When looking to find a home to call your own, it always seems to come down to the debate between renting vs buying; whether it is for your financial and personal security, for the short or long term or otherwise, which is better?
In Australia, both renting a home and buying one have their pros and cons. The choice that works best for you and your current circumstances may not be the same as the next person, making it difficult for you to get a clear answer. While buying will ensure that you are investing in a long term asset of your own, renting might be the right decision if you want flexibility, or a solution that is more suitable in the short term.
Buying vs renting: The factors to consider
There are several factors to consider before choosing whether you want to rent or buy, with a full understanding of your current financial and personal situation perhaps being the most vital. The factors you should consider when making your decision include:
- Your available finances, as well as how much you are willing to pay
- What kind of property you would ideally like, and what facilities are must have’s
- What your long term savings goals look like
- The location and convenience of your residence
- The agreements available for your tenancy or home loan
- The condition of the property and if changes can be made
- Whether or not pets are allowed to live there
- If there is there parking available
- If there are any extra costs
- If you can negotiate with the landlord or property manager
However, you should also be aware that your lifestyle or finances have the protentional to change in the future. Lengthy commitments may result in a conflict of interest if these changes occur, so having a plan for your future is also crucial in your decision between buying vs renting.
Buying a home in 2023
If you are looking into buying a home in 2023, you must go into the property market with a full understanding of the advantages and disadvantages of having a property under your name.
While not everyone can afford to buy, it can frequently be a far more cost-effective option than renting. When you buy a property, you are purchasing an asset that will someday be 100% yours, and you will be able to sell it for a large profit if the market allows. You can also create equity in the property, which will provide you a significant edge if you ever want to buy another house or borrow money.
It is hard to tell how the market is going to shape out in the future, and your own personal situation is a crucial consideration when determining if it is feasible to buy a home.
Advantages of buying a home
Homeownership generates plenty of excitement, as having your own home is seen as a significant success in life, and is a goal that plenty desire to achieve. The advantages of buying your own home can be incredibly beneficial.
Such advantages include:
- Stability and ownership
- Freedom to change the property
- Increase in house prices over time
- Ability to rent out your home
- Home equity
- Government incentives are available to assist you in purchasing a home
- Improving credit score
Stability and ownership
Owning your home may involve some financial stress throughout the buying process, but many find it worth it to have a sense of stability. When you have home ownership, you can choose how long you want to live there and do not have to worry about someone raising the rent on you. You can even have a strong sense of control over your mortgage repayments by choosing what kind of loan you want: fixed, variable or split.
Freedom to change the property
With ownership of your home comes the freedom to make changes and improvements wherever you see fit. You can renovate the whole property and landscape its surroundings according to your vision of an ideal home, with no need to worry about breaching a rental agreement. The only restrictions you have are those around safety, potential council restrictions, and some body corporate restrictions if you are living in a townhouse or apartment.
Increase in house prices over time
You may find your home’s value increasing over time, with the extent of this increase depending on what kind of home you have bought, and the property prices in your local market. If you are ever interested in selling your home or investment property, waiting until its value is high enough is a sure way of getting the full advantage of owning a property.
Ability to rent out your home
You do not necessarily have to live in the house that you have bought. Many people choose to buy a home as an investment property, which is rented out to tenants as a means of paying off the mortgage without taking money from your pocket. Otherwise, you can choose to rent out your home in case you wish to move to a new suburb, allowing you to retain the property as an investment, or for future use.
Government incentives
For those looking to buy a house, particularly if you are a first home buyer, there are various government incentives available to help you acquire the property of your choice.
These grants provide home buyers with a safety net and incentive to buy their own property. Most of the time they alleviate the pressure of a huge deposit, but others may provide alternate opportunities to save.
Some examples of first home buyers grants provided by Homestar are:
Can use home equity
Making regular mortgage repayments helps you to build equity in your home. Equity refers to the proportion of the house that you own, which can then in turn be used as funds. This equity can be used to cover renovation costs, or even be invested in shares; its usage does not have much of a limit.
