Where it's cheaper to buy than rent

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A new report has found it’s now cheaper to buy a home than it is to rent in almost every capital city.

The combination of lower house prices and interest rates has created opportunities for renters keen to buy a home, despite fewer government incentives for first home buyers.

Mortgage broker Mortgage Choice points out that based on the average loan size for each state it costs less to make a mortgage repayment than pay the rent in every city apart from Melbourne.

“The small difference between rent and loan repayments within some areas is encouraging for many potential buyers,” said Belinda Williamson of Mortgage Choice.

“Of course, home-ownership costs such as land tax, strata fees, council rates, water consumption, insurance and maintenance need to be factored in,” she told the Australian Financial Review.

Yet most economists surveyed by Bloomberg expect the Reserve Bank of Australia to keep the cash rate on hold at 3 percent when it meets next month, with the futures market expecting rates to be almost 50 basis points lower in a year.

But what happens if rates go up?

RateCity research shows that if rates on basic variable mortgages increased by 50 basis points to 6.4 percent, it would be cheaper to buy than rent only in Perth, Sydney and Darwin (if rents remain the same).

Assuming rates stay low for a period, there are big benefits not only for those wanting to get into the property market but also for borrowers to make a dent in their home loan by paying more than the minimum, said Michelle Hutchison, spokeswoman for RateCity.

“Paying an extra $50 a week would cut loan terms by six to nine years and in some cases save almost $96,000 in interest,” she said.

“Adding to your mortgage repayments will reduce the impact of higher interest rates as it’s likely that rates will rise eventually.”

For now, though, Brisbane residents could be almost $800 better off over a year (or $15 per week) by owning a home rather than renting, Mortgage Choice figures show. These were calculated using average home loan repayments and average rental figures.

The most dramatic difference is in Darwin, where it’s $249 per week cheaper to buy than rent. In Sydney, figures show it’s $78 cheaper per week to buy than rent, $62 cheaper in Perth and $41 cheaper in Canberra to buy than rent. The difference was a mere $16 per week for Hobart residents and $10 per week in Adelaide, both in favour of buyers.

By contrast, in Melbourne it’s still cheaper to rent, based on the figures, by $34 a week or almost $1800 a year.


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