To rent or buy, how do the costs compare?

You may be at that point in your life when you’ve started to think seriously about buying a home. Maybe you’ve rented for a number of years now and you’re tired of handing over your hard earned dollars to someone else. That said, the thought of having to take out a home loan can also be quite daunting.

We’ve taken a look at the cost of renting and buying, to help you weigh up the pros and cons of both.

Paying rent

As of January 2021, the average price to rent a house in Australia was $487 per week, that’s according to SQM Research. Now, if you’ve been a renter for a while, you’ll know that there are a few ways landlords or real estate agents can work out your monthly rent. One way  is to divide the weekly rent by 7, then times it by 365 and divide again by 12. 

By that calculation the average price to rent a house in Australia would be:

  • around $2,116.12 per month 
  • and approximately $25,393.44 per year.

Of course that figure may vary dramatically depending on where you live. For instance, in Adelaide the average weekly asking rent for a house is $424, whereas in Canberra it’s $658. 

Other costs

Other costs associated with renting include:

Costs that do not usually come with renting are:

  • home building insurance
  • the cost to make repairs to your home 
  • and water rates (that is unless your water supply is metered, then you may have to pay for this yourself)

Restrictions

Of course one of the cons of being a renter is that you can’t make any changes to your home. This includes painting the walls, doing renovations or possibly even adding picture hooks. In most cases you won’t be able to have a pet either, unless the owner allows you to.

Paying back a home loan

In comparison, SQM Research shows that the average house price in Australia is currently around $633,998. So, assuming you have a 20% deposit saved, you would need to borrow approximately $507,198. 

Now if you are buying the house to live in, then you would take out an owner occupier home loan. That is as opposed to an investment loan, which would apply if you were investing in a property to lease. With an owner occupier loan you will generally be paying back the principal (the amount that you actually borrowed) and interest on top of that.

So in the example above, the average monthly repayments would be around $2,002 per month. That’s with:

  • an average variable home loan interest rate of 3.28% (that’s according to information available in the Mozo database^)
  • a $507,198 loan
  • and a loan term of 25 years

In this scenario the average cost to buy a home is less than the average cost to rent a home in Australia. However, this is only an average, house prices vary dramatically across the country. For instance, in Sydney the average house price is currently $1,372,623, whereas in Hobart it’s $611,049. It is also worth remembering that interest rates can change and rent prices can go up and down.

You can use the Mozo home loan repayment calculator to work out an approximate of what your monthly bill might be. 

Other costs

Depending on the loan you opt for, you may have to pay some other fees. These can range from one-off fees such as an establishment fee to ongoing fees such as a monthly service fee. If you have less than a 20% deposit, you will usually have to pay lenders mortgage insurance on your loan as well.

Besides the cost of the home loan, other costs include:

  • a stamp duty transfer fee
  • home building insurance
  • water and homeowner rates
  • paying for repairs
Please note: This scenario is based entirely on averages and as such only gives a general idea of the comparison between the cost to rent and the cost to buy a house in Australia.

Weighing up the options

As you can see, unless you have the money to buy a property outright, there are ongoing costs involved in both renting and buying. Both of which involve making regular payments. 

The difference is that when you buy, you are working towards paying off a loan. Plus, if you buy your own home you will be able to make the modifications you wish. Although on the flipside of that you will be responsible for repairs, homeowner rates and water rates.

There are pros and cons to both buying and renting. It really comes down to where you are at in your life. Whether you want the responsibility that comes with a loan or not. Or, whether you’re ready to have your own space and alter it to your heart’s content. 

If you are looking to buy and you need a way to finance your future home, why not head to Mozo’s compare home loans page. Or, take a look at the loans on offer below for an idea of what interest rates are available right now.

^Average percentage calculated from information available in the Mozo database, correct as of 28 January 2021.

*Based on statistics from SQM Research, correct as of January 2021.

Compare home loans - last updated February 27, 2021

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