With interest rates at all time lows, you’d be forgiven for thinking that investors would have caused an increase in the supply of rental accommodation. But that just isn’t so.
According to Housing Industry Association senior economist, Shane Garrett it is actually cheaper to buy a home than to rent at present.
In particular, rental prices are growing in both Sydney and Melbourne.
Real Estate Institute of NSW president Malcolm Gunning also agrees that in many cases, “mortgage repayments are cheaper than rental”.
He gave this example to the Financial Review:
“a one-bedroom in inner city Sydney which costs about $700,000. At about a 4 per cent fixed mortgage rate, you pay about $580 a week, but rents in these areas are about $650 to $700.”
So we thought it worth checking out some of the pros and cons of renting compared to owning your home (table courtesy of Aussie Home Loans):
|If the value of the property rises, you may have to pay more in rent||If the value of the property rises, the value of your personal wealth should also increase and you’re more likely to make a profit if you sell it|
|Building maintenance is your landlord’s responsibility||You need to budget for building maintenance and repairs|
|Your rent is fixed for the term of the lease – usually 6 to 12 months||Your repayments may fluctuate – both rising and falling with interest rate changes, however this exposure can be reduced by fixing your home loan interest rate|
|You’re paying off someone else’s mortgage||Your property is likely to be an appreciating asset especially over the long term, and it could even be used as an investment property in the future|
|Your monthly rent payment may be less than mortgage repayments, especially if you’re sharing||Your mortgage repayments may be more than the rent you could pay to live in the same area but paying off a home loan is a form of saving as you are building equity in a valuable asset|
|You don’t have any certainty of tenancy control beyond the term of your rental agreement||The property is yours to live in as long as you want to|
|You have extremely limited options to personalise the property||Generally you can do anything you like with the décor and outdoor areas (subject to council approval), and any improvements are likely to enhance your lifestyle and increase your home’s value|
|Generally you’re not locked into a long-term commitment, other than the term of your lease, and can move out at short notice||It can take longer to sell a property, so you have less freedom to move|
So you can see that renting isn’t always the best option. It might be time to rethink what your options are. You might even decide now is a great time to become a landlord yourself!
And to help you decide, here’s another article that gives some ideas on how younger generations are investing wisely by living at home while buying properties to rent out.