CoreLogic data suggested 33.9 per cent of properties across the country had estimated mortgage repayments that were less than weekly rental repayments. A fifth of these were located in regional Queensland, namely the Gold Coast and the Sunshine Coast.
At the capital city level, Darwin was the region where mortgage serviceability cost less than renting in most cases, with 77.6 per cent of Darwin properties having lower estimated mortgage repayments than rental costs.
On the other end of the spectrum this trend only occurred for 7.1 per cent of all Sydney properties, and 9.6 per cent of Melbourne properties.
These few Sydney properties were in areas where high levels of unit supply had curbed price growth. However, rental demand remained high in areas such as in Parramatta, Auburn, and the Sydney CBD.
CoreLogic head of research Australia Eliza Owen said in her analysis the different dynamics across the cities also related to how property values had responded to interest rate reductions.
“The more property values increase in response to lower mortgage rate, the more the benefits of a low interest rate are eroded,” Ms Owen said.
“In Sydney, a relatively high supply of rental stock has exacerbated the gap between mortgage repayments and rent.”
Sydney dwelling values have increased by 11.2 per cent between June 2019 and January 2020 following a round of cash rate reductions in June, July, and October last year. Darwin dwellings fell 2.4 per cent in the same period.
The Reserve Bank of Australia (RBA) left the official cash rate unchanged at 0.75 per cent in February, the first rate decision made for 2020.
The data also showed where rents increased more rapidly than property values. For example, rent value growth across Hobart was 5.8 per cent in the year to January, overtaking dwelling market value growth of 5 per cent.
“In some instances, relatively expensive rent payments can be a result of a highly transitory location – such as a mining location, university towns or city CBDs,” Ms Owen said.
“Rental markets can face more pressure because residents may prefer renting to owning.”
However, Ms Owen pointed out some residents may depend on the rental market because they had no option to buy.
The data also highlighted areas dominated by high renting populations relative to low incomes, indicating the hurdles faced in saving for a deposit.
Auburn in Sydney (where rent is more expensive on 40 per cent of properties) was an example of this. While some households may benefit more from owning than renting, they faced greater challenges saving a deposit to buy because of a lower income level.
This in turn placed greater demand and pressure on the rental market.
“This could have implications for targeting policy around home ownership,” Ms Owen said.
In other capital cities, 59.7 per cent of properties in Hobart had cheaper estimated mortgage repayments than rent, while in Brisbane it was 48.8 per cent.
In the ACT, 44.9 per cent of properties had cheaper mortgage repayments than rent, while in Perth it was 44.3 per cent and in Adelaide it was 40.6 per cent of all properties.
[Related: Delayed home purchase can have consequences]
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.