Having a mortgage
is even more likely to be cheaper than renting than it was pre-pandemic, new
research has revealed.
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.
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
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.
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.
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.
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.
2020, Sydney dwelling values have increased 15.2 percent, while rents only
increased 2.1 percent over the same period.
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
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.
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Wednesday, 21 July 2021