Invest
Record-low rates mean it’s now cheaper to buy than rent
Record-low interest rates have created a unique environment where it is cheaper to pay off a mortgage instead of renting, according to new findings.
Record-low rates mean it’s now cheaper to buy than rent
Record-low interest rates have created a unique environment where it is cheaper to pay off a mortgage instead of renting, according to new findings.
Research released by online buyers marketplace Buyer Buyers co-founder Pete Wargent has found that renters who are living in a capital city besides Sydney and Melbourne would be better off buying instead of renting.
“There are some uncertainties in the economy, but for those with access to a deposit, a reasonable level of employment security and a sensible buffer, then it has become a compelling equation in many locations” Mr Wargent said.
In many areas, rent money is dead money, said RiskWise CEO Doron Peleg, stating renters with secure jobs are better off buying a house than continue paying someone else’s mortgage.
“When it comes to houses, the preferred dwelling option in most areas of the country, in many cases it is cheaper to buy than rent, and rent money is dead money. Whereas if you buy a house, you can start building equity straightaway, particularly when you take a long-term strategic view, and if you are in a good position to negotiate well and buy a ‘Grade A’ property that will serve your family for many years to come,” Mr Peleg said.
Over the medium and the long term, he said solid price growth was highly likely for houses, particularly due to a systematic undersupply in the inner- and middle-ring suburbs, and also in the more affordable outer areas with good access to the CBD, such as in the western suburbs of Sydney.
“What this all means is now is the time to buy if you are a first home buyer or an owner-occupier, as this current slowdown in the property market is only temporary, with houses in popular areas likely to experience solid capital growth in the medium to long term,” Mr Peleg explained.
“Once the COVID-19 issue fades, most likely in 2021, the traditional connection between low interest rates and an increase in dwelling prices is likely to reassert itself.”
In Sydney, annual rent on a median house price costs nearly $30,000. That is $4,466 more than it costs for an interest-only loan.
However, it costs $12,514 more to service a principal and interest loan.
In Sydney, for example, Ryde is the only area (at the SA4 level) where rental payments are less than interest-only loan repayments. Mr Peleg said, on average, if there was an additional payment for principal and interest in some SA4 regions, it would only be “very small” and areas such as the city’s western suburbs and the Central Coast had offered exceptional capital growth over the past 10 years, with further positive projections in the medium to long term.
Moving away from Sydney in Brisbane, for example, a renter pays $23,995 in rent. That is more than $10,000 more than on an interest-only loan and $1,500 for a principal and interest loan.
The maths is also in buyers favourite for Adelaide, Perth, Hobart, Darwin and Canberra.
Mr Peleg said the ACT offered excellent opportunities, thanks to a combination of properties that held their value well, with healthy price growth of 4 per cent for houses, and lower mortgage repayments compared with renting.
Mr Peleg said investors with a long-term view could also benefit despite interest repayments for investment properties being slightly higher.
“If the rent covers their monthly interest repayments, they are in a good situation. There is a relationship between low interest rates, low out-of-pocket expenses and stronger demand, and this is attractive to investors,” he concluded.
RELATED ARTICLES
About the author
About the author
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
Property
Reality check for first home buyers: Affordable suburbs with 5% deposit
In a significant development for Australian first home buyers, a new property search tool from Aussie Home Loans is set to transform the way prospective homeowners approach the market. As the Federal ...Read more
Property
Trust as a performance multiplier in Australia's real estate market
In Australia’s A$10–11 trillion housing market, trust is emerging as a crucial factor that sellers and agencies can no longer afford to overlook. Traditionally viewed as a soft metric, trust is now ...Read more
Property
LJ Hooker Lake Macquarie makes a splash with Belmont buy as real estate consolidation looms
LJ Hooker Lake Macquarie’s acquisition of the Belmont office, including its rent roll, is less about shopfronts and more about balance‑sheet resilience. In a market where listings ebb and flow with ...Read more
Property
Twice the demand: the case study behind Melbourne’s first‑home buyer surge
Melbourne has quietly engineered one of Australia’s most consequential housing turnarounds, with first‑home buyer demand running at roughly double the national pace and four of the top five buyer ...Read more
Property
First‑home buyers now anchor Australia’s mortgage growth — but the risk maths is changing
Great Southern Bank’s revelation that nearly one in three of its new mortgages went to first‑home buyers is not an outlier. It is the leading edge of a broader market realignment powered by government ...Read more
Property
Young buyers poised for a comeback as 5% First Home Guarantee takes effect
In a move set to reshape the Australian property landscape, the government’s revamped First Home Guarantee is poised to open the doors of homeownership to a new generation of young AustraliansRead more
Property
AFG Securities waives settlement fees for first-home buyers, signalling strategic shift
In a strategic move aimed at easing the financial burden on first-home buyers, AFG Securities has announced the elimination of settlement fees on select loans, potentially saving customers up to $699Read more
Property
From trust woes to wealth: Australian agencies' secret to boosting prices
In Australia’s residential market, trust is no longer a nice-to-have—it’s a pricing variable. Persistent distrust of real estate agents is depressing vendor outcomes and inviting regulatory heat, but ...Read more
Property
Reality check for first home buyers: Affordable suburbs with 5% deposit
In a significant development for Australian first home buyers, a new property search tool from Aussie Home Loans is set to transform the way prospective homeowners approach the market. As the Federal ...Read more
Property
Trust as a performance multiplier in Australia's real estate market
In Australia’s A$10–11 trillion housing market, trust is emerging as a crucial factor that sellers and agencies can no longer afford to overlook. Traditionally viewed as a soft metric, trust is now ...Read more
Property
LJ Hooker Lake Macquarie makes a splash with Belmont buy as real estate consolidation looms
LJ Hooker Lake Macquarie’s acquisition of the Belmont office, including its rent roll, is less about shopfronts and more about balance‑sheet resilience. In a market where listings ebb and flow with ...Read more
Property
Twice the demand: the case study behind Melbourne’s first‑home buyer surge
Melbourne has quietly engineered one of Australia’s most consequential housing turnarounds, with first‑home buyer demand running at roughly double the national pace and four of the top five buyer ...Read more
Property
First‑home buyers now anchor Australia’s mortgage growth — but the risk maths is changing
Great Southern Bank’s revelation that nearly one in three of its new mortgages went to first‑home buyers is not an outlier. It is the leading edge of a broader market realignment powered by government ...Read more
