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Mohsin Patel 01 February, 20 4 min read

IFG Buy or Rent Calculator – the methodology

The IFG Buy or Rent Calculator is designed to help you understand whether it will be more cost-efficient for you to rent or buy your property over the long term.

We have created this bespoke tool to be tailored for a Muslim audience. It automatically accounts for mortgage repayment increases and rent increases over time in line with inflation, unlike other calculators. It  also factors in buying costs and stamp duty. Equally, it factors in a return on you investing your deposit money if you choose to rent.

More details below.

The Calculations

Step 1: Buying

When you put in the house price, the calculator immediately factors in the stamp duty and the average buying costs. Average buying costs is taken as 1% of the house purchase price.

Stamp duty is calculated according to government rules, with the assumptions that this is a freehold residential property, it will be your only property, and you have owned properties previously.

You then enter the length of your mortgage, and the rate of your mortgage. The calculator works out what you’ll be paying over the term of your mortgage, factoring in the payment you make and the compounding nature of mortgages.

The calculator also factors in average maintenance costs of a house as well as inflation. It assumes that there is a proportional link between the value of the property and the maintenance costs involved.

You are then presented with a mini-result for the buying element. It factors in what your house would be worth (using average growth figures over the term) and deducts all the expenses (mortgage, buying costs and maintenance). You then get either a positive or a negative figure.

Step 2: Renting

On the rent side, you are asked to insert the rent value you would pay for the property you’d like to live in.

The calculator automatically adds an average cost for maintenance fees for the value of the property you’ll be renting. As with buying, it assumes that there is a proportional link between the value of the property and the maintenance costs involved, and takes into account that the maintenance when renting is significantly less than when owning a property. It also calculates your annual rental payments and adds that on to your result.

In addition, the calculator factors in rent increases over time in line with inflation, and assumes your rent is reviewed every year.

You also insert the annual return you’d expect to receive if you were to invest your saved-up deposit instead of using it to buy a house. Most simple calculators don’t factor in the concept of renting and investing your saved-up deposit money. But we thought this was a really crucial element of the calculator.

You are then presented with a mini-result for the renting element. It factors in what you’ve paid out in rent and maintenance over the term. Crucially, however, it factors in the gain you’ll have made from investing your deposit, and presents you with a positive or negative figure.

Step 3: Recommendation

In the Results section, you will be presented with a recommendation based on which of the results is most favourable for you.

If buying is best, the calculator will also tell you how much you need to increase your annual return by in order to make renting more worthwhile.

If you have any suggestions on how we can make the calculator better, please do get in touch with us.

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