Improving credit score
With every payment you make towards your home loan, you are not only paying off your debt, but also improving your credit score. Renting a home does not influence your credit score at all, which can make it hard to recover from bad credit.
Disadvantages of buying a home
- Several expensive costs
- Long-term debt
- Commitment means limited freedom
Several expensive costs
Many first-home buyers may make the mistake of only considering how much is needed for a house deposit. However, the cost of buying and maintaining a house does not stop at your initial down payment. You will also have to pay regular mortgage payments and interest rates to pay off your loan, as most Australians are unable to afford a house outright. You will also need to initially cover fees such as:
- Stamp duty
- Conveyancing costs
- Loan establishment fees
- Government fees
These costs can add up fairly quickly. Defaulting on a loan means your house may be repossessed, so it is important to keep up with your home loan and any additional costs. Including, those that come with keeping your home running, which can include costs such as:
- Body corporate fees
- Council rates
- Water and home insurance costs
- Repairs and maintenance
- Depreciation
If you are looking to buy a home, it is important to save for more than just your deposit. For first-home buyers, grants are available for both existing and established homes to make the process less stressful on your wallet.
Long-term debt
Taking out home loans means attaching yourself to long-term debt. For most homeowners, the average length of their mortgage is 30 years, showing just how much of a commitment buying a home is. You cannot choose to stop paying and move away like a rental, so you must be prepared to undertake this debt.
Long-term commitment means limited freedom
While many can afford to move to a new suburb and rent while simultaneously renting out their home as a property investment, many do not have this freedom. Instead, buying a home means committing to not only the property but also the suburb around it. This means any changes to job or school locations can make the property’s location inconvenient, which can be more difficult to amend when you are still paying off your mortgage.
Renting a home in 2023
It has become noticeably more difficult for Australians to find new rentals in 2023, with only 1.4% of Sydney rental accommodation available for lease at the end of November 2022; around half of the supply available at the same time the year before. With only roughly 10,000 rental properties on the market in Sydney, this paints a grim picture of Australia’s overall property rental market.
With this being said, there are a number of advantages to renting:
The advantages of renting
When it comes to renting, the greatest advantages include:
- Potentially lower costs than mortgage repayments on a similar property, and the amount can be shared with housemates
- No need to pay for maintenance, rates or body corporate fees as this is the responsibility of the landlord
- There is no debt from a mortgage to worry about
- You have the flexibility to move at any time (provided that potential fees are paid)
- There is no need to save up for a home loan deposit
- You do not need to spend time looking for a suitable home loan
Costs
Renting can sometimes be more affordable than paying off a mortgage (in the short term), particularly as you are not incurring debt when signing a rental agreement. You are likely to pay less monthly than regular mortgage repayments even if it is on the same kind of property. This lack of long-term financial obligation means that not only can you save money, but any money you have can be spent without fear of missing out on expedited repayments.
You are also not required to pay a significant down payment on the property, with most rental agreements requiring a few weeks of rent as a deposit.
For those looking to save even more, you can also choose to rent with a partner or several housemates. This grants you access to larger and more expensive properties, as the total costs of rent and bills alike are split evenly amongst several parties.
No responsibility
Any property that you rent is under the ownership and therefore jurisdiction of a landlord. When considered from a positive angle, this lack of home ownership means that you have no responsibility for maintenance and repair costs. This also means you do not have to worry about scheduling any professionals to look at the house or consider what is necessary for renovation.
This lack of responsibility extends to paying council rates or body corporate fees, which are also covered by the landlord.
Flexibility
When renting a home, you can negotiate for a rental term that suits you and your plans best. This allows you the flexibility to move wherever you would like at any time, although you will still need to pay for the cost of breaking a rental agreement.
