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Two-tier rental market emerges as inner Sydney and Melbourne rental stock shoots up

Two-tier rental market emerges as inner Sydney and Melbourne rental stock shoots up

Rental listings have shot up in inner city pockets of Sydney and Melbourne since COVID-19, despite Australia’s broader rental market beginning to tighten, new CoreLogic research showed. 

Total listings on the national rental market fell by 10.9 per cent in the 28 days to August 9, according to the research firm.

But the opposite is happening in some inner city employment centres with 100,000 to 500,000 people, known by the Australian Bureau of Statistics (ABS) as statistical area 4 (SA4) regions.

Which rental markets have had increased listings?

Ten of the 88 SA4 regions analysed had more properties listed on the rental market when comparing the 28 days to March 15 with the 28 days to August 9. The number of listings dropped in the remaining 78 regions.

Eight of the 10 SA4 regions which had an increase in listings were in Sydney and Melbourne, while the other two were in Brisbane and Adelaide.

Inner Melbourne saw the greatest jump in total rental listings, ballooning by 52 per cent to 10,764 between mid-March and early August. The median weekly asking rent in inner Melbourne declined by 9.6 per cent to $500 in July.

The second most affected SA4 region was Sydney’s city and inner south region, which surged by 48 per cent to 5,474 listings since mid-March. Landlords in this area have had to adjust their rental expectations, with the median asking rent plummeting by 10.5 per cent to $654 a week in July.

Rental stock in Sydney’s city and inner south region increased by a third to 2,985 listings in the same period. The median listed rent dropped by 10 per cent, or $81, to $731 per week.

SA4 region

Total rent listings – 28 days to March 15

Total rent listings – 28 days to Aug 9

% change

Melbourne - inner




Sydney – city and inner south




Sydney – eastern suburbs




Melbourne – inner east




Melbourne – inner south




Sydney – inner west




Brisbane inner city




Sydney – North Sydney and Hornsby




Adelaide – Central and Hills




Sydney - Ryde




Source: CoreLogic.

The 10 regions that have seen a spike in listings represent about 27 per cent of Australia’s total rental market, according to CoreLogic.

When looking at SA2 regions, or medium-sized areas with between 3,000 and 25,000 people, it was again areas in greater Sydney and Melbourne which saw the biggest jumps in rental stock between mid-March and early August.

Melbourne’s Southbank and city, as well as Sydney’s Haymarket and The Rocks, all saw surges in rental listings of more than 100 per cent in the same period. 

In Southbank, rental stock swelled by 116 per cent – from 568 listings in mid-March to 1,230 by August 9. Yet the inner Melbourne suburb had an average of 450 listings per month in the 12 months leading up to the beginning of COVID-19.

According to SQM Research, Sydney is the capital city with the highest vacancy rate in Australia, with 3.6 per cent of rental properties empty in July, down by 0.2 per cent since the month prior. Its CBD, however, has a vacancy rate of 13.2 per cent, easing by 0.6 per cent since June.

Hobart has the tightest rental market among the capitals, at 0.7 per cent, which dropped by 0.2 per cent since June. 

Why demand for inner Sydney and Melbourne rental markets is falling

Eliza Owen, CoreLogic’s Australian head of research, said the bounce in rental stock was unusual for this time of the year.

“It is expected seasonally that most areas would see a decline in rental listings, as rental stock on market is usually highest at the beginning and end of each year,” she said.

“For the four years prior to 2020, rental stock on market at mid-August has on average, been -3.2% lower than what is seen over mid-March.”

Ms Owen said the findings showed how rental markets have been impacted differently post COVID-19.

“The dominance of Sydney and Melbourne with regards to heightened rental supply highlights the much localised nature of the shock to rental demand that has been seen since the onset of the pandemic,” she said.

One of the factors contributing to the fall in housing demand is international border closures.

“This is because the majority of new migrants to Australia are renters, at least initially,” she said.

Increased high-rise property development activity has added to the supply pipeline in some inner city areas, which has also contributed to a jump in rental listings during the economic downturn.

Louis Christopher, chief executive officer of SQM Research, added that people have been relocating away from densely populated inner city pockets to regional areas due to COVID-19.

“This very likely has been as a result of fears surrounding coronavirus and the ability for many employees (particularly in the corporate sector) to work remotely,” he said.

What property investors should note when rental stock is rising

Some inner city rental markets may appear dire when looking at the short-term numbers, but this doesn’t necessarily mean investors should take drastic action about their property portfolios. 

If you’re a property investor who’s playing the long game and is able to hold your property long-term, you may have little reason to panic. This is particularly the case for investors with healthy loan-to-value ratios (LVR) and stable incomes. Consider consulting a financial adviser for professional advice if you’re concerned about your situation.

Given the escalating home loan rate wars, it might also pay to look around and see if there are better mortgage rate deals to snap up.

For example, Homestar Finance recently slashed its variable interest rate for investors to as low as 2.49 per cent (2.52 per cent comparison rate) for those paying principal and interest on a mortgage with 70 per cent LVR. 

Variable rates generally allow you to benefit from lower repayments if the interest rate falls, but it does also mean your mortgage repayments could increase if the rate hikes. Variable rate home loans often have more flexible features, including the ability to make extra repayments or providing an offset account. 

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This article was reviewed by Senior Journalist Tony Ibrahim before it was published as part of RateCity's Fact Check process.



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Learn more about home loans

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. 

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.

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.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

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 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 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).

Does Australia have no-deposit home loans?

Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.

However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.

Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.

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

The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.

Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.  

Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.

How much debt is too much?

A home loan is considered to be too large when the monthly repayments exceed 30 per cent of your pre-tax income. Anything over this threshold is officially known as ‘mortgage stress’ – and for good reason – it can seriously affect your lifestyle and your actual stress levels.

The best way to avoid mortgage stress is by factoring in a sizeable buffer of at least 2 – 3 per cent. If this then tips you over into the mortgage stress category, then it’s likely you’re taking on too much debt.

If you’re wondering if this kind of buffer is really necessary, consider this: historically, the average interest rate is around 7 per cent, so the chances of your 30 year loan spending half of its time above this rate is entirely plausible – and that’s before you’ve even factored in any of life’s emergencies such as the loss of one income or the arrival of a new family member.

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.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.