Equity built vs rent paid: what £1 of housing actually buys you (UK 2026)
At today's prevailing UK mortgage rate, the first year of a £200,000 repayment mortgage over 25 years builds £4,545 of equity for the borrower. The same year of rent — for the same household, in the same house — builds zero. That gap is the most under-explained number in the buy-versus-rent debate, and it gets bigger every year the mortgage runs.
The arithmetic is fixed, public and computable in two lines of code. The Bank of England's monthly file on quoted mortgage rates puts the 75% loan-to-value 5-year fix at 4.32% as of 1 April 2026 (Bank of England, IUMTLMV / 75LTV5Y series). At that rate, the standard repayment amortisation formula determines exactly how each monthly pound splits between interest paid to the lender (gone, like rent) and principal that reduces the outstanding balance (kept, as equity in the property).
The numbers below are computed against that 4.32% benchmark for a 25-year capital-and-interest mortgage. We've cross-checked the median 2025 transaction price in HM Land Registry's Price Paid data — £284,000 across 848,775 completed UK transactions — so a 75% loan against a roughly median home lands near the £200,000-£270,000 loan-size bracket used in the worked examples.
Year-1 split — equity share is the same for every loan size
The single most counter-intuitive feature of mortgage amortisation: at a given rate and term, the share of each payment that goes to equity is identical no matter how big the loan. The pound figures scale; the percentage doesn't.
| Loan size | Monthly payment | Year-1 interest | Year-1 equity built | Equity share |
|---|---|---|---|---|
| £100,000 | £546 | £4,275 | £2,273 | 34.7% |
| £150,000 | £818 | £6,413 | £3,409 | 34.7% |
| £200,000 | £1,091 | £8,551 | £4,545 | 34.7% |
| £250,000 | £1,364 | £10,688 | £5,682 | 34.7% |
| £300,000 | £1,637 | £12,826 | £6,818 | 34.7% |
| £360,000 | £1,964 | £15,391 | £8,181 | 34.7% |
| £500,000 | £2,728 | £21,377 | £11,363 | 34.7% |
Assumes 25-year repayment term at 4.32% (BoE 75% LTV 5-year fix, April 2026). Source: HMG quoted-rate series; amortisation computed from standard P × r × (1+r)^n / ((1+r)^n − 1) formula.
The implication for a renter weighing whether to buy at this loan size: of every £1,091 paid monthly on a £200,000 mortgage, about 35p builds equity from day one. The other 65p covers interest. For a tenant paying any rent, the equity figure is zero by definition — rent is consumption, not saving.
The amortisation curve — equity share climbs every year
A repayment mortgage front-loads interest because interest is charged on the outstanding balance, and the outstanding balance shrinks every month. So next month's interest is a hair lower than this month's, and a hair more of the fixed payment goes to principal. That hair compounds.
Below is the same £200,000 / 4.32% / 25-year mortgage tracked through its full life:
| Year | Cumulative paid | Interest portion | Equity built | Outstanding balance | Equity share of total paid |
|---|---|---|---|---|---|
| 1 | £13,096 | £8,551 | £4,545 | £195,455 | 34.7% |
| 5 | £65,479 | £40,660 | £24,819 | £175,181 | 37.9% |
| 10 | £130,960 | £75,349 | £55,611 | £144,389 | 42.5% |
| 15 | £196,439 | £102,628 | £93,811 | £106,189 | 47.8% |
| 20 | £261,919 | £120,715 | £141,204 | £58,796 | 53.9% |
| 25 | £327,399 | £127,399 | £200,000 | £0 | 61.1% |
By the end of year 25, the borrower has paid £327,399 in total — £200,000 to clear the loan and £127,399 in interest. Across the full 25 years, the equity-share averages 61.1%; in the first year alone it is 34.7%, in the final year 97.7%.
The point at which the curve crosses — the first month where principal repaid exceeds interest charged — is month 109 for this loan: 9 years and 1 month in. Until that crossover, the lender takes the bigger share of every monthly payment. After it, the borrower does.
Rate sensitivity — every 1pp move shifts equity share by roughly 4-5pp
The 34.7% headline equity-share is specific to 4.32%. Run the same maths at every rate the BoE has quoted in the past two years and the equity-share fan-out becomes obvious:
| Mortgage rate | Monthly payment (£200k, 25yr) | Year-1 equity share |
|---|---|---|
| 3.00% | £948 | 47.9% |
| 3.50% | £1,001 | 42.4% |
| 4.00% | £1,056 | 37.5% |
| 4.32% (current) | £1,091 | 34.7% |
| 4.50% | £1,112 | 33.2% |
| 5.00% | £1,169 | 29.4% |
| 5.50% | £1,228 | 26.0% |
| 6.00% | £1,289 | 23.0% |
| 6.50% | £1,350 | 20.4% |
Source: Bank of England quoted-rate file, IUMTLMV series (bankofengland.co.uk).
In late 2022, when the BoE 5-year fix file peaked above 6%, a borrower opening a £200,000 mortgage was building roughly 23p of equity per £1 paid. The same borrower today at 4.32% builds about 35p. That's not a small move — and it explains why the buy-versus-rent breakeven horizon has shortened materially as rates have eased from their 2022-2024 highs.
For a deeper walkthrough of how breakeven shifts with rates, see Buying vs renting in the UK in 2026: when does the maths flip?.
