There are 286 suburbs where it’s cheaper to buy than rent

There are between 238 and 1,759 suburbs across Australia where it’s potentially cheaper to buy than rent, according to RP Data research.

Queensland and NSW dominate the comprehensive list, as do regions over capital city suburbs.

It’s the outcome of home values being 5.9% lower than their previous highs and rental rates having continued to increase across most regions of the country.

“With capital city dwelling values almost 6% lower than when they peaked back in October 2010, discounted variable mortgage rates 100 basis points lower from their 2011 peak and fixed mortgage rates 160 basis points lower, many renters and prospective home buyers are likely to be doing their sums to work out whether it is better for them to pay a mortgage or pay a landlord,” Tim Lawless, RP Data national research director, says.

Lawless notes that lower interest rates will not only further improve home loan affordability but also potentially attract more buyers into the housing market.

“For those that are renting, any further cuts to mortgage rates will make the cost of a mortgage more affordable and will further improve the relative comparison between the cost of buying and the cost of renting,” he says.

For the full list of all suburbs, visit RP Data’s website.

The analysis looks at the results across four scenarios, specifically:

1. Servicing a principal and interest loan on a variable mortgage rate;
2. Servicing an interest only loan on a variable mortgage rate;
3. Servicing a principal and interest loan on a three year fixed mortgage rate; and
4. Servicing an interest only loan on a three year fixed mortgage rate

Lawless says the benefit of using these different scenarios is that it highlights to potential purchasers the different options that are available when contemplating purchasing a property and taking on a mortgage.

“It also highlights the differences in results when choosing different types of loan products.”

The report concluded that it is currently cheaper to buy than rent:

1. Servicing a principal and interest loan on a variable mortgage rate in 238 suburbs;
2. Servicing an interest-only loan on a variable mortgage rate in 1,320 suburbs;
3. Servicing a principal and interest loan on a three year fixed mortgage rate in 328 suburbs; and
4. Servicing an interest-only loan on a three year fixed mortgage rate in 1,759 suburbs.

RP Data stressed it was important to note that interest only loans may not be appropriate for all borrowers because of the risks associated with the non‐repayment of the loan principal during the interest only period.

The analysis included seven key assumptions:

1. A loan to value ratio (LVR) of 90% which means that the purchaser is borrowing 90% of the value of the home (i.e. they have a 10% deposit).
2. A variable mortgage rate of 6.15% per annum.
3. A three year fixed mortgage rate of 5.9% per annum.
4. The loan period is 30 years.
5. The repayment schedule is monthly.
6. The principal is calculated based on the suburb’s median house and unit value as at June 2012.
7. Rental costs are based on the median weekly advertised rental rate across the suburb over the past 12 months to June 2012

Lawless also notes the analysis did not provide consideration for costs associated with either home ownership or renting such as:

1. Maintenance
2. Council rates
3. Electricity
4. Water and sewerage
5. Land tax
6. Body corporate levies
7. Stamp duty
8. Legal and conveyancing fees

 

For the full list of all suburbs, visit RP Data’s website.