For many young Australians in their 20s and early 30s, the eternal question about housing remains whether to rent or buy. For those in their first, entry level job barely making rent, the choice seems simple enough. But the decision is still less clear-cut for others and various factors must be considered.
Both have their advantages and disadvantages.
Renting is ostensibly a more attractive option for young Australians as monthly payments are often cheaper and more affordable in the short term. Without being locked into a mortgage, you have a lot more choices and are free to move somewhere else once the lease is over.
But renting also has clear disadvantages.
Rent may seem cheaper than a mortgage payment, but ultimately it’s money down the drain. Whether you pay rent for a year or a decade, you will never be putting money towards your own property. Since rent often rises with inflation, after 10 years of renting you will essentially be paying more to live in the same place.
Buying a home is a big dream for many Australians, but is homeownership the most ideal choice?
Buying a home means laying out a hefty chunk of cash for deposit, as well as making monthly payments to pay off the mortgage. As the property owner, repair and maintenance costs fall with you. For many young Australians, these factors scare them off home ownership in the short term.
With responsibility comes benefits. Buying a home means owning an asset. Your monthly payments go towards creating personal wealth. If you decide to build, you get to create and live in the house of your dreams. With a mortgage, your monthly mortgage payments will be fairly predictable and stable over time, affected only by interest rates.
If you have found the area you want to live in for the next 10 years, buying a house can make a lot of financial sense.
Buying Now May be Cheaper Than Renting
Traditional wisdom holds that renting is cheaper than buying, but a recent RP Data report has turned traditional wisdom on its head. The report found that in over 3,000 suburbs across Australia it can actually cheaper to make monthly mortgage payments than to pay rent.
The change results from recent interest rate cuts as well as a housing market that has seen soaring rents outpace property prices in many areas. The monthly payments on your mortgage will depend on a number of factors including whether it is fixed or variable rate and the terms you quality for.
Even with cheaper monthly payments, renting may be attractive if you are not sure you will end up staying in your neighbourhood or if your job situation is unstable. Everyone has different situations so take the time to assess your financial and personal goals to see if buying a home is beneficial to you.
Buying has been better financially than renting over the long term, but recent conditions in the property market make it attractive even for the month to month renter. The number one reason people do not consider buying a home is short term finances. But when buying is potentially more affordable than paying rent, it is wise to look at whether buying a home is within reach.