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 can I apply for a first home buyers loan with Commonwealth Bank?

Getting a home loan requires planning and research. If you are considering a home loan with the Commonwealth Bank, you can find the information you need in the buying your first home section of the bank’s website.

You can see the steps you should take before applying for the loan and use the calculators to work out how much you can borrow, what your monthly repayments would be and the upfront costs you’d likely pay.

You can also book a time with a Commonwealth first home loan specialist by calling 13 2221.

CommBank publishes a property report that may help you understand the real estate market. The bank has also created a CommBank Property App that you can use to search for property.  The link to download this app is available on the same webpage.

If you are eligible for the First Home Loan Deposit Scheme, CommBank will help you process your application. The scheme helps first home buyers to purchase a home with a low deposit. You can read details about this scheme here and speak with a CommBank home lending specialist to understand your options.

What is the average length of a home loan?

Most Aussie lenders offer home loans with a 30-year term, meaning that you should pay back the full loan amount and the interest you owe on the amount in 30 years. 

However, home loans can also have a shorter or longer term. They may be as low as ten years or up to 45 years, depending on the product and lender. 

It’s worth remembering that a longer loan term usually means you’ll end up paying a lot more interest in total, but your scheduled repayments may be more manageable. In contrast, you could opt for a shorter loan term if you are comfortable making large repayments in exchange for paying less interest over the term of the loan.

Does Westpac offer loan maternity leave options?

Having a baby or planning for one can bring about a lot of changes in your life, including to the hip pocket. You may need to re-do the budget to make sure you can afford the upcoming expenses, especially if one partner is taking parental leave to look after the little one. 

Some families find it difficult to meet their home loan repayment obligations during this period. Flexible options, such as the Westpac home loan maternity leave offerings, have been put together to help reduce the pressure of repayments during parental leave.

Westpac offers a couple of choices, depending on your circumstances:

  • Parental Leave Mortgage Repayment Reduction: You could get your home loan repayments reduced for up to 12 months for home loans with a term longer than a year. 
  • Mortgage Repayment Pause: You can pause repayments while on maternity leave, provided you’ve made additional repayments earlier.

When applying for a home loan while pregnant, Westpac has said it will recognise paid maternity leave and back-to-work salaries. All you need is a letter from your employer verifying your return-to-work date and the nature of your employment. Your partner’s income, government entitlements, savings and investments will may help your application.

What are the NAB term deposit interest rates for businesses?

If you’re looking to lock in a return on your business savings, one option is a business term deposit with NAB. The big four bank provides competitive interest rates while giving you the flexibility to choose the term. NAB offers business term deposit interest rates for investments of between $5,000 to $499,999.

NAB doesn’t charge any monthly account or application fees. The interest is calculated daily and for the 90-day term and six months term, you will get paid when the deposit matures. For the 12 months term, you can either choose to get paid monthly, quarterly, half-yearly or annually. 

If you wish to withdraw your funds before the deposit matures, you need to give NAB 31 days notice. However, they do make exceptions if you’re experiencing hardship and need the funds immediately. Either way, you may have to bear the prepayment cost, which you can learn more about in the Terms and Conditions.

How do you qualify for a CBA home loan with casual employment?

Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.

Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like. 

Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.

Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.

Where can I get all the information about an ANZ first home buyer’s loan?

As a first home buyer, you may require help and hand-holding, and as such ANZ has the buying your first home section on its website full of important information. ANZ also has a form in this section you can fill out to get a free consultation from an ANZ First Home Coach and create your own plan for buying your first home. This coach will help you understand where your current income is being spent and plan for your home loan repayments. You’ll get a clear picture of the costs involved in purchasing a property and how to budget or save for these costs. The coach will help you understand different deposit options and manage your accounts to enhance your savings.

There are three types of ANZ first home loans - Standard Variable, Fixed, and Equity Manager. The features, interest rates, and terms for each are different, and you can compare them here.

When they apply for an ANZ home loan, first home buyers can also get guidance on applying for the First Home Owner Grant (FHOG). This is a one-off government grant that may be available to you when you’re buying your first home. The eligibility criteria for FHOG differs between the different states and territories, which is why it’s helpful to have expert advice when applying.

Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

Does UBank offer home loan pre-approvals?

If you’re applying for a home loan with UBank, you can first get an approval in principle. You’ll need to provide information about your job and earnings, your household expenses, the assets you own and the debts you owe. 

UBank will assign a home loan specialist to discuss these details over a phone call, which can take about 30 minutes. 

The bank will then confirm if you’ve received in-principle approval for your home loan. Depending on how you submit your documents, this could take a few days or a few weeks. If successful, the approval will be valid for 60 days. 

Does the family tax benefit count as income?

The family tax benefits are one of several government support payments that are not considered taxable income. Other such payments include child care subsidies, economic support payments, rent assistance, and carer allowances. If you file a tax return, you typically don’t need to mention such income on the return. However, some home loan lenders may accept family tax benefits as an income source when reviewing your home loan application. You’ll still need to meet other lending requirements, such as having a sufficiently high credit score and enough savings for a deposit before the loan will be approved.

Aussies receiving family tax benefits usually have an adjusted taxable income of no more than $55,626 a year. Alternatively, one spouse can be receiving income support payments from the government to be eligible. Most importantly, they need to have children dependent on them for care at least 35 per cent of the time. Children between the ages of 16 and 19 should be either full-time secondary students or have a somewhat comparable study load unless the government exempts them from these study requirements. 

How do I get a Suncorp home loan pre-approval?

Getting home loan pre-approval helps you work out a budget to help you search for a suitable property and make an offer with confidence. Once you put in an application, you should get your pre-approval outcome within two business days. To help get a fast turnaround time of your pre-approval application, ensure all the information and documentation that Suncorp requires. This includes proof of identification, recent payslips, bank account and credit card statements.

You can submit the home loan pre-approval application online. You’ll be asked for information about your income, expenses, assets, and debts. It should take you about 10 minutes to fill out the application, and you can do it free of charge. A Suncorp lending specialist will review your application and contact you within 24 hours or the next working day. Suncorp will not run a credit check until you have heard from this lending specialist.

Once you get Suncorp home loan pre-approval, it’s valid for 90 days. If you don’t find a property you wish to buy in this time you may be able to apply for an extension, speak to your Suncorp lending specialist about this.

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.