Term sensitivity — shorter terms build equity faster, at a higher monthly cost
The other lever is the term. A 25-year repayment is the historical UK default, but Bank of England statistics show that mortgage terms above 30 years have grown materially among younger borrowers since 2020 (see BoE Mortgage lenders and administrators statistics for the published time series). Longer terms cut the monthly bill but flatten the equity curve:
| Term | Monthly payment (£200k @ 4.32%) | Year-1 equity built | Year-1 equity share |
|---|---|---|---|
| 15 years | £1,512 | £9,690 | 53.4% |
| 20 years | £1,246 | £6,438 | 43.1% |
| 25 years | £1,091 | £4,545 | 34.7% |
| 30 years | £992 | £3,331 | 28.0% |
| 35 years | £924 | £2,501 | 22.5% |
A 35-year term cuts the monthly bill by £167 compared to a 25-year, but at the cost of building less than half as much equity in the first year. Over the full life of the loan, the total interest paid roughly doubles between a 15-year and a 35-year term at the same rate. The mortgage is cheaper to service month-by-month and more expensive in aggregate — a classic short-term-cash-flow vs long-term-cost trade-off.
The 5-year and 10-year picture across loan sizes
Many borrowers will not stay in the same home for 25 years. Median home tenure in England has hovered around 9-10 years for the past decade (ONS English Housing Survey). After 5 or 10 years, the equity built — assuming no remortgage capital changes and steady house values — looks like this:
| Loan | Monthly | After 5 yrs: paid / equity built | After 10 yrs: paid / equity built |
|---|---|---|---|
| £150,000 | £818 | £49,110 / £18,615 | £98,220 / £41,708 |
| £200,000 | £1,091 | £65,479 / £24,819 | £130,960 / £55,611 |
| £270,000 | £1,473 | £88,398 / £33,506 | £176,796 / £75,075 |
| £360,000 | £1,964 | £117,864 / £44,675 | £235,728 / £100,100 |
25-year term, 4.32%, no overpayments, no rate change.
For a borrower selling after 10 years on a £200,000 loan, around £55,600 of the £130,960 paid has gone to equity, and £75,349 to interest. The same borrower paying £1,091 a month in rent for 10 years would have paid the same gross — and held nothing.
Rent as the counterfactual
The equity figures above are the first half of the buy-versus-rent comparison. The second half is what they leave out.
A renter avoids the deposit lock-up — for a 75% LTV mortgage on a £270,000 home, that's roughly £67,500 that doesn't sit in equity but earns interest in a cash account, or is invested elsewhere. The opportunity cost is real and depends on what return that deposit earns.
A renter avoids transaction costs: SDLT, conveyancing, survey, mortgage product fee. For a £300,000 home for a first-time buyer claiming relief, those costs run to roughly £2,000-£3,500 in legal/survey/lender fees (HMRC: SDLT relief means no land tax up to £425,000 for FTBs buying their main residence — gov.uk/stamp-duty-land-tax). On a £400k or £500k home, SDLT itself adds £5,000-£15,000 to the entry cost.
A renter avoids maintenance, insurance and the variability of remortgage rates. The 4.32% used throughout this article is the rate at fixing today — the borrower's rate at the next remortgage is unknown.
A buyer captures any price appreciation on the full property value (not just the equity slice). UK HPI shows the all-UK index at 102.7 as of February 2026, having recovered from the 2024 trough. Price changes are not equity building, but they compound on top of it.
The amortisation maths in this article holds these other levers constant. They aren't constant in practice. The point of the equity-share number is that it tells you, at a given rate and term, how the mortgage payment itself splits — separate from what happens to house prices, rents, or the wider market. Everything else is layered on top.
For a worked end-to-end cost stack at a specific price point — deposit, SDLT, survey, conveyancing, mortgage year-1, council tax, energy — see The true cost of buying a £300,000 home in the UK in 2026.
Caveats worth carrying into the decision
- Remortgage risk: the 34.7% figure assumes 4.32% for the full term. In practice a 5-year fix runs out and resets to whatever rate is available then. A 2pp upward reset would lower the equity-share materially (see rate-sensitivity table).
- Early repayment charges: building equity is not the same as accessing it. Most fixed-rate products charge 2-5% to overpay above a 10% annual allowance during the fix.
- Selling costs: estate-agent fees (typically 1-1.5% + VAT) and conveyancing on exit will eat into equity if the property is sold within the first 2-3 years.
- House-value risk: equity built is in pounds; equity worth depends on the price the property fetches at sale. The UK HPI series (ONS / HM Land Registry monthly file) shows nominal price swings of 5-10% within a single year are common at the regional level.
- Tax: primary-residence sales are typically exempt from CGT under the Private Residence Relief rules; second homes and buy-to-let are not. The position depends on use and ownership history.
What this means in practice
Across loan sizes from £100,000 to £500,000, at today's BoE 75% LTV 5-year fix rate of 4.32%, the year-1 equity share of a 25-year repayment mortgage is identical at 34.7%. That share climbs each year, crosses 50% at year 10, and reaches roughly 97% in the final year. A renter paying the same monthly amount builds zero equity over the same period — by the definition of rent.
What the borrower trades for that equity stream is upfront cost, illiquidity, maintenance risk and exposure to house-price and rate movement. None of those is captured in the amortisation table. They have to be priced separately for the comparison to be complete.
Try Homecost with any UK postcode to see the all-in monthly cost — mortgage, council tax, energy and stamp duty — for the streets you're researching: search a Manchester postcode (M1 1AE) or browse our Cost Intelligence guides for worked examples at different price points. The figures here are also useful as a sanity check before signing a £200,000 mortgage product at the current rate.
Based on 848,775 HM Land Registry transactions completed in 2025 and the Bank of England's 75% LTV 5-year fix quoted-rate series. Data fetched 19 May 2026.
This is general information about mortgage amortisation, not personal financial advice. Borrowing decisions depend on your circumstances, lender, deposit, credit profile and other factors. Speak to a qualified mortgage broker or financial adviser before acting.