Furthermore, when looking for a house to rent, you simply need to find a property that suits your needs and budget. When it comes to buying a property, you will need to spend time finding a home loan that suits you. These contracts are intended for long-term repayments, meaning there is less flexibility in moving.
The disadvantages of renting
With every high comes a low, and rental properties are no different. In the debate of buying vs renting, you must also consider the disadvantages of renting to make an informed decision. Some of the main disadvantages of renting include:
- The cost of renting a home may be more expensive
- Rental payments being considered dead money and never-ending in costs; unlike your mortgage repayments
- No chance to personalise your living situation
- Your landlord decides on everything about the property, including increasing the rent or evicting you
- You may not be able to keep pets
- There is a lack of financial and personal security due to the impermanence of leases
- There is no investment potential
Potentially more expensive
With current rent prices being at a high right now, the overall cost of renting may be more expensive than buying a house in some cases. This applies to long-term rentals and home loan repayments. For example, paying $500 a week in rent, which is $26,000 a year, is almost equivalent to loan repayments on a $530,000 (30 year) mortgage. There is no clear indication of saving in this situation.
Many also consider rental payments to be dead money, which refers to the fact that these payments are not an investment for you, only your landlord. Additionally, unlike mortgage payments, a lifetime spent renting means that there is no end to your property payments. With a home loan, once your mortgage has been paid off, you will not be required to continue paying interest rates or home loans.
Limited Freedom
A rental property belongs to a landlord, which means that any changes to its appearance or structure can only be done by the landlord in question. Many people find this to be stifling, with no chance to paint or renovate making them resent the walls around them. There are ways to get around this lack of creative freedom, however, as self-adhesive hooks and rugs exist to brighten up spaces without leaving permanent marks.
You may also not have the freedom to have pets living with you in your rental property. Landlords can make it a rule that pets are not allowed to be kept on the premises, which can narrow your living situation options if you happen to have a furry friend.
Lack of Security
Without home ownership, you not only have no say in the design of the property, but you are also subject to any choices your landlord makes. They can decide without consulting you to raise the price of rent, or even forgo renewing your lease when the term ends. Renting can mean a lack of security, which makes people wary of signing onto an inconsiderate landlord.
No investment Potential
For landlords, the homes they place on the rental market are a means of generating rental income; which can add up if they have one or more of these investment properties. For you as a renter, however, there is no investment potential in your weekly or monthly rental payments. Rather, this rent money only aids your landlord in the long run.
Should I rent or buy a house?
When it comes to the age-old question of buying vs renting a home, there is no single answer suited for everyone. Which option is best for you is determined by:
- Your personal and financial situation
- What kind of properties are available in your intended suburb
- How capable you are in dealing with the disadvantages of either property ownership or renting.
Despite the importance of these personal factors, the state of Australia’s property markets does have a lot of influence over which option is best at any time.
As of October 2022, buying a house is cheaper than renting in 518 suburbs across the country. This indicates the necessity of researching the local market where you intend to live, as you can never be sure whether buying or renting a home is cheaper for you. For those who are lucky enough to be interested in one of these 518 suburbs, it would seem that the best choice is buying over renting. However, this does not apply to every suburb in Australia, nor every personal situation. Conversely, if renting is cheaper than buying a house in your suburb, you’ll be paying off someone else’s mortgage rather than your own.
To get you started on the necessary research for answering the question of rent or buy, we have provided answers to key questions and research areas below.
Where is it cheaper to rent than buy in Australia?
When it comes to several of Australia’s major cities, it is sometimes cheaper to rent rather than buy.
The top 5 cheapest suburbs to rent a house (relative to buying one) in the greater region around each of these major cities include:
Sydney
- Watsons Bay
- Whale Beach
- Darling Point
- Badgerys Creek
- Bringelly
Melbourne
- Main Ridge
- Merrick North
- Toorak
- Kerrie
- Deepdene
Brisbane
- Teneriffe
- New Farm
- Burbank
- Chandler
- St Lucia
Where is it cheaper to buy than rent in Australia?
