With home loan interest rates at historic lows, paying down a mortgage is actually cheaper than renting in some suburbs.
That's according to the Buy v Rent report from CoreLogic commissioned by mortgage broker Aussie, which uses Reserve Bank data to calculate two interest rate scenarios for mortgage repayments.
Based on a 30-year loan with a principal and interest (P&I) variable rate of 3.65% p.a, one in three (32.9%) Australian suburbs recorded lower monthly mortgage repayments than rental payments for houses and almost 40% (37.7%) for apartments.
Meanwhile, on a 2.35% p.a, three-year fixed-rate loan, more than half (52.2%) of Australian suburbs are cheaper to pay down a mortgage than pay rent on a house, with almost 60% (59.1%) of apartments cheaper to pay off compared to renting.
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, 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.
“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," said CEO of Aussie James Symond.
“Why pay your landlord – when you could potentially pay the same amount – or less monthly – on a place you can call your own?
“The cost gap between buying and renting has tightened over the last year as rates and property values have either stabilised or fallen, especially in regional areas across Australia and in the cities of Darwin and Perth."
The report found that based on a 30-year principal and interest mortgage with an average discounted variable loan rate of 3.65% p.a, mortgage repayments fell from $3,139 per month three years ago to $2,770 in September 2020.
At the same time, average rents have held firm for houses but dropped 2.2% for units over the last year.
The apartment market has been particularly impacted by COVID-19, with average rents down 7.8% in Melbourne, 3.8% in Sydney, and 11.1% 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.
With the Reserve Bank hinting that the cash rate will remain unchanged for the next three years, Mr Symond said this provides some certainty that home loan interest rates will remain ultra low for the foreseeable future.
Top suburbs in Australia where it's cheaper to buy than rent
|Greater Sydney||Lake Haven, San Remo, Charmhaven, Blue Haven, Watanobbi||West Gosford, Gorokan, Warwick Farm, North Gosford, Jamisontown|
|Regional NSW||Broken Hill, Werris Creek, Wellington, Muswellbrook, Condobolin||Sapphire Beach, Crestwood, Griffith, Tweed Heads West, Queanbeyan|
|Greater Melbourne||Hastings, Melton, Melton South Kurunjang, Melton West||Carlton, Travancore, Flemington, Notting Hill, Melbourne|
|Regional Victoria||Red Cliffs, Terang, Kerang, Portland, Ararat||Portland, Traralgon, Mildura, Mooroopna, Lakes Entrance|
|Greater Brisbane||Kilcoy, Woodridge, Kingston, Logan Central, Goodna||Browns Plains, Oxley, Waterford West, Springwood, Richlands|
|Regional QLD||Healy, Sunset, Townview, Parkside, Cloncurry||White Rock, Woree, Manunda, Manoora, Cairns North|
|Greater Adelaide||Elizabeth North, Elizabeth Downs, Smithfield, Elizabeth South, Davoren Park||Mawson Lakes, Salisbury, Adelaide Klemzig, Lightsview|
|Regional South Australia||Kingston Se, Bordertown, Whyalla, Port Augusta West, Port Pirie West||Mount Gambier, Victor Harbor|
|Greater Perth||Cooloongup, Parmelia, Calista, Orelia, Brookdale||Spearwood, Armadale, Midland, Bayswater, Glendalough|
|Regional WA||Nickol, Baynton, Newman, Port Hedland, South Hedland||Port Hedland, South Hedland, Cable Beach, Bunbury, Withers|
|Greater Hobart||Rokeby, Risdon Vale, Bridgewater, Warrane, Primrose Sands||Brighton, Glenorchy, Claremont, Sorell, Blackmans Bay|
|Regional Tasmania||Bicheno, Zeehan, Queenstown, Ravenswood, Mayfield||Mowbray, Legana, South Launceston, Newnham, Riverside|
|Greater Darwin||Moulden, Zuccoli, Driver, Gray, Woodroffe||Parap, Darwin City, Nightcliff, Stuart Park, Coconut Grove|
|Regional NT||Sadadeen, Araluen, Braitling, East Side, Gillen||Gillen|
|Greater ACT||Charnwood, Holt, Ngunnawal, Latham, Macgregor||Mawson, Phillip, Campbell, Lyons, Braddon|
Capital city suburbs
While the report found that in many suburbs it was cheaper to buy than rent, it was a slightly different story for capital cities depending on the city and the mortgage repayment scenario.
Under the discounted variable rate scenario, 16.9% of capital city suburbs recorded lower monthly mortgage repayments compared with rental payments for houses, rising to 34.7% of suburbs under a three-year fixed-rate scenario.
Sydney and Melbourne recorded no suburbs where it was cheaper to service a mortgage on houses than rent based on a variable rate.
However, 82.6% of Darwin suburbs, 50% 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 than rent for houses.
Under the fixed rate scenario, 5.3% of Sydney suburbs were more affordable to service a mortgage than rent for houses, while this was the case for only 1% of Melbourne suburbs.
Every suburb across Darwin was cheaper to pay a mortgage than rent under a fixed-rate scenario, and the proportion was more than 50% across Brisbane, Adelaide, Perth, Hobart, and Darwin.
On the other hand, 58% of regional suburbs recorded lower mortgage repayments than rental rates under the discounted variable mortgage rate scenario for houses, rising to almost 64% for units.
Under the lower interest rate scenario associated with a fixed rate mortgage, that number rose to a huge 79.8% for houses and 87.4% for units in regional suburbs.
Across regional parts of Northern Territory, South Australia, Tasmania and Western Australia, over 80% of suburbs showed lower typical mortgage repayments than renting for houses under a discounted variable mortgage rate.
That number fell to 33.8% of regional Victorian suburbs and 44.4% of regional New South Wales suburbs.
“COVID travel restrictions have inspired many people to holiday in their own states and prompted a property boom in some regional areas – a trend expected to continue," Mr Symond said.
“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."
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): Credit Union Australia, 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.
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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