges or an owners' association. They rise with inflation.
• Inflation per year

Tax

• Mortgage interest relief
• Tax on investment gains

How the comparison works

Two versions of you start with the same savings and spend the same on housing every month. The buyer puts the down payment and the buying costs into the home, then pays the mortgage, the taxes and the upkeep. The renter pays the rent and keeps the savings invested.

Whoever pays less for housing in a month puts the difference aside, at the same return. At first that is usually the renter. Rents rise every year while a fixed mortgage payment does not, so after some years it is often the buyer.

For every year the calculator works out what each would have if everything were sold that day: the home at its new value, minus selling costs and what is left of the mortgage, plus any investments — and for the renter, the investments. Tax on the investments comes off under your country's rules. Where the two lines in the chart cross, buying catches up.

Repayments are not a cost: they come back as equity when you sell. What buying really costs is the interest, the taxes, the upkeep and the buying and selling costs; what renting costs is the rent. Set those against what the house gains in value and what the savings earn, and you see why the answer depends so much on how long you stay.

Four things that decide it

1. How long you stay

   Buying and selling costs are a hurdle that only time clears. The shorter you stay, the likelier renting wins — the year buying catches up tells you how long is long enough.

2. Price against rent

   Divide the price by a year's rent. Around 15 or less, buying tends to win; above 25, renting often does. The break-even rent shows where your home stands.

3. Whether the renter really invests

   Renting only wins if the difference is actually invested, every month, and stays invested through the falls. Switch to saving to see how much of the case for renting rests on the return.

4. The interest rate

   One percentage point on the mortgage moves the outcome more than almost anything else. Compare a few lenders, and count any tax relief on the interest where your country gives it.

Frequently asked

Is buying always better in the long run?

No. Buying wins when the home gains more in value than owning it costs, compared with the rent and with what your savings could have earned. Over long periods that has often been so, partly because a mortgage lets you own a large asset with little money of your own. That leverage works the other way too when prices fall: try a lower house price change and see how far the answer moves.

Which house price change should I enter?

Over the long run house prices have risen a little faster than inflation, with years of decline in between. Two to three percent a year is a reasonable middle; the last few years are a poor guide. Under 'What would tip the balance' you see what your answer needs.

Why does the renter invest the down payment?

To compare like with like. The buyer's savings go into the home; the renter keeps them, so they have to earn something somewhere. Choose 'Save it' to see the comparison with a savings account instead.

Is tax included?

The main taxes are: relief on mortgage interest where your country gives it (in the Netherlands with the eigenwoningforfait), taxes on owning the home, and the tax on the investments — box 3 in the Netherlands, a tax on the gain when you sell elsewhere. A gain on selling your own home is tax-free in every country here (in Spain if it goes into a new main home or you are 65 or older). The rules are this tax year's, kept the same for every year after.

What is left out?

A new interest rate when the fixed period ends, how much a lender will lend you, moving costs and furniture, the chance that prices fall just when you have to sell, and paying off early. Energy and other bills are left out on both sides, because you pay them either way.

What does net worth mean here?

What you would have if you sold everything that year: for the buyer the home's value minus selling costs and the remaining mortgage, plus any investments after tax; for the renter the investments after tax. Amounts are not corrected for inflation, so a figure thirty years out buys less than it does today.

See your home and mortgage in your whole plan

Put your house and mortgage in YourFi next to your savings, investments and pension, and follow your net worth and your plan to age 100.