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Buy vs. Rent Summary Report An assessment of the difference between the costs associated with paying a mortgage or paying rent across Australian

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Buy vs. Rent Summary Report An assessment of the difference between the costs associated with paying a mortgage or paying rent across Australian suburbs Released July 2013 Summary of results With capital
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Buy vs. Rent Summary Report An assessment of the difference between the costs associated with paying a mortgage or paying rent across Australian suburbs Released July 2013 Summary of results With capital city home values 2.9 per cent lower than when they peaked back in October 2010, discounted variable mortgage rates 175 basis points lower from their early 2011 peak and fixed mortgage rates 265 basis points lower than their peak, many renters and prospective home buyers are likely to be doing their sums to work out whether it is better for them to pay a mortgage or pay a landlord. This report, from Australia s leading property data and analytics company, RP Data, provides a region by region comparison on the costs involved with servicing a mortgage and the costs of renting, based on median house and unit values and median asking rents across each suburb around the country. Please note this analysis does not take into account a number of property acquisition costs or other ongoing costs associated with owning a property (described in more detail later in this report), nor does the analysis take into account the potential capital gains or loss over time. Across the nation, RP Data analysed four different scenarios with regards to the costs associated with servicing a mortgage. Number of suburbs cheaper to service a mortgage than rent across Australia Variable rate (5.4%) 3 year fixed rate (5.15%) Region New South Wales ,024 Sydney Regional NSW Victoria Melbourne Regional Vic Queensland Brisbane Regional Qld South Australia Adelaide Regional SA Western Australia Perth Regional WA Tasmania Greater Hobart Regional Tas Northern Territory Darwin Regional NT Canberra National 692 2, ,230 Combined capitals 250 1, ,715 Combined regional 442 1, ,515 Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is counted separately. Number of suburbs cheaper to service a mortgage than rent June 13 results versus June 12 results Variable rate (6.15% / 5.4%) 3 year fixed rate (6.1%/5.15%) Jun , ,230 Jun , ,153 Difference 286.6% 156.5% 347.7% 180.1% The different scenarios resulted in a broad range of suburbs where it is currently cheaper to service a mortgage than rent: 1. Servicing a principal and loan on a variable mortgage rate: 692 suburbs 2. Servicing an only loan on a variable mortgage rate: 2,778 suburbs 3. Servicing a principal and loan on a three year fixed mortgage rate: 864 suburbs 4. Servicing an only loan on a three year fixed mortgage rate: 3,230 suburbs What if you were willing to spend and extra $50 per week? For those prospective home buyers that are willing to dedicate an extra $50 per week over and above what the standard rental payments might be in a suburb, the list of potential locations grows substantially. Nationally, there are an additional 1,069 suburbs where it costs less than an extra $50 per week to service a mortgage compared with paying rent (based on a variable rate with principal and payments). More than half of these additional suburbs are located in either New South Wales or Queensland, particularly in Greater Brisbane. Suburbs of Sydney also comprise a large proportion of the list. Compared with an analysis from 12 months ago, there has been a significant uplift in the number of suburbs where paying a mortgage is more affordable than paying a landlord. Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is Methodology and assumptions The analysis looks at the results across four scenarios, specifically: 1. Servicing a principal and loan on a variable mortgage rate; 2. Servicing an only loan on a variable mortgage rate; 3. Servicing a principal and loan on a three year fixed mortgage rate; 4. Servicing an only loan on a three year fixed mortgage rate; The benefit of using these different scenarios is that it highlights to potential purchasers the different options that are available when contemplating purchasing a property and taking on a mortgage. It also highlights the differences in results when choosing different types of loan products. The analysis includes a number of key assumptions: 1. A loan to valuation ratio (LVR) of 90% which means that the purchaser is borrowing 90% of the value of the home (i.e. they have a 10% deposit). 