1 in 4 homes bought with cash in 2023 also shows why home loans matter

An older couple moving into a new home.

One in four properties bought in Australia’s eastern states was paid for completely with cash in 2023, suggesting there is a pocket of buyers who aren’t feeling the pinch of interest rate rises over the past year.

Across New South Wales, Victoria and Queensland last year, $130 billion worth of residential property was bought with cash, meaning they were purchased without a home loan, according to a report by Property Exchange Australia (PEXA).

And yet, you might also say three-quarters of people needed a home loan. More on that in a moment.

First, who are these cashed-up buyers? PEXA’s chief economist, Julie Toth says cash buyers are more likely to be older and retired, unlike those who need to take out a home loan in order to enter the market.

“They tend to have lower household incomes, but they also have fewer dependents and are more likely to be ‘asset-rich’, with accumulated property, savings and superannuation to fund their next purchase,” says Toth.

“If they have interest-earning savings, then they may even have benefited from rising interest rates,” she said.

Why a good home loan is a sensible strategy

While just over a quarter of buyers have the means to purchase a home outright, the vast majority of us will need to take out a home loan in order to enter today’s property market.

It’s been this way for a long time.

For example, no matter which of the capital cities you might consider, you’d need to have a significant amount of cash in order to buy a home without a mortgage.

The latest data from property analysts CoreLogic found that the median house price in Sydney is $1,128,155 as of February 2024, while it’s sitting at $788,941 in Melbourne. Even for Darwin, the cheapest capital city to buy in, the median price is $499,834.

So it’s clearly more feasible for most budgets to make a large property purchase with a home loan.

The home buying budget in practice

Paying off your home using a mortgage has benefits, as it usually allows you to secure the property you want without overextending your current budget. Perhaps the biggest advantage here is that you don’t need to part ways with a huge amount of cash upfront.

Let’s briefly consider the buying process with a home loan:

Say you found a unit in one of the major capitals for $700,000: you might be able to secure this property with a 10% initial deposit (with a home loan that allows you to do so).

That would equate to $70,000 on this home, leaving you $630,000 to repay over the term of a home loan (plus annual interest, stamp duty and other expenses, of course).

If you had a home loan at this amount at 6.25% p.a. interest over 25 years, that would give you monthly repayments of $4,156, as per the Mozo home loan repayments calculator. Meanwhile at a slightly lower rate of 5.95% p.a., you’d be paying $4,040 – saving you quite a bit of money over the long term.

In short, organising a home loan and getting your first deposit down gets your foot in the door and allows you to make smaller repayments over time.

The overall cost will surely end up being more than the initial price, but the logic is that this arrangement is more sensible and achievable, and hopefully your property will also accrue in value over time.

No matter the property you’re targeting, be sure to get a good home loan interest rate by comparing home loan providers. You can check out our best home loan page for more or review some of the top home loans available in the table below.

Compare home loans - last updated 21 April 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Express Home Loan

    Owner Occupier, Principal & Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    6.01% p.a. variable
    6.14% p.a.

    Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

    Compare
    Details
  • Flex Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a.
    fixed 3 years
    6.37% p.a.

    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

    Compare
    Details
  • Discounted Home Value Loan

    Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a. variable
    6.09% p.a.

    Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Settlement fee waived on new borrowings from $50,000 (T&Cs apply).

    Compare
    Details
  • Neat Home Loan

    Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.16% p.a.

    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

    Compare
    Details