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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

RegionHousesUnits
Greater SydneyLake Haven, San Remo, Charmhaven, Blue Haven, WatanobbiWest Gosford, Gorokan, Warwick Farm, North Gosford, Jamisontown
Regional New South WalesBroken Hill, Werris Creek, Wellington, Muswellbrook, CondobolinSapphire Beach, Crestwood, Griffith, Tweed Heads West, Queanbeyan
Greater MelbourneHastings, Melton, Melton South Kurunjang, Melton WestCarlton, Travancore, Flemington, Notting Hill, Melbourne
Regional VictoriaRed Cliffs, Terang, Kerang, Portland, AraratPortland, Traralgon, Mildura, Mooroopna, Lakes Entrance
Greater BrisbaneKilcoy, Woodridge, Kingston, Logan Central, GoodnaBrowns Plains, Oxley, Waterford West, Springwood, Richlands
Regional QueenslandHealy, Sunset, Townview, Parkside, CloncurryWhite Rock, Woree, Manunda, Manoora, Cairns North
Greater AdelaideElizabeth North, Elizabeth Downs, Smithfield, Elizabeth South, Davoren ParkMawson Lakes, Salisbury, Adelaide Klemzig, Lightsview
Regional South AustraliaKingston Se, Bordertown, Whyalla, Port Augusta West, Port Pirie WestMount Gambier, Victor Harbor
Greater PerthCooloongup, Parmelia, Calista, Orelia, BrookdaleSpearwood, Armadale, Midland, Bayswater, Glendalough
Regional Western AustraliaNickol, Baynton, Newman, Port Hedland, South HedlandPort Hedland, South Hedland, Cable Beach, Bunbury, Withers
Greater HobartRokeby, Risdon Vale, Bridgewater, Warrane, Primrose SandsBrighton, Glenorchy, Claremont, Sorell, Blackmans Bay
Regional TasmaniaBicheno, Zeehan, Queenstown, Ravenswood, MayfieldMowbray, Legana, South Launceston, Newnham, Riverside
Greater DarwinMoulden, Zuccoli, Driver, Gray, WoodroffeParap, Darwin City, Nightcliff, Stuart Park, Coconut Grove
Regional Northern TerritorySadadeen, Araluen, Braitling, East Side, GillenGillen
Greater Australian Capital CityCharnwood, Holt, Ngunnawal, Latham, MacgregorMawson, 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:

CompanyNameRate
Reduce Home LoansRate Cutter Home Loan (LVR < 60%)

1.77

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

1.79

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

1.89

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

1.97

YardYard 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:

CompanyNameRate
Bank FirstPremier Package Home Loan Fixed 3 Years (LVR < 80%)

1.99

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

1.99

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

1.99

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

1.99

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

1.99

Homestar FinanceStar 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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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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