The Aussie cities where a mortgage is cheaper than rent

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on February 27, 2020
The Aussie cities where a mortgage is cheaper than rent

Photo by Angus Gray on Unsplash

There are some cities where it's actually cheaper to pay down a mortgage on a house than it is to rent one.

New figures could turn that age old "rent or buy?" argument on its head. 

CoreLogic have crunched the numbers and found that more than a third of properties across Australia (33.9%) had estimated mortgage repayments that were less than weekly rental payments.

Most of these (20%) were in regional Queensland, particularly the Gold Coast and the Sunshine Coast.

In terms of capital cities, Darwin was the clear standout where 77.6% of properties had lower estimated mortgage repayments than rental costs.

According to Savings.com.au's research, the average monthly mortgage repayment for a house in Darwin is $1,800 (assuming the buyer has been able to save a 20% deposit for a house with a median price of $460,065 at a 3.23% p.a. interest rate). Compare that with the median weekly rent for a three-bedroom house in Darwin which is $1,952 per month.

Unsurprisingly, Sydney was the worst for mortgage affordability. Only 7.1% of properties had lower mortgage repayments than rental costs and most of these were located in areas where a unit glut has suppressed price growth.

The average monthly mortgage repayment for a house in Sydney would be $4,453 per month (assuming the buyer has been able to save a 20% deposit for a house with a median price of $1.14 million at a 3.23% p.a. interest rate). Comparatively, Sydney's average monthly rent is $2,120 per month according to Domain data. 

CoreLogic Head of Research Eliza Owen said the varied dynamics across the cities could also have something to do with how property values have responded to recent rate cuts.

"The more property values increase in response to lower mortgage rates, the more the benefits of a low interest rate are eroded. In Sydney, a relatively high supply of rental stock has exacerbated the gap between mortgage repayments and rents," she said.

"Following a round of cash rate reductions from June 2019, Sydney dwelling values shot up 11.2% between June 2019 and January 2020, while Darwin dwellings fell 2.4% in the same period."

The data also shows the areas where rents increase faster than property values.

For example, rent value growth in Hobart was 5.8% in the year to January which outpaced dwelling market value growth of 5%.

"In some instances, relatively expensive rent payments can be a result of a highly transitory location - such as a mining location, university town or city CBDs. Rental markets can face more pressure because residents may prefer renting to owning," Ms Owen said.

"But another instance in which residents are dependent on the rental market is where they have no option to buy."

Thinking about refinancing to a low-rate, variable owner-occupier home loan? Below are a handful of low-rate loans on the market. 

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
ZERO APPLICATION FEESFEE FREE OFFSET
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
  • The shorter your loan, the less interest you pay in the long run.
ZERO APPLICATION FEESFEE FREE OFFSET

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
  • No upfront or ongoing fees
  • The shorter your loan, the less interest you pay in the long run.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO APPLICATION FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO APPLICATION FEES

Yard Home Loan (Principal and Interest) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Owner Occupier Accelerates - Evaporate (LVR 60%-70%) (Principal and Interest)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
NO UPFRONT OR ONGOING FEES
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
NO UPFRONT OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 80%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
UNLIMITED EXTRA REPAYMENTS
UNLIMITED EXTRA REPAYMENTS

Basic Home Loan (Principal and Interest) (LVR < 60%)

    Variable
    More details
    EASY DIGITAL APPLICATION
    EASY DIGITAL APPLICATION

    Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

      Variable
      More details
      $0 APPLICATION FEE
      $0 APPLICATION FEE

      Budget Home Loan (Principal and Interest) (LVR < 80%)

        Variable
        More details
        100% FULL OFFSET ACCOUNT
        100% FULL OFFSET ACCOUNT

        Offset Package Home Loan (Principal and Interest) (LVR < 60%)

          Variable
          More details
          LIMITED TIME OFFER
          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services
          LIMITED TIME OFFER

          Smart Booster Home Loan Discounted Variable - 1yr

          • Fast turnaround times, can meet 30-day settlement
          • No ongoing or monthly fees, add offset for 0.10%
          • Extra repayments + redraw services

          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%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 28, 2022. View disclaimer.

          Saving for a deposit still a challenge

          With housing affordability tipped to worsen, it's handy to know where it could work out cheaper to buy a home than to rent one.

          But the data doesn't take into account the deposit hurdle, which remains a major challenge particularly for first home buyers. 

          On average, it takes millennials about five years to save for a house deposit according to an ING survey. The national average is 4.9 years for houses and 3.6 years for apartments. 

          However, the data does highlight low income areas where there's a high population of renters. For example, Auburn in Sydney (where rent is more expensive on 40% of properties) is one example of this. 

          "Some households may be better off owning than renting, but face greater challenges saving a deposit to buy because of a lower income level, and so greater demand is placed on the rental market," Ms Owen said.

          "This could have implications for targeting policy around home ownership."


          Disclaimers

          The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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          author-avatar
          Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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