There are numerous areas in Australia where it is cheaper to buy than rent.
For those interested in moving somewhere more rural, it is cheaper to buy a house in nearly a quarter of the suburbs, and a whopping 44.3% of suburbs for units. Beyond these regional areas, homeowners can find success in the major cities of Perth and Darwin.
If you are interested in living in cities like Sydney, Melbourne and Brisbane, there are also suburbs available that have homes at a cheaper price to buy rather than rent. The top 5 suburbs include:
Sydney
- Spencer
- Gunderman
- Great Mackerel Beach
- Bateau Bay
- Bar Point
Melbourne
- Bangholme
- Longwarry
- Maddingley
- Melton South
- Melton
Brisbane
- Jimna
- Toogoolawah
- Laidley
- College View
- Esk
Current market conditions and reduced borrowing capacity
When it comes to current market conditions, Australians have been experiencing difficulties in matching current interest rates for their bought homes. The rate rises have resulted in serious budget slashes, reducing the borrowing capacity of many Australians.
This drop in budget, however, is not only affecting those looking to buy a new home, but also for those looking into selling property. House values have begun to fall alongside borrowing capacities, meaning that many homeowners are opting to delay selling their property until the market value rises once more.
Your personal circumstances
The debate on buying vs renting does not solely rely on your financial and personal security, but also on your current and future personal circumstances. When looking for a place that is right for you, some personal circumstances to consider are:
- How long are you intending on living in the area?
- How conveniently placed is the building to work, grocery stores, schools, etc?
- Do you have children and, if so, does the environment suit them?
- Does the building allow pets?
- Are you looking for a renovation project?
- How big is your budget?
- Is your credit good enough for a loan?
- Are you looking for property investment?
By considering your circumstances and how they are likely to change in the future, you are more capable of making an informed decision that suits you best.
Buying vs renting calculator Australia
To help determine whether buying or renting a home is better for your finances, you can choose to use a rent vs buy calculator to compare options. By considering factors like your financial position, as well as the estimated costs for renting or buying, home loan specialists like Homestar Finance can calculate how much you can save across 30 years.
If you’re ready to make the leap from renting to owning a home, you’ll need to find a mortgage with reasonable monthly payments. For both owner-occupiers and investors, Homestar offers a variety of home loans with some of the lowest interest rates on the market. Or, get in touch with one of our home loan specialists.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
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Understanding more about renting vs buying
Is there a difference between a house and a home?
While there is no set physical difference between a house and a home, there is a strong philosophical difference.
A House solely refers to a building someone lives in, differing from other household structures by usually being a stand-alone.
In contrast, home refers to any building or location where someone lives and feels like they belong; this applies not only to houses, but also apartments, flats, condos, etc.
Rental vs lease: What is the difference?
Rental refers to the process of a tenant paying a landlord a set amount on a regular schedule to live in their property.
Alternatively, a lease is a kind of contract that allows someone to use a building for a legally-binding amount of time in return for regular payments.
Rent vs mortgage repayments
Mortgage repayments exist as a means of repaying the debt owed by borrowing the principal from a lender. They are paid on a schedule and are usually calculated by the lender’s interest rate and the remaining principal owed.
Unlike loan repayments, tenants have to pay a set amount of money known as rent to a landlord on an agreed schedule; any changes to the rent have to follow the law and require advance notice.
What is renting to own?
Also known as a rental purchase or rent-to-buy, renting to own is where a property is leased for weekly or monthly payments with the intent of the tenant purchasing the building at some point.
What is buying to rent or rentvesting?
Buying to rent, sometimes referred to as rentvesting, involves buying an investment property that you can afford, and then renting in a location that suits your lifestyle. In this case, the property is purchased as an investment; rather than living in the property, the landlord will rent out the property in order to receive rental payments that cover mortgage repayments.
