18 Mar 14
Potential home buyers have many decisions to make along the journey to settling into their own home. They have to decide on the location and style of home they want, the percentage of their income that can be put into the mortgage and a dozen other considerations. Now, the release of new data has at least confirmed one fact for them and it is a surprising one.
Little Difference in Cost of Renting vs. Buying over a 30-year Period
National figures show that over a 30-year period, there is very little difference between buying a home with a mortgage and renting over the same period of time. Nationally, the median house price is $565,000. Assuming a 10% deposit, the total amount spent servicing the mortgage over 30 years is approximately $1 million. The national median weekly rent is $424 which, over 30 years and assuming an inflation rate of 2.7% per annum, totals around $998,000.
We have always believed that for people who can save a deposit and service a mortgage, home ownership is the way to go. Rent has always been thought of as “dead money” that pays off someone else’s investment asset. For home owners, the last mortgage payment means security and ownership of an asset that has generated a considerable capital gain.
Some People Cannot Afford to Service a Mortgage
However, here at All Residential Real Estate we see both sides of the coin, and we know that there are many factors that influence the choice not to buy but to rent. Some of our tenants are on low incomes and struggle with very tight budgets. While they can and do pay their rent, they do not have the extra financial capacity to pay rates, insurances and the cost of repairs.
Our sales department sees the other side, where people have that extra financial buffer that allows them to service a mortgage, pay the other expenses of home ownership and keep the property maintained. The current situation where there is little difference in the actual cost of rent vs. buy is a result of the low interest rate environment.
Low Interest Rates will not Last Forever
Consequently, we are seeing increased buyer activity, highlighted by a big increase in people attending inspections. This has led to properties receiving multiple offers (in one case 11 separate offers after the first open house!) and selling quickly at or above full asking price. We agree that now is the perfect time for buyers who can service a mortgage to leave renting behind and buy their own property. However, they must realise that interest rates will not stay low indefinitely, and once they start to rise, their repayments will follow suit.
No one knows how long this low interest rate environment will last. What we do know is that the rent vs. buy decision is not any easy one, and depends on individual circumstances. Whether you are looking for a property to buy or to rent, we are always happy to discuss your specific needs with you and provide advice on suitable or upcoming properties that may suit you. Just give us a call 02 4228 2555 or send us an email (email@example.com)!