nt vs sydeny
Cheaper to buy in regional NT, but not in Sydney. Image – Canva.
  • Servicing mortgage repayments is cheaper than renting on 36.3% of properties
  • In the combined capital cities this figure is 26.2%
  • Cheapest place to purchase than rent is the Northern Territory at 96.4%

Servicing mortgage repayments is now cheaper than paying rent on 36.3% of Australian property, according to analysis conducted by CoreLogic.

This is higher than the pre-covid proportion of 33.9% reported in February 2020.

Interestingly, only just over a quarter of properties in the combined capital cities are cheaper to buy than rent (26.2% versus 73.8%) but in the combined regional markets the reverse is true – 60.1% of properties are cheaper to buy than rent.

The cheapest place to buy than rent is regional Northern Territory (96.4%), the most expensive is Sydney where just 4.9% are cheaper to buy than rent.

The analysis was calculated by assuming a mortgage of an 80% loan to valuation ratio at an interest rate of 2.4% (the average new lending rate for owner-occupiers) for a 25-year loan. In February 2020, the average new mortgage rate for owner-occupiers was 3.21%.

“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,” explained Eliza Owen of CoreLogic.

However, Ms Owen noted that reduced interest costs have not led to cheaper mortgages in relation to rents in every instance.

For example, thanks to property price growth in Sydney, loan principals have outpaced the level of growth in rents. Since February last year, dwelling values in Sydney have risen by 15.2%, by contrast, rents have increased by only 2.1%.

“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.”

Eliza Owen, CoreLogic

Portion of properties cheaper to rent or buy

corelogic rent vs buy
Source – CoreLogic

While an area that sees cheaper mortgage rates may seem appealing to buyers, it does not necessarily mean people will want to buy there. Ms Owen refers to regional and outback Northern Territory and Western Australia as two examples.

“Rental costs tend to be higher in these regions, because accommodation that suits a more transitory lifestyle would likely be in higher demand – for example, in proximity to FIFO mine sites,” she added.

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

Ms Owen said this could be due to affordability constraints, such as saving for a deposit or stamp duty. However, she concluded by remarking that the low-interest-rate environment better serves much of 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.”

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