Rent or buy a home? The five numbers that decide it

"Renting is throwing money away" is the most repeated line in personal finance, and it is only half true. A buyer throws money away too: on mortgage interest, on purchase taxes and fees, on repairs, and on the return their deposit would have earned anywhere else. The honest question is not whether you lose money but which path loses less, and that comes down to five numbers.

1. The price-to-rent ratio

Divide the purchase price by one year of rent for a comparable home. A €400,000 flat that would rent for €1,200 a month has a ratio of 400,000 ÷ 14,400 ≈ 28. You are paying 28 years of rent up front.

As a rough guide, a ratio below about 15 tends to favour buying and a ratio above about 25 tends to favour renting, with a grey zone in between. Many large cities sit well above 25, which is why renting there is often the cheaper way to live, not the "dead money" one.

2. How long you will stay

Buying has a large one-off cost. Purchase taxes, notary, land registry and agent fees run from a few percent to over 10% of the price depending on the country. On a €400,000 home, 10% is €40,000 gone on day one. Spread over three years that is over €1,100 a month; spread over twenty it is under €170. The shorter your horizon, the harder buying is to justify, which is why the time you expect to stay is often the single most important input.

3. Maintenance and running costs

Tenants pay for repairs indirectly through rent; owners pay for them directly, and irregularly. A common planning figure is around 1% of the property's value per year for upkeep, more for older buildings. On €400,000 that is €4,000 a year, or about €330 a month that never shows up in a "mortgage vs rent" comparison.

4. What your deposit could earn instead

This is the cost most comparisons forget. The €80,000 deposit and the €40,000 of purchase costs are capital that a renter keeps and can invest. If it earns a real return of a few per cent a year, that growth is part of the renter's side of the ledger. The fair comparison is the owner's home equity against the renter's invested savings, both in today's money.

5. Real house price growth and the real mortgage rate

Over long periods, house prices in many countries have grown only modestly above inflation, while mortgage rates swing widely. Both should be entered as real rates, after inflation. A 4% mortgage with 2% inflation is a real rate of about 2%. Mixing nominal and real figures is the most common way home-buying spreadsheets flatter one side.

Putting it together

No single number decides it; they interact. A low price-to-rent ratio can still lose if you move after three years. A high ratio can still win if you stay for thirty and house prices outpace your alternative investments. That is why it pays to model both paths month by month: the renter's rent rising each year and their savings compounding, the owner's mortgage being paid down, the upkeep, and the home's value at the end.

The Rent vs Buy calculator does exactly that, in today's money, and also shows how uncertain the result is. If the choice is really between a cheap home far away and an expensive one close to work, the Commute vs City Centre calculator puts a price on the travel time too.

Things a calculator cannot weigh for you

• Flexibility. Renting lets you move for a job or a relationship within months.
• Security. Owning protects you from a landlord selling or raising the rent.
• Concentration. A home is usually most of an owner's wealth, in one asset in one city.
• Behaviour. A mortgage forces saving; the renter's advantage only exists if the difference is actually invested.