Juggling these different factors is not easy. So I went back to 2018 and asked a simple question: what would have happened to two identical pots of money if one person bought a home and the other rented instead?
Scenario 1: A London flat
Two friends are looking for flats in drizzly London in January 2018. Neither has bought a property before and both have the same amount of money saved.
One of them buys a London flat for £441,502 – the average price at the time, based on the government’s UK House Price Index. He pays a 25% deposit, conveyancing fees, and stamp duty, which is reduced because he is a first-time buyer. This amounts to £120,000 in total.
He takes out a mortgage to cover the rest of the purchase, initially fixing for two years. He remortgages every two years using prevailing mortgage rates.
The buyer
- Bought flat for £441,502 in January 2018
- Deposit of £110,376
- Stamp duty of £7,075
- Other purchase costs of £2,000
- Initial mortgage of £331,127
- Flat worth £431,036 in June 2026, based on UK House Price Index
The other friend chooses to rent instead. Rather than spending her £120,000 on a deposit, stamp duty and legal fees, she invests it in the global stock market and leaves it there.
The renter
- Invested £120,000 in Fidelity Index World
So who made the better decision?
By June 2026, our buyer’s flat is worth about £10,000 less than he paid for it in 2018. He has not stood still, however: years of mortgage repayments mean he has roughly £192,000 of equity. (I’ve calculated this by taking the property’s price in June 2026 and deducting his remaining mortgage.)
The renter’s money has taken a very different path. Her £120,000 investment in a global equity index fund has grown to about £319,000.
There is one final piece to the puzzle. Between 2018 and 2026, average rent for a London flat was higher than the buyer’s mortgage payments – even after interest rates went up. If the buyer saved that monthly difference, he would have accumulated another £23,700, before any investment growth.
It is not enough to close the gap though. By summer 2026, the renter is still around £100,000 better off. This is a striking difference. What went wrong for the buyer?
First, the value of the flat fell. This is bad news in any circumstances, but particularly painful when debt is involved. The buyer only put down a fraction of the property’s value himself, so even a relatively small fall in the price of the flat takes a big bite out of his equity. That’s leverage in action.
In contrast, stocks performed extremely well for the renter in the same period.
