Mortgage Calculator for Buying v Renting

The Times have a useful mortgage calculator for determining whether it is better to buy or rent. [link]

It is difficult to predict future house price growth. But, if we think of the long term, I would choose a positive figure of 2-5%. This is actually quite conservative figure given past trends and long range house price predictions.

Interest rates I would choose to be 2% higher than inflation. e.g. if you choose house price growth of 3% choose interest rates of 5%. (If interest rates were higher, it is likely to mean higher inflation so this would compensate the cost of higher rates to some extent.)

Assuming these figures, there is a pretty clear incentive to buy rather than rent.

A £200,000 house vs £900 a month rent could give a £290,000 profit after 20 years. Assuming interest rates of 5% and rent growth of 3% and house price growth of 3%.

Buying a house may not be a good idea in the current climate, but, in the long term it still represents a good investment.

See also: To Buy or Rent – which is better?