More than 1 in 3 Aussie properties cheaper to buy than rent

Having a mortgage is even more likely to be cheaper than renting than it was pre-pandemic, new research has revealed.

CoreLogic’s latest Property Pulse suggested servicing a mortgage is now cheaper than paying rent on 36.2 percent of Australian properties – and it’s even higher than the pre-COVID proportion of 33.9 percent reported in February 2020.

Mortgage assumptions relied on an 80 percent loan-to-valuation ratio, an interest rate of 2.4 percent, and a 25-year loan term. No mortgage fees or transaction fees were assumed.

Across the combined capital cities, the portion of properties cheaper to buy than rent is lower than the national average – sitting at 26.2 percent.

In contrast, more then half of the properties (60.1 percent) across combined regionals were found to be cheaper to buy than rent.

Of the capital cities, Darwin had the largest portion of properties cheaper to buy than rent at 86.5 percent, followed by Perth with 59.6 percent, Brisbane with 55.3 percent, Hobart with 50.2 percent, Adelaide with 47.4 percent.MelbourneandSydneyhad much smaller portions at 7.3 percent and 4.9 percent, respectively.

Regionally, Northern Territory emerged with the largest proportion of suburbs where it’s cheaper to service a mortgage than pay rent at 96.4 percent. This was followed by South Australia and Western Australia with 79.4 percent, Queensland with 73.1 percent, Tasmania with 71.4 percent, NSW with 48.2 percent and Victoria with 43.6 percent.

According to CoreLogic’s head of research, Eliza Owen, the lower interest costs on mortgage debt since the onset of COVID-19 largely drove the increase in areas where it’s cheaper to buy than rent across Australia.

In fact, RBA data showed that average new mortgage rates for owner-occupiers have fallen from 3.21 percent in February 2020 to 2.4 percent in May 2021.

"This is one of the factors that may have boosted sales activity coming out of COVID-19 restrictions in 2020; if it makes more financial sense to pay for a mortgage than rent, renting households may have been triggered to look for something to buy as interest rates have fallen,” Ms. Owen said.

However, the reduction of interest costs did not always lead to cheaper mortgage serviceability relative to rents, as in the case of Sydney where property values soared significantly even amid low-interest rates, she explained.

Since February 2020, Sydney dwelling values have increased 15.2 percent, while rents only increased 2.1 percent over the same period.

"The relatively subdued rental growth may be largely due to a loss of rental demand from stalled overseas migration, where Sydney and Melbourne have traditionally been the most popular destination for international arrivals in the country.

"The combination of lower rent growth and very strong dwelling value growth has meant that even fewer properties across Sydney are cheaper to pay down a mortgage than rent, at just 4.9 percent – down from 7.1 percent when the analysis was done with the same assumptions in February 2020,” according to Ms. Owen.

To buy or to rent?

But just because mortgage costs are cheaper than rents in certain areas, doesn’t mean people are actually rushing in to buy there, Ms. Owen said.

In fact, areas like regional Northern Territory and outback Western Australia, for example – where the proportion of properties cheaper to buy is among the top five across Australia – are seeing higher rental demand, particularly for accommodation that suits a more transitory lifestyle, like properties near FIFO mine sites, she explained.

This dynamic is also echoed – albeit to a lesser extent – across larger, east coast cities.

"The regions where rent payments are more likely to outstrip mortgage repayments generally reflect lower socio-economic areas within a city, where the property is not as expensive, but there is demand pressure on rental markets.

"This could be because of affordability constraints on barriers to entry around home ownership, such as a deposit hurdle, professional services, or stamp duty payments,” Ms. Owen flagged.

In spite of affordability constraints, the researcher has expressed the belief that there’s still, potential opportunities arising for first-time buyers across the country.

"The analysis is a good reminder for renters to weigh up housing costs and savings, to see if it is time for a change in tenure,” she concluded.

Article Source:smartpropertyinvestment.com.au

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Jason Gwerder
Wednesday, 21 July 2021

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