Is it cheaper to rent or buy?
PROPERTY’S AGE-OLD QUESTION
NEW analysis shows it is cheaper to rent than pay off a mortgage in most Geelong suburbs, but industry figures say it does not take into account everything potential buyers need to consider.
The analysis from Finder is based on median asking rents and monthly repayments on a house or unit bought at the suburb’s median price with a 20 per cent deposit on a 30year loan with an average 3.6 per cent interest rate.
It found units in South Geelong and Bell Post Hill were cheaper to buy, while the difference was less than $100 a month for units in Whittington, Norlane, North Geelong, Hamlyn Heights and St Albans Park, where renting was cheaper.
The closest house market was Corio, where renting was $229 cheaper per month.
The gap widens to more than $1000 a month in popular suburbs such as Geelong West, Highton and Newtown.
Fast-rising rents and the uncertainty in finding a rental property amid record low vacancy rates has encouraged more to look for different ways to buy and pay down a mortgage.
Harcourts North Geelong agent Joe Grgic said property created wealth for owners through capital growth over time.
Mr Grgic said homes with fewer bedrooms or bathrooms and whether they were renovated also impacted affordability.
He said rent-vesting was becoming more prevalent, where people rented in expensive suburbs but bought where they could afford and paid it off using the rental income.
“It’s also a clever way that people can get in, but they do miss out on a lot of government support for firsthome buyers,” Mr Grgic said. Low vacancy rates had placed phenomenal pressure on rent prices as more people searched for a home, he said.
“Ours is less than 0.4 per cent at the moment,” he said.
“At the start of the pandemic to rent a property out over $400 a week was a good rental. Now we are consistently renting properties out for $500, $600-plus a week. That’s significant.”
Mr Grgic said the major parties were looking to boost financial support to help first-home buyers break into the market, while interest rates, despite rising, were historically low. “The long-term goal gets people ahead and affords them opportunities that they may not have afforded if they are paying rent at the same level,” he said.
“In many cases because rents have gone up, it means they are unable to save.”
Loan Market Geelong broker Liz McRae said people were more budget-conscious since the Reserve Bank raised interest rates last week.
“The conversations I’ve been having since the increase is that people are far more interested in thinking about what the repayments would be if they were paying 4, 4.5 per cent interest rates,” Ms McRae said.
“I have definitely seen people thinking about reining in their expectations a little bit.”
She said the biggest hurdle was getting a deposit and covering stamp duty and legal costs, but people also needed to consider ongoing costs, such as rates and water, property maintenance, which they don’t normally have to pay when renting.
Finder home loans editor Richard Whitten said the challenge for most was being able to save for a deposit.
Mr Whitten said the most effective way to save was to start a budget, pay off any debts and regularly deposit 20-30 per cent of their income into a high-interest savings account, instead of cutting their daily coffee fix.
“So many homebuyers treat their home loan as an afterthought, but your mortgage rate is one of the biggest factors determining how much you’ll pay month to month,” he said.