2. A variable mortgage rate of 5.4% per annum. 3. A three year fixed mortgage rate of 5.15% per annum (paid in arrears). 4. The loan period is 30 years. 5. The repayment schedule is monthly. 6. The principal is calculated based on the suburb's median house and unit value as at June Rental costs are based on the median weekly advertised rental rate across the suburb over the past 12 months to June When considering the figures it is important to note that the analysis does not provide consideration for capital appreciation, transaction costs or other costs associated with either home ownership or renting which may include but are not limited to: 1. Maintenance 2. Council rates 3. Electricity 4. Water and sewerage 5. Land tax 6. Body corporate levies 7. Stamp duty 8. Legal and conveyancing fees We would encourage readers to undertake their own research to understand what additional costs may be associated with owning or renting a particular property. It is also important to note that only loans may not be appropriate for all borrowers because of the risks associated with the non-repayment of the loan principal during the only period. Availability and eligibility for only loans may be limited compared with mortgages based on and principal repayments. RP Data Disclaimer In compiling this publication, RP Data has relied upon information supplied by a number of external sources. The publication is supplied on the basis that while the RP Data believes all the information in it is deemed reliable at the time of publication, it does not warrant its accuracy or completeness and to the full extent allowed by law excludes liability in contract, tort or otherwise, for any loss or damage sustained by subscribers, or by any other person or body corporate arising from or in connection with the supply or use of the whole or any part of the information in this publication through any cause whatsoever and limits any liability it may have to the amount paid to RP Data for the supply of such information. Housing market overview Over the month of June 2013, dwelling values increased by 1.9 per cent across Australia s combined eight capital cities. Each capital city other than Hobart recorded a monthly value increase. Capital city dwelling values rose by 0.2 per cent over the second quarter, while over the first six months of the year dwelling values increased by 3.0 per cent. Capital city home values have been trending higher since June 2012 albeit at a fairly moderate pace to date, with values up 3.8 per cent over the past year. Annual and quarterly change in capital city home values 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Source: RP Data, RP Data-Rismark Home Value Indices The moderate recovery in the national housing market has undoubtedly been supported by the rate decisions of the Reserve Bank of Australia over the past few years. Official rates currently sit at 2.75 per cent which is below the emergency lows of 3.0 per cent implemented during The response to the low rate environment has been relatively subdued to date. The likely reason for the modest response to the low rate environment is the ongoing high levels of caution being exercised by consumers. Despite the low mortgage rate conditions, the rebound in housing finance commitments has been only moderate as households continue to save around 10 per cent of their income and remain conservative with respect to taking on additional debt. Market conditions vary from city to city and region to region. At a capital city level, there have been some substantial corrections to home values since their respective peaks. Darwin values remain 11.1 per cent lower than when they peaked. Brisbane values are still around 11 per cent lower than their peak, Hobart values are 10.6 per cent lower than their historic high levels and Melbourne values are down by more than 6.5 per cent from their peak. Sydney home values are now 1.2 per cent higher than their previous peak. The Canberra market has been much more resilient to these falls in home values, depreciating by just 2.1 per cent from the market peak. On the other hand the swift recovery in the Perth housing market has seen values once again approach their previous highs, just 1.6 per cent lower than the peak. Although dwelling values are mostly lower than their historic highs, weekly rents have generally been