Major brokerage Aussie has released its Buy vs Rent Report, in partnership with CoreLogic, which has analysed the suburbs across Australia where mortgage repayments are cheaper than rental payments.
The report found that when buying a house under a three-year fixed rate scenario, over half – or 52.2 per cent – of Australian suburbs were cheaper to pay down a mortgage than pay rent on a house, which is up from 39.9 per cent last year.
According to the report from CoreLogic, which was commissioned by Aussie, this growing trend of home loan borrowers paying less in their mortgage repayments than rent has been attributed to record-low mortgage rates, combined with a slightly weaker property market.
However, the report noted that when considering the figures, it is important to bear in mind that the analysis did not provide consideration for capital appreciation, transaction costs or other costs associated with either home ownership or renting, including (but not limited to) maintenance, council rates, electricity, water and sewerage, land tax, body corporate levies, stamp duty, legal and conveyancing fees.
Commenting on the findings, Aussie CEO James Symond said: “Our research confirms that in many suburbs across Australia, especially those outside the major capital cities, on a monthly basis, it is cheaper to buy than rent.
“Why pay your landlord, when you could potentially pay the same amount – or less monthly – on a place you can call your own?”
Based on a 30-year loan with principal and interest variable rate of 3.65 per cent, one in three (32.9 per cent) Australian suburbs recorded lower monthly mortgage repayments than rental repayments for houses and 37.7 per cent for apartments.
Meanwhile, on a 2.35 per cent, three-year fixed rate loan, 52.2 per cent of all suburbs are cheaper to pay down a mortgage than pay rent on a house, with 59.1 per cent of apartments cheaper to pay off than rent.
Furthermore, the gap between renting and paying a mortgage on a unit has also narrowed over the past decade, with typical discounted variable mortgage rate repayments declining from $2,597 per month in 2010 to $3,325 in September 2020, equating to a monthly saving of $272 and $777 per month on a three-year fixed rate scenario.
On a variable rate home loan, based on a 30-year, principal and interest average discounted variable loan rate of 3.65 per cent, mortgage repayments fell from $3,139 per month three years ago to $2,770 in September 2020, while average rents have been steady for houses and dropped 2.2 per cent for units over the last year.
The effects of the coronavirus pandemic have been felt by the rental market, which has softened over the last 12 months, as migration has stalled, and the economy and labour market conditions have weakened.
This has been particularly evident in the apartment market, with average rents down 7.8 per cent in Melbourne, 3.8 per cent in Sydney, and 11.1 per cent in Hobart.
“The combination of lower property values in some regions, record-low mortgage rates and government incentives for first home buyers have made buying conditions generally more attractive for buyers,” Mr Symond said.
He added that with the central bank confirming its expectation that interest rates would not rise for at least three years, this provided some certainty that rates would remain low for an extended period.
Capital city suburbs
According to the report, Melbourne house values declined 4.7 per cent in the six months to 30 September, while unit values were down 5.1 per cent, while Sydney house values fell 3.7 per cent and unit values fell 3.5 per cent.
Under the discounted variable rate scenario outlined above, 16.9 per cent of capital city suburbs recorded lower monthly mortgage repayments, compared with rental repayments for houses. This rose to 34.7 per cent of suburbs under a three-year fixed rate scenario.
No suburbs in Sydney and Melbourne were cheaper to service a mortgage on houses than rent based on a variable rent, but under a fixed rate scenario, 5.3 per cent of Sydney suburbs and only 1 per cent of Melbourne suburbs were more affordable to service a mortgage.
Across Darwin, 82.6 per cent of all suburbs were more affordable to pay down a discounted variable rate mortgage than rent for houses, while 50 per cent of Hobart suburbs, and more than a third of suburbs across Perth and Adelaide were more affordable to pay down a discounted variable rate mortgage.
Every suburb across Darwin was cheaper to pay a mortgage than rent under a fixed rate scenario, while the proportion was more than 50 per cent across Brisbane, Adelaide, Perth, Hobart and Darwin.
COVID-19 to drive regional property boom
According to Mr Symond, border restrictions imposed amid the COVID-19 crisis have driven Australians to holiday in their own states, and triggered a property boom in some regional areas, a trend he said would continue.
“As Australians continue to work from home, many can be expected to move away from metropolitan areas as they decide they no longer need to live close to their workplace. This current environment is good news for renters looking to become owner-occupiers,” he said
In regional Australia, 58 per cent of regional suburbs recorded lower mortgage repayments than rents under the discounted variable mortgage rate scenario for houses, rising to almost 64 per cent for units.
This proportion rose to 79.8 per cent for houses under the fixed rate mortgage with a lower interest rate, and 87.4 per cent for units in regional suburbs.
However, Mr Symond warned buyers to research thoroughly to ensure that they are paying the right price for a property with the appropriate home loan.
“Mortgage brokers can provide expert guidance for those looking to stop renting and take advantage of current market conditions and competitive deals, to take the home ownership plunge,” he concluded.
This story has been updated to include the fact that the analysis for this report does not provide consideration for capital appreciation, transaction costs or other costs associated with either home ownership or renting.
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.