Melbourne versus Sydney: How the costs of living stack up!

Melbourne versus Sydney: How the costs of living stack up!

While Australia has a number of fantastic metropolitan areas, often when buyers are looking at home loans and real estate listings they consider two in particular: Sydney and Melbourne. 

Sydney is Australia’s biggest city, known for its beautiful architecture, diverse make-up and livability. Melbourne, on the other hand, is said to be the country’s beating cultural heart, renowned for its thriving arts scene. 

With such great points for each, how can one pick between the two? If cost is the decider, figures sourced from online database Numbeo could be helpful. 

Shopping, coffee and cabs

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The cities are remarkably neck-and-neck in a number of categories. In terms of shopping prices, for example, you will pay practically the same amount for a chain store summer dress, a pair of men’s leather shoes, a McDonalds meal, a coke and a cappuccino in each city.

This doesn’t necessarily mean affordability, however — buying a summer dress from a Melbourne or Sydney store will set you back substantially more than in cities like Chicago, London or San Francisco. 

Cinema tickets ($20) and restaurant meals for two ($80) are also identical in the two cities. 

Finally, there are the differences between each city’s travel costs. Starting taxi tariffs are slightly more expensive in Melbourne at $4.20 compared to Sydney’s $3.60. You will, however, pay more in Sydney for a taxi travelling 1 km, or one waiting for an hour. 

A one-way local transport ticket in Sydney ($4) is only 10 cents more expensive than in Melbourne, while a regularly priced monthly pass in Sydney ($160.00) is $21.40 more expensive than in Melbourne. The price for petrol and a new car equivalent to a Volkswagen Golf 1.4 is essentially the same, at roughly $1.26 per litre and around $24,745 respectively. 

Housing, utilities put Sydney ahead

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Despite this, Sydney is still pricier than Melbourne in a number of notable aspects — namely housing. For instance, when it comes to rent:

Meanwhile, if you want to buy an apartment:

This is despite the fact that the average yearly mortgage interest rate is around the same level, in both cities (4.62 percent in Sydney versus 4.56 percent in Melbourne). This shows the importance of carrying out a home loan comparison in order to get the most favourable deal possible. 

If this wasn’t enough, Melburnians also enjoy cheaper utilities, paying a total of $157.50 for electricity, water, heating and waste disposal for a 85 square metre apartment. Sydneysiders pay $170.48.

Despite salaries, Harbour City stays expensive

All of this data is only marginally off set by the fact that those in the Harbour City earn a higher income on average ($4,580.83) than Melburnians ($4,412.98). This more than $100 difference is not likely to be very much comfort to the average Sydney resident, however.

According to Numbeo, Sydney’s cost of living index — which measures how expensive it is to live in a city — ranks significantly higher than that of Melbourne. Sydney’s cost of living is currently slightly lower than those of London and Chicago, and just slightly higher than those of Paris and Santa Cruz. Melbourne’s current cost of living is similar to that of Oxford in the UK, or Calgary in Canada.

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So, based on this data, it seems Melbourne edges out Sydney in terms of affordability. It may be something to consider before committing to any mortgage in the future. 

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Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Is there a limit to how many times I can refinance?

There is no set limit to how many times you are allowed to refinance. Some surveyed RateCity users have refinanced up to three times.

However, if you refinance several times in short succession, it could affect your credit score. Lenders assess your credit score when you apply for new loans, so if you end up with bad credit, you may not be able to refinance if and when you really need to.

Before refinancing multiple times, consider getting a copy of your credit report and ensure your credit history is in good shape for future refinances.

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

I can't pick a loan. Should I apply to multiple lenders?

Applying for home loans with multiple lenders at once can affect your credit history, as multiple loan applications in short succession can make you look like a risky borrower. Comparing home loans from different lenders, assessing their features and benefits, and making one application to a preferred lender may help to improve your chances of success

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002