Where paying a mortgage is cheaper than renting

The number of properties where it makes better financial sense to buy rather than rent is on the rise, thanks to record-low rates.

The number of properties that are cheaper to buy is on the rise, although not in Sydney, where this home recently sold. Picture: Joel Carrett

Record low interest rates are behind a rise in the number of properties across Australia where it’s cheaper to pay off a mortgage than rent.

New data from property researcher CoreLogic shows the number of properties across the country that are cheaper to own than lease has risen in 2021 to 36.3 per cent, from 33.9 per cent before the pandemic.

The trend is particularly evident in regional Australia, where the proportion of properties where it’s less expensive to pay a mortgage sits around 60 per cent, compared to just a quarter of capital cities dwellings.

The change is a reflection of much lower interest costs on mortgage debt since the onset of the pandemic, said CoreLogic’s head of research Eliza Owen.

Reserve Bank of Australia figures show average new mortgage rates for owner-occupiers have fallen from 3.21 per cent in February 2020 to 2.4 per cent as of May.

“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,” Ms Owen said.

“However, reduced interest costs have not led to cheaper mortgage serviceability relative to rents in every instance.”

The low interest rate environment is still conducive to better serviceability in many parts of the country, with Ms Owen adding the analysis is a good reminder for renters to weigh up housing costs and savings.

She added that lower socio-economic areas in regional areas where property is cheaper and under pressure from housing tenants are more likely to have rents outstripping mortgage repayments.

The combination of lower rent growth and very strong dwelling value growth has meant that even fewer properties across Sydney are cheaper to pay off than rent. The proportion of properties has fallen from 7.1 per cent in February 2020 to just 4.9 per cent in June. Melbourne was also in the single digits, with only 7.3 per cent of properties cheaper to buy than rent.

Renters hoping to benefit from joining the property ladder have a better chance in the smaller capital cities. In Darwin, more than 86.5 per cent of homes are cheaper to own. This is also true for more than half of properties in Perth (56.9 per cent), Brisbane (55.3 per cent) and Hobart (50.2 per cent). Rising buying and rental prices are having a greater impact in Adelaide and the ACT, where it is cheaper to buy a respective 47.4 per cent and 43.6 per cent of homes.

All the data is based on the assumption buyers have provided a full 20 per cent deposit and have borrowed on the average owner-occupier interest rate of 2.4 per cent over 25 years. The loan value is based on the individual property value estimates by CoreLogic, as are rental payment figures.