Renting versus buying remains a moving target for Melbourne households, with new Finder data showing only certain unit markets are cheaper to own than renting, and especially so for buyers with larger deposits.
Renters across Melbourne are being told to ‘just buy’, but new data shows that even if a mortgage looks cheaper than rent on paper, the reality for first home buyers is much murkier.
Finder analysis shows there are parts of central Melbourne where weekly mortgage repayments on a typical home are lower than the average rental price, a finding that will excite renters as they see their payments rise year on year.
But the apparent gain quickly disappears once buyers enter the market as most first-home buyers do, with a low down payment and a larger loan.
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Finder found that the number of suburbs where it is cheaper to pay off a mortgage than to rent is more than halved when the down payment drops from 20 percent to 5 percent, reducing the list to just 112 unit markets nationwide.
In Melbourne, the ‘cheaper to own’ pockets are largely confined to the inner-city unit markets, with Finder identifying suburbs such as Brunswick East, Prahran and St Kilda East, where mortgage repayments on a typical unit can undermine rent on paper.
Finder head of consumer research Graham Cooke said rent versus buy remains a moving target for Melbourne households.
Finder head of consumer research Graham Cooke said it was tempting to look at the ‘cheaper to own’ suburbs and assume the property ladder was suddenly within reach, but for most Australians, renting remained the cheaper option once the full picture was considered.
“Even in the rare cases where the maths are reversed, the calculations don’t take into account the deposit you need to save, stamp duty and all the other costs involved in buying a house,” Mr Cooke said.
Melbourne’s housing market remains highly competitive for first home buyers, especially in inner suburbs where housing demand continues to outpace supply. Photo: Nicki Connolly
The impact of a smaller deposit is significant in Melbourne’s captive unit market, where the gap between renting and owning can quickly disappear once buyers borrow more.
Ari Levinson, chief financial officer and property investment expert, said the average price of a unit in inner-city Melbourne cost about $587,400, meaning a 20 per cent deposit required about $117,000, compared to about $29,000 with a 5 per cent deposit.
“At current interest rates, an 80 percent loan on an average inner-city unit could result in weekly repayments of about $650 to $680, which could be cheaper than renting for $700 to $800 per week,” Levinson said.
A comparison of weekly rent versus mortgage payments shows how the advantage of buying can quickly disappear if buyers rely on low down payment loans. Image: Google Gemini
“But a 95 percent loan puts repayments closer to $780 to $820 per week, making owning more expensive than renting.”
Mr Levinson said the deposit hurdle, not income, remains the biggest barrier for many potential buyers, with low deposit schemes helping some get into the market faster, but often at the cost of higher repayments and tighter household cash flow.
Damian Medici is warning buyers not to rely solely on weekly repayments when deciding whether to rent or buy, urging borrowers to focus on long-term goals and cash flow.
Margin Finance director Damian Medici warned that focusing solely on weekly repayments could be misleading. He says buyers should be careful about treating “cheaper-than-rent” as a strategy in itself.
“While it may be cheaper to buy in some cases, that doesn’t necessarily mean it’s a good asset to buy,” Mr Medici said.
“I wouldn’t use repayments alone as a strategy. It always comes back to the customer’s goals.”
Mr Medici said many first home buyers were now entering the market with deposits as low as 5 per cent, allowing them to buy sooner but leaving them more exposed to interest rate rises and changes in personal circumstances.
“Getting in early is the priority for many people,” he says.
“But buyers need to understand the trade-offs and make sure the property they buy actually fits their long-term plan.”
Sky Hammer says not all apartments are equal, with smaller blocks and older-style apartments offering stronger long-term foundations than tall towers.
Sky Hammer, managing agent of Convergence Buyers Agents, said the ‘cheaper to own’ comparison was largely limited to specific parts of the unit market, particularly older style apartments in small blocks, rather than high-rise developments.
“There are certainly situations where buyers can purchase a unit and it will cost them less to keep it than to rent,” Hammer said.
“But it really depends on where they buy.”
Mr Hammer said cheaper apartments in Melbourne’s CBD and Docklands could be piling up on paper, but many buyers were instead prioritizing lifestyle suburbs such as Prahran, St Kilda East and Caulfield North, where long-term fundamentals were more important than repayment comparisons.
A table of Melbourne suburbs where units are cheaper to own than rent under a 20 per cent down payment scenario, based on Finder analysis. Image: Google Gemini
“While the weekly repayment numbers may look good on a spreadsheet, the long-term fundamentals are much more important,” Hammer said.
Despite the hurdles, experts said buyers who could manage upfront costs and ongoing repayments were still better off overall in the long term, benefiting from capital growth and equity rather than rising rents.
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