Where will your mortgage be cheaper than your rent in 2020?

More and more Australians are making the transition from renter to first home buyer in 2020, but all of them are faced with a similar issue: housing affordability. However, increasing housing prices does not mean that interested buyers should opt-out of the market just yet — it just means that they need to get smart.

There are several places throughout the country where it is estimated that your mortgage will be cheaper than your rent in 2020. Corelogic data suggests that more than a third of properties across Australia (33.9%) had estimated mortgage repayments that were less than weekly rental repayments. Almost 20% of these projects were located throughout Queensland, particularly on the Gold Coast and Sunshine Coast.

The portion of properties with cheaper estimated mortgage repayments than rent (from Corelogic)

Portion of properties within capital cities that have cheaper estimated mortgage repayments than rent

At a greater capital city level, Darwin was the region where mortgage serviceability cost less than renting in most cases — 77.6% of Darwin properties have lower estimated mortgage repayments than rental costs. Investors should be eyeing up the real estate in Darwin due to this: after all, who wouldn’t want to have their mortgage payments covered by the rent they bring in, and still have a little extra to put towards a nice dinner or the next investment property?

On the other end of the spectrum, only 7.1% of all Sydney properties have estimated cheaper mortgages than rents. These few Sydney properties are concentrated in areas where high levels of unit supply have suppressed price growth, but there is still plenty of rental demand, such as in Parramatta, Auburn and the Sydney CBD.

The varied dynamics across the cities also have to do with how property values have responded to interest rate reductions. The more property values increase in response to the lower-interest mortgage rate, the more the benefits of a low-interest rate are eroded. In Sydney, for example, a relatively high supply of rental stock has exacerbated the gap between mortgage repayments and rents. Following a round of cash rate reductions from June 2019, Sydney dwelling values shot up 11.2% between June 2019 and January 2020, while Darwin dwellings fell 2.4% in the same period.

The data also highlights areas where rents increase more quickly than property values. For example, rent value growth across Hobart was 5.8% in the year to January, outpacing dwelling market value growth of 5.0%. In some instances, relatively expensive rent payments can be a result of a highly transitory location—such as a mining location, university towns or city CBDs.

Rental markets can face more pressure because residents may prefer renting to owning. But another instance in which residents are dependent on the rental market is where they have no opportunity to buy due to high rental prices leaving little money to save or being priced out of the increasingly competitive housing market.

This article was adapted from one originally published by The Urban Developer. View the original article here.

Written: 30 March 2020

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