More than half of homes will be cheaper to buy than rent in next ten years

author-avatar By on April 30, 2021
More than half of homes will be cheaper to buy than rent in next ten years

Despite runaway house prices, more than half of Australian homes will be cheaper to buy than rent over the next decade, a new report says.

The latest REA Insights Buy or Rent 2021 Report found it will be cheaper to buy than rent around 57% of houses across Australia, based on modest house price growth of 3% a year over the next decade.

That analysis also found that over the next ten years the share of units that will be cheaper to buy than rent is close to 75%. 

Realestate.com.au economist Paul Ryan said record low mortgage interest rates have made it more affordable for people to enter the property market, although saving for a deposit remains an issue for first-time buyers

"Interest rates can currently be fixed below 2% per year and the Reserve Bank of Australia has committed to maintaining low interest rates until at least 2024," Mr Ryan said.

"This certainty that mortgage costs are not going to increase rapidly provides comfort to buyers borrowing larger amounts."

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Source: REA

The analysis found that if interest rates remain low, moderate property price growth will likely offset the additional costs of owning, like stamp duty, maintenance and council or strata rates

It also assumes that buyers already have a 20% deposit saved, which Mr Ryan said would remain the biggest hurdle for first home buyers with house prices rapidly rising. 

"Many would-be buyers can already afford loan repayments, but struggle to save a deposit while renting" he said.

"Continued price growth may cause additional concern for many in this position."


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

The cheapest suburbs to buy instead of rent

Unsurprisingly, the analysis found conditions are the most favourable for buyers outside the biggest capital cities.

More than 60% of houses and almost all units outside of New South Wales and Victoria are estimated to be cheaper to buy than rent in a decade. 

"Affordability is driving demand and as a result it is likely we will continue to see strong regional price growth," Mr Ryan said. 

The Northern Territory offers the most opportunities for house buyers, where it's cheaper to buy than rent in almost 98% of suburbs.

Similarly, 100% of two-bedroom apartments in the Top End are cheaper to buy than rent.

Queensland is the next best state for affordability, with 85% of suburbs cheaper to buy a three-bedroom house than rent.

In Greater Brisbane, the suburb with the largest price differential to buy a three-bedroom house as opposed to rent, was Kilcoy, with an estimated monthly difference of $1,014.

Brisbane's top ten list was dominated by suburbs in regional areas, with Lockrose, Waterford, D'Aguilar and Toogoolawah making the list.

Buying a three-bedroom house in Sydney's Tacoma would be $578 cheaper than renting.

Again, Greater Sydney's top ten list was largely full of suburbs in regional Central Coast, where prices surged 13.6% in the last 12 months.

In Greater Melbourne, Waterford Park would be $472 cheaper to buy than rent a three-bedroom house. 

Renting still a cheaper option inner-city

Renting still remains the cheapest option for almost all inner-city areas, but particularly in Sydney and Melbourne.

According to REA more than 60% of houses and just under half of units in New South Wales and Victoria are estimated to be cheaper to rent over the next 10 years.

"While rents do not typically adjust as quickly as prices, the COVID-19 pandemic and the cessation of international travel saw significant reductions in asking rents in inner city Sydney and Melbourne," Mr Ryan said.

"As such, renting in these inner-city areas is currently considered cheap, relative to their very high asking prices."

Unsurprisingly, the suburbs where it's cheaper to rent than buy are in the most expensive inner-city areas.

In Sydney, it would be a whopping $11,413 cheaper per month to rent than buy a three-bedroom house in exclusive Vaucluse over a ten-year period.

In Melbourne, it would be $8,672 cheaper to rent than buy a house in Toorak, while in the Greater Perth area, renters would save $6,491 per month by renting a house rather than buying in Peppermint Grove.

Brisbane renters would pocket an extra $2,725 a month by renting, not buying, a three-bedroom house in the trendy riverside suburb of Teneriffe.


Photo by Parag Gaikwad on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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author-avatar
Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's passionate about empowering people to make smart financial decisions and improve the financial literacy of Australians by translating complex finance topics into understandable, relatable content.

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