The Australian suburbs where mortgage repayments are cheaper than rent

The Australian suburbs where mortgage repayments are cheaper than rent

Historically cheap home loan costs and a sluggish property market are leading to mortgage repayments that are more affordable than paying rent in many cases, according to Aussie Home Loans’ Buy vs Rent report.

The report, commissioned by Aussie and compiled by CoreLogic, used Reserve Bank of Australia figures to calculate two principle-plus-interest mortgage scenarios over 30 years on median-price properties across the country.

On variable rate loans with interest at 3.65 percent, it was cheaper to service a mortgage on 33 per cent of houses and 38 per cent of apartments than rent, the report found.

And on loans where interest is fixed at 2.35 per cent for three years, it was cheaper to service a mortgage on 52 per cent of houses and 60 per cent of apartments than to pay rent.

“In many suburbs across Australia, especially those outside the major capital cities, on a monthly basis, it is cheaper to buy than rent,” James Symond said, chief executive of Aussie Home Loans.

“Why pay your landlord when you could potentially pay the same amount – or less monthly – on a place you can call your own?”

Top 5 suburbs where it’s cheaper to buy than rent - by region. Aussie Home Loans

Region Houses Units
Greater Sydney Lake Haven, San Remo, Charmhaven, Blue Haven, Watanobbi West Gosford, Gorokan, Warwick Farm, North Gosford, Jamisontown
Regional New South Wales 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 Queensland 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 Western Australia 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 Northern Territory Sadadeen, Araluen, Braitling, East Side, Gillen Gillen
Greater Australian Capital City Charnwood, Holt, Ngunnawal, Latham, Macgregor Mawson, Phillip, Campbell, Lyons, Braddon

There’s plenty of lower rates for bigger savings

There’s a growing number of banks offering interest rates lower than the figures used in the Aussie Home Loans report, making it possible to save even more money by buying a property rather than renting.

According to the RateCity database, 31 lenders are offering -- or are scheduled to offer -- at least one mortgage rate under 2 per cent, following last week’s historic cash rate cut.

Reduce Home Loans is offering the lowest variable rate loan with an interest rate of 1.77 per cent -- less than half the rate Aussie used for its modelling.

Top Owner Occupier Principle & Interest variable rate loans:

Company Name Rate
Reduce Home Loans Rate Cutter Home Loan (LVR < 60%)

1.77

Homestar Finance Star Gold Home Loan (Principal and Interest) (LVR < 60%)

1.79

Pacific Mortgage Group Standard Variable Home Loan (Principal and Interest) (LVR < 60%)

1.89

Freedom Lend Freedom Variable Home Loan (Principal and Interest) (LVR < 70%)

1.97

Yard Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

2.09

Bank First is offering the lowest interest rate on loans fixed for three years at 1.99 per cent. This is about 0.35 per cent less than the interest rate used in Aussie’s modelling.

Top Owner Occupier Principle & Interest 3 year fixed rate loans:

Company Name Rate
Bank First Premier Package Home Loan Fixed 3 Years (LVR < 80%)

1.99

St.George Bank Advantage Package Fixed Rate Home Loan (Principal and Interest) 3 Years (LVR < 60%)

1.99

Westpac Premier Package Fixed Options Home Loan (Principal and Interest) 3 Years (LVR < 70%)

1.99

Bank of Melbourne Advantage Package Fixed Rate Home Loan (Principal and Interest) 3 Years (LVR < 60%)

1.99

loans.com.au Special Offer - 3 yr Fixed (Principal and Interest)

1.99

Homestar Finance Star Classic Owner Occupied 3 Year Fixed Special (New Customer)

2.06

Where are mortgage repayments cheaper than rent?

Capital cities

Whether or not mortgage repayments were cheaper than rent in capital cities depended largely on the city -- and on the mortgage scenario used.

It was better to repay a mortgage than to pay rent in 35 per cent of capital city suburbs under the three-year fixed rate scenario used in the report, while 17 per cent of capital city suburbs were cheaper to repay a mortgage than rent under the variable rate scenario.

In most cases, it was still cheaper to rent than to repay a mortgage on properties in Sydney and Melbourne -- even though their values dropped by single digits in the six months to September 30, according to the report.

Mortgage repayments on houses were more affordable than renting in 5.3 per cent of Sydney suburbs under the three-year fixed rate scenario. For Melbourne, this was the case in only 1 per cent of suburbs.

There were no Sydney or Melbourne suburbs were it was cheaper to repay a mortgage on a house than to pay rent under the variable rate example.

But the story differed wildly across other capital cities.

It was cheaper to pay a mortgage on a house than to rent under the fixed rate scenario in more than 50 per cent of suburbs in Brisbane, Adelaide, Perth and Hobart. For Darwin, it was cheaper in all of its suburbs.

Mortgage repayments on houses under the variable rate scenario were cheaper than rent in more than 30 per cent of suburbs across Perth and Adelaide, while they were cheaper in about 50 per cent of suburbs in Hobart and 83 per cent of suburbs in Darwin.

The ‘burbs

Repaying a mortgage was often cheaper than renting a home in regional suburbs, the report said, and it was the case under both borrowing scenarios used.

Fixed rate mortgage repayments were cheaper than renting for 80 per cent of houses and 87 per cent of units in regional areas. Under the variable rate scenario, 58 per cent of houses and 64 per cent of units had mortgage repayments that were less than the cost of rent.

The findings come as people flock to regional areas during the COVID-19 pandemic, Mr Symonds 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,” he said.

“This current environment is good news for renters looking to become owner occupiers.”

Housing affordability is at a decade high

Mortgage interest rates have been dropping to improve affordability during the COVID-19 pandemic. An earlier analysis by Moody’s Investor Service found it has contributed to housing affordability being at its lowest level in a decade.

This drop has happened while average rents have held for houses over the last year, although units have dropped by 2.2 per cent.

“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 Symonds said.

“While this is a really good indication of the suburbs where it could be cheaper to buy than rent, there are a lot of current market rates well below these averages, so the savings and range of suburbs is potentially even greater.”

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.