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Mortgage repayments are now cheaper than rent on more than a third of Australian properties, according to new research from CoreLogic.
The data company’s analysis found that servicing a mortgage is less expensive than paying rent on 36.3% of Australian properties, up from the pre-COVID proportion of 33.9%.
CoreLogic made the analysis at the individual property level, using a set of mortgage assumptions and valuation estimates to approximate mortgage payments. Those were then compared with rental estimates at the individual property level.
“Using these estimates of mortgage and rent, the data reveals striking differences in housing costs across different parts of Australia,” said Eliza Owen, head of research at CoreLogic.
Across the combined capital cities, it’s still usually cheaper to rent – it’s only cheaper to service a mortgage on about 26.2% of properties. The reverse is generally true in regional areas, with 60.1% of properties in the combined regions cheaper to buy than rent.
Regional Northern Territory highest proportion of properties where mortgage servicing is cheaper than rent at 96.4%, followed by Darwin at 86.5%.
“The increase in areas where it is cheaper to service a mortgage than to pay rent across Australia, when compared with pre-COVID analysis, is a reflection of much lower interest costs on mortgage debt since the onset of COVID-19,” Owen said. “Average new mortgage rates for owner-occupiers have fallen from 3.21% in February 2020 to 2.40% as of May 2021, according to RBA data. 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.”
However, lower interest rates haven’t led to cheaper mortgage serviceability relative to rents in every case, Owen said. That’s especially true for Sydney, where property values have increased significantly, pushing up loan principals and outstripping the growth in rent prices.
“Since February 2020, Sydney dwelling values have increased 15.2%. Sydney rents only increased 2.1% city-wide in the same period,” Owen said. 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 strong dwelling value growth and slow rent growth means that even fewer properties in Sydney are cheaper to buy than rent – just 4.9%, down from 7.1% when CoreLogic ran the same analysis in February.
Owen said the analysis also demonstrated that just because an area has cheaper mortgage costs than rents doesn’t mean people necessarily want to buy there.
“Regional Northern Territory and Outback Western Australia are prime examples,” she said. “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.”
That dynamic is also at play to a smaller extent in large east coast cities, Owen said. The areas where rent payments are more likely to be more expensive than mortgage payments generally reflect lower socio-economic areas of the city, where property is less expensive but there is demand pressure on rental markets.
“However, the low-interest-rate environment is still conducive to better serviceability in many parts of the country,” Owen said. “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.”
Ryan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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