Buying your own home is described as “the great Australian dream”, but it isn't always a better option than renting.
While not everyone can afford to enter the housing market, there are those who have a choice: Do I continue to rent, or do I buy a property of my own? If you’re in this position, you should be aware that there are benefits to both renting and buying.
Here’s some useful information to help you determine if renting or buying is right for your lifestyle. As we’ll show you, homeownership is much more beneficial to your long-term wellbeing than renting.
Not sure whether you should be committing to a mortgage? Let's take a look at some of the pros and cons involved with renting a house and buying property:
Pros to renting :
Renting can be cheaper closer to the city, affordability is the key reason people choose to rent over buying
There are fewer upfront costs to rent
Finding a rental is usually easier, and can be more flexible in terms of where to live
Renting is less of a commitment, and you can spread the costs with housemates
Maintaining the property is usually the landlord’s problem
Cons to renting:
Renting can also be more expensive, which can be considered dead money
There’s no asset growth in renting - you’re paying for someone else’s
There’s less security or certainty in renting, as your lease can end at the landlord’s discretion
The property isn’t yours, so you can’t make any improvements or renovations without permission
You have to deal with inspections and landlord/agent requests
Pros to buying a house:
The home is an asset for your future, potentially gaining value through capital gains
Home equity is a powerful tool to have at your disposal
The house is yours - no landlord can dictate what you can do with it - so you can renovate to your hearts content
Some mortgages are cheaper than renting, depending on the area
Buying a home gives you a degree of certainty and security
There are government grants to help you buy a home
Con of buying a home:
The upfront costs are big: Add an extra 6% of the purchase price to the deposit to account for extra bank and government fees (says the Reserve Bank), plus ongoing costs as well
The mortgage can be a big financial commitment: Renters can move around more
You can have the house repossessed if you default on the loan
The home can decrease in value
- Maintenance expenses
Renting can be beneficial for a number of ways: It can be less restrictive, less of a commitment and it can be cheaper sometimes, making it the more affordable option.
For people who like to move around or don’t need as much security, renting can be ideal. When renting, you don’t need to commit to a 30-year mortgage like you do when buying a house, nor do you have to pay tens of thousands for a deposit.
At the end of the lease, you can choose to renew it or you can simply move to a different property. This can also make it less restrictive and allows for greater freedom, as you can sometimes select from a greater range of properties in lots of different areas when renting. But there are downsides to this.
While not everyone can afford to buy, it can often be a much more financially beneficial method compared to renting. When buying a house you own it - you are paying for an asset that will eventually be 100% yours, and when the time comes you can sell it for a big profit if the market allows. You can also build equity in the property, which gives you a huge advantage should you want to buy another property or draw down on those funds.
Buying a property also gives you much more freedom and security. As the homeowner, you can do what you like with it (pending council restrictions), and aren’t at the mercy of a landlord.
For example, you can choose to renovate the property, which a tenant can’t do most of the time. You also aren’t on a lease, which means there’s no one to evict you from the property as long as you keep paying your mortgage.
The security and comfort of being a homeowner can benefit certain groups of people, like those starting a family. If you want to settle your roots somewhere with a nice backyard and a picket fence, buying the property instead of renting it is generally a much safer and financially beneficial thing to do.
Both renting and buying can have smaller ongoing repayments. It just depends on the property, your home loan and the area you’re living in. A CoreLogic report Australia-wide meanwhile found one in three (32.9%) Australian suburbs recorded lower monthly mortgage repayments than rental payments for houses and almost 40% (37.7%) for apartments.
That’s based on a principal and interest (P&I) variable rate of 3.65% p.a: Those with a fixed 2.35% p.a loan for three years were better off buying (52.2% of houses, 59% of apartments).
These numbers are also much higher for regional towns and cities compared to capital cities, so while renting can be cheaper in the big cities, it’s often cheaper to own a place when you look outside the CBD areas.
You also need to consider where that money is going: You might be paying a bit extra when owning vs renting, but that money is going towards owning a major asset for life. Renters are just paying for someone else’s.
You can also save by owning over renting if you get a cheap home loan interest rate.
If you’re ready to take the plunge and move from renting to homeownership, then you’ll need affordable mortgage repayments. After all, more than 1.5 million Aussies are currently experiencing mortgage stress, which is when 30% or more of their take-home pay is spent on paying household bills.
To avoid spending so much on your home, a home loan with a low interest rate and low ongoing fees is crucial. loans.com.au offers a range of home loans with some of the lowest interest rates on the market for both owner-occupiers and investors.
Use our home loan repayments calculator to work out how much one of these low-rate loans would cost you each month, and speak to a friendly lending specialist for more information on how these loans can help you.
HOME LOAN REPAYMENT CALCULATOR