When it comes to renting vs. buying, how can you know which is best for you?
Although owning a home is referred to as “the great Australian dream,” it is not necessarily a better alternative than renting.
While not everyone can afford to enter the housing market, some people are faced with a decision: should I continue to rent or do I buy a home? If you’re in this situation, you should know that both renting and buying have advantages.
Here’s some information to help you decide whether renting or buying is better for you. Ownership might be far more helpful to your long-term well-being than renting, as we’ll show you in this article:
When is it better to rent rather than buy?
Renting has a lot of advantages: it is less limiting, requires less commitment, and is sometimes less expensive, making it the more affordable option. Renting is a good option for folks who want to travel around and don’t require as much security. You don’t have to commit to a 30-year mortgage when renting a home, nor do you have to spend tens of thousands of dollars as a deposit.
You have the option of renewing your lease or simply moving to another property at the conclusion of your current one. This can also make it less confining and allow for more freedom, as renting allows you to choose from a wider range of properties in a variety of locations. However, there are drawbacks to this.
When is buying better than renting?
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.
Purchasing a home also provides you with a lot more flexibility and security. You are not at the mercy of a landlord as a homeowner, and you can do whatever you want with it (subject to council limits). You can, for example, refurbish the property, which is something that most tenants are unable to accomplish.
You’re also not on a lease, which means that as long as you keep paying your mortgage, no one can evict you.
Certain groups of people, such as those starting a family, may benefit from the security and comfort of owning a home. If you want to put down roots somewhere with a gorgeous backyard and a picket fence, buying rather than renting is often a safer and more financially advantageous option.
Rent vs buying a house: Pros and cons
The benefits and drawbacks of renting and buying a home are summarised below:
- Renting is less of a commitment, and you can divide the costs with housemates
- Finding a rental is usually easier, and you can be more flexible in terms of where you live
- Renting is less of a commitment, and you can spread the costs with housemates
- Keeping the property in good repair is normally the responsibility of the landlord.
- There is no asset growth in renting – you’re paying for someone else’s
- There is less security in renting, as your lease can end at the landlord’s discretion
- The property isn’t yours, so you can’t make any improvements without permission
- You have to deal with inspections and landlord/agent requests
Buying a house
- The house is yours – no landlord may control what you can do with it
- Some mortgages are cheaper than renting, depending on the location
- Buying a home offers you a sense of stability and security
- Government incentives are available to assist you in purchasing a home
- The mortgage might be a large financial commitment: Add an extra 6% of the purchase price to the deposit to account for additional bank and government fees (says the Reserve Bank), as well as continuing charges. Renters have more freedom to move around.
- If you default on the loan, the house may be repossessed;
- The home’s value may decline.
Renting vs buying: Which is cheaper?
Renting and owning might both have lower monthly payments. It all depends on the property, your mortgage, and the neighbourhood you live in. Meanwhile, a 2021 analysis found that one in every three (32.9%) Australian areas had cheaper monthly mortgage repayments than rental payments for houses, and nearly 40% (37.7%) for apartments. That’s based on a variable 3.65 percent p.a. principal and interest rate: Those with a fixed 2.35 percent p.a. loan for three years were better off buying (52.2 percent of houses, 59 percent of apartments).
These figures are also substantially higher in rural towns and cities than in capital cities, indicating that while renting in big cities can be cheaper, owning a home outside of the CBD regions is generally cheaper. You should also think about where that money is going: When you buy rather than rent, you may spend a little more, but that money goes towards owning a big asset for the rest of your life. Renters are simply paying for the use of someone else’s property.
If you acquire a low house loan interest rate, you can also save money by buying rather than renting.
Get affordable mortgage repayments with Homestar Finance
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. After all, more than 1.5 million Australians are currently under mortgage stress, defined as spending 30% or more of their take-home pay on paying household obligations.
A house loan with a low interest rate and low continuing costs is essential to prevent overspending on your home. For both owner-occupiers and investors, Homestar offers a variety of home loans with some of the lowest interest rates on the market.
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.