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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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.

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 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 is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

Mortgage Calculator, Interest Rate

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What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

What is breach of contract?

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What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

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Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

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