Rent getting too expensive: Is it time to buy

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There is no doubt that owning your home is the dream of every Australian, but it isn’t always better than renting.

Although not everyone can afford to enter the housing market, there are those who have the choice: do I continue to rent, or do I buy my own home? Both renting and buying have benefits if you’re in this position.

Here are some tips to help you decide if renting or buying is right for you. Renting may be an option in the short term, but homeownership is much more beneficial for your long-term wellbeing.

Having trouble committing to a mortgage? Here are some pros and cons of renting and owning homes:

Benefits and drawbacks of renting

There are several benefits to renting:

  • Affordability is the main reason people choose to rent rather than buy closer to the city
  • The upfront costs of renting are lower
  • Rentals are usually easier to find, and can be more flexible in terms of location
  • Having a housemate to share the costs makes renting less of a commitment
  • Landlords are typically responsible for maintaining their properties

Here are some cons of renting:

  • Renting can also be more expensive, so it may be considered a waste of money
  • Rental properties don’t increase in value – you’re paying for someone else’s
  • The landlord can end your lease at any time, so renting lacks security or certainty
  • Due to the fact that the property is not yours, you cannot make any improvements or renovations
  • Inspections and landlord/agent requests are part of the process

Pros and cons of buying a house

The pros of buying a house include: 

  • Capital gains may increase the value of your home in the future
  • Having home equity at your disposal is a powerful tool
  • It’s your house – your landlord won’t be able to tell you what to do with it, so go ahead and renovate 
  • In some areas, mortgages are cheaper than renting
  • Owning a home provides you with security and certainty
  • Homebuyer grants are available from the government

Buying a home has the following cons:

  • There are big upfront costs, including bank and government fees (says the Reserve Bank), plus ongoing costs.
  • In addition to the mortgage being a big financial commitment, renters can move more easily
  • In the event that you default on your loan, the house can be repossessed
  • It is possible for the value of the home to decrease
  • The cost of maintenance

Need help understanding your borrowing Capacity?

Talk to one of our friendly consultants and we can assist you in understand your borrowing capacity, loan repayments and a cost benefit analysis with Renting vs Buying your Own house.

What is the best time to rent rather than buy?

A rental property can be beneficial for a number of reasons: It can be less restrictive, less of a commitment, and sometimes cheaper, making it a more affordable option.

The rental market can be ideal for people who like to move around or don’t need as much security. Unlike buying a house, renting requires no 30-year mortgage or tens of thousands of dollars for a deposit.

A lease can be renewed or you can move to a new property at the end of the term. Additionally, renting can be less restrictive and allow for greater freedom, since you can often choose from a broader range of properties in different areas. But there are downsides to this.

What is the best time to buy rather than rent?

While not everyone can afford to buy, it can often be a more financially advantageous option than renting. At the end of the transaction, you will own the house 100%, and you will be able to sell it for a profit if the market allows. The equity in your property can be used to purchase another property or to borrow against it.

A property also provides greater freedom and security. As a homeowner (pending council restrictions), you are not at the mercy of a landlord.

It is also possible to renovate the property, which is something a tenant cannot usually do. As long as you keep paying your mortgage, you won’t be evicted from the property.

Some groups of people, like those starting a family, benefit from the security and comfort of being a homeowner. If you’re looking to settle down somewhere with a nice yard and a picket fence, buying the property instead of renting it is generally a safer and more economical choice.

What is the cost difference between renting and buying?

It is possible to have smaller monthly payments by renting or buying. Your home loan, property, and area all play a role. One in three Australian suburbs (32.9%) recorded lower mortgage repayments than rental payments for houses, and almost 40% for apartments (37.7%).

Based on a variable P&I rate of 3.65% p.a., those with fixed 2.35% p.a. loans for three years would be better off buying (52.2% of houses, 59% of apartments).

There are also much higher numbers for regional towns and cities than for capital cities, so while it’s sometimes cheaper to rent in big cities, it’s often cheaper to own outside of the CBD.

Owning vs. renting might cost you a bit more, but the money will go towards owning a major asset that you will own for the rest of your life. The renter is simply paying for the goods and services of others.

A cheap home loan interest rate can also save you money if you own rather than rent.

Affordably repay your mortgage with Finance Valley Group

Affordable mortgage repayments are essential if you’re considering moving from renting to homeownership. In Australia, more than 1.5 million people are currently suffering from mortgage stress, which is when 30% or more of their take-home pay goes toward household expenses.

In order to avoid spending so much on your home, you need a home loan with a low interest rate and low ongoing fees. Whether you’re an owner-occupier or an investor, offers some of the lowest interest rates on the market.

Find out how much one of these low-rate loans would cost you each month using our home loan repayments calculator, and contact a lending specialist for more information.

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