rising consistently across the capital cities. Over the past twelve months, rents across the combined capital cities have increased by 3.2 per cent for houses and 2.8 per cent for units. Although rents have increased, they have been eclipsed by the annual increase in capital city home values, as a result, there has been no changes in gross rental yields broadly across the combined capital cities. With both dwelling values and mortgage rates now lower, the improvements to housing affordability have been substantial. Prospective buyers have a lower priced entry point to the market and the cost of their debt is substantially more affordable. Decline in home values from their peak to June % -4.0% -6.0% -8.0% -10.0% -12.0% 8.0% 7.0% 6.0% 5.0% 4.0% 2.0% 0.0% -6.6% -11.1% -10.8% -10.6% Darwin Brisbane Hobart Melbourne Adelaide Canberra Perth Sydney Australian capitals Median weekly rent Gross rental yield 3.0% $250 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 Jun % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Jun-93 Jun-97 Jun-01 Jun-05 Jun-09 Jun % Capital city rental rates and yields Mortgage rates vs. cash rate -2.1% -1.6% Standard variable mortgage rates 3 yr fixed mortgage rates Cash rate 0.0% -2.9% Source: RP Data, RP Data-Rismark Home Value Indices $500 $450 $400 $350 $300 Source: RP Data, RP Data-Rismark Home Value Indices Source: RP Data, Reserve Bank of Australia Headline findings The results across the country based on the different payment scenarios are detailed below: 1. Servicing a principal and loan on a variable mortgage rate: 692 suburbs 2. Servicing an only loan on a variable mortgage rate: 2,778 suburbs 3. Servicing a principal and loan on a three year fixed mortgage rate: 864 suburbs 4. Servicing an only loan on a three year fixed mortgage rate: 3,230 suburbs With lower mortgage rates and a mild recovery in house and unit values, in conjunction with higher rental rates, there has been a further uplift in the number of suburbs where monthly mortgage payments are lower than rental payments. Based on a discounted variable rate of 5.4 per cent with principal and payments, there has been a 387 per cent uplift over the past 12 months in the number of suburbs nationally, where servicing a mortgage is more affordable than renting. For three year fixed rate mortgages, where rates are even lower at 5.25 per cent, the number of suburbs cheaper to pay a mortgage is significantly greater than those for the more popular standard variable mortgage rates. Number of suburbs cheaper to service a mortgage than rent June 13 results versus June 12 results Variable rate (6.15% / 5.4%) 3 year fixed rate (6.1%/5.15%) Jun , ,230 Jun , ,153 Difference 286.6% 156.5% 347.7% 180.1% Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is The largest number of suburbs, where paying a mortgage is currently more affordable than renting, can be found within the Sydney region. Across the Greater Sydney region, based on servicing a principal and mortgage on a variable rate, there are now 73 suburbs where paying a home loan is more affordable than paying a landlord. Brisbane is not far behind (71 suburbs), followed by the Hunter region of New South Wales (40 suburbs). Number of suburbs cheaper to service a mortgage than rent across Australian regions Variable rate (5.4%) 3 year fixed rate (5.15%) Statistical Division Central West, NSW Far West, NSW Hunter, NSW Illawarra, NSW Mid-North Coast, NSW Murray, NSW Murrumbidgee, NSW North Western, NSW Northern, NSW Richmond-Tweed, NSW South Eastern, NSW Sydney, NSW New South Wales Barwon, VIC Central Highlands, VIC East Gippsland, VIC Gippsland, VIC Goulburn, VIC Loddon, VIC Mallee, VIC Melbourne, VIC Ovens-Murray, VIC Western District, VIC Wimmera, VIC Victoria Brisbane, QLD Central West, QLD Darling Downs, QLD Far North, QLD Fitzroy, QLD Gold Coast, QLD Mackay, QLD North West, QLD Northern, QLD South West, QLD Sunshine Coast, QLD West Moreton, QLD Wide Bay-Burnett, QLD Queensland Adelaide, SA Eyre, SA Murray Lands, SA Northern, SA Outer Adelaide, SA South East, SA Yorke and Lower North, SA South Australia Central, WA Kimberley, WA Lower Great Southern, WA Midlands, WA Perth, WA Pilbara, WA South Eastern, WA South West, WA Upper Great Southern, WA Western Australia Greater Hobart, TAS Mersey-Lyell, TAS Northern, TAS Southern, TAS Tasmania Darwin, NT Northern Territory - Bal, NT Northern Territory Canberra, ACT National 692 2, ,230 Of the capital cities, Melbourne is showing the smallest number of suburbs where paying a mortgage is the more affordable option compared with renting, with only 2 suburbs. The low number of suburbs where it is more affordable to pay a mortgage than rent can be attributed to the strong run of capital gains that has been recorded across Melbourne, together with relatively flat rental markets over recent times. Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is Nationally, regional areas dominate the list, with 440 suburbs outside of the capital cities showing a better payments schedule for buying compared with renting. There are 250 suburbs across the aggregated capital cities where better payment schedules have been recorded for mortgage payments as opposed to renting (based on the principal and payments on a variable mortgage rate). What if you were willing to spend an extra $50 per week? For those prospective home buyers that are willing to dedicate an extra $50 per week over and above what the standard rental payments might be in a suburb, the list of potential locations grows substantially. Nationally, there are an additional 1,069 suburbs where it costs an extra $50 per week to service a mortgage compared with paying rent. The majority of these additional suburbs are situated in New South Wales, Queensland or Victoria. Suburbs of Sydney, Brisbane and Adelaide comprise a large proportion of the list. State by State: Number of suburbs cheaper to service a mortgage than rent across Australian vs. those where servicing a mortgage is less than $50 extra a week Variable rate (5.35%) 3 year fixed rate (5.25%) Region Cheaper to buy than rent ,024 $50/week extra New South Wales 516 1, ,258 Cheaper to buy than rent $50/week extra Victoria Cheaper to buy than rent $50/week extra Queensland Cheaper to buy than rent $50/week extra South Australia Cheaper to buy than rent $50/week extra Western Australia Cheaper to buy than rent $50/week extra Tasmania Cheaper to buy than rent $50/week extra Northern Territory Cheaper to buy than rent $50/week extra Canberra Cheaper to buy than rent 692 2, ,230 $50/week extra 1, , National 1,761 3,725 2,035 4,000 Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is Region by Region: Number of suburbs where typical mortgage payments are less than $50 extra per week compared with renting Variable rate (5.4%) 3 year fixed rate (5.15%) Statistical Division Central West, NSW Far West, NSW Hunter, NSW Illawarra, NSW Mid-North Coast, NSW Murray, NSW Murrumbidgee, NSW North Western, NSW Northern, NSW Richmond-Tweed, NSW South Eastern, NSW Sydney, NSW New South Wales 516 1, ,258 Barwon, VIC Central Highlands, VIC East Gippsland, VIC Gippsland, VIC Goulburn, VIC Loddon, VIC Mallee, VIC Melbourne, VIC Ovens-Murray, VIC Western District, VIC Wimmera, VIC Victoria Brisbane, QLD Central West, QLD Darling Downs, QLD Far North, QLD Fitzroy, QLD Gold Coast, QLD Mackay, QLD North West, QLD Northern, QLD South West, QLD Sunshine Coast, QLD West Moreton, QLD Wide Bay-Burnett, QLD Queensland Adelaide, SA Eyre, SA Murray Lands, SA Northern, SA Outer Adelaide, SA South East, SA Yorke and Lower North, SA South Australia Central, WA Kimberley, WA Lower Great Southern, WA Midlands, WA Perth, WA Pilbara, WA South Eastern, WA South West, WA Upper Great Southern, WA Western Australia Greater Hobart, TAS Mersey-Lyell, TAS Northern, TAS Southern, TAS Tasmania Darwin, NT Northern Territory - Bal, NT Northern Territory Canberra, ACT National 1,761 3,725 2,035 4,000 Source: RP Data Note figures include results for houses and units. Where a suburb shows it is more affordable to service a mortgage compared with renting for houses and units the suburb is State by State Tables Suburbs where paying a mortgage is, on average, more affordable than paying rent, based on principal and payments on a variable mortgage rate loan. New South Wales rent based on principal and payments on a variable mortgage rate Variable rate (5.4%) 3 year fixed rate (5.15%) Principal Winston Hills NSW Sydney Parramatta 23 Unit $450 $1,950 $195,986 $176,387 -$960 -$1,156 -$987 -$1,193 Boggabri NSW Northern Narrabri 367 House $400 $1,733 $182,677 $164,409 -$810 -$993 -$836 -$1,028 Cobar NSW North Western Cobar 569 House $350 $1,517 $200,004 $180,003 -$506 -$707 -$534 -$744 Fern Bay NSW Hunter Port Stephens 124 House $550 $2,383 $379,053 $341,148 -$468 -$848 -$521 -$919 Windale NSW Hunter Lake Macquarie 106 Unit $348 $1,506 $210,243 $189,219 -$443 -$654 -$473 -$694 Murrurundi NSW Hunter Upper Hunter Shire 236 House $333 $1,441 $201,556 $181,400 -$422 -$625 -$450 -$662 Bolton Point NSW Hunter Lake Macquarie 103 House