The suburbs where it's cheaper to buy than rent

author-avatar By on November 11, 2020
The suburbs where it's cheaper to buy than rent

Photo by Soheb Zaidi on Unsplash

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.

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 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.

“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

Houses Units
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.

Regional suburbs

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.

See also: COVID-19 sparks mass exodus from city to regional property

“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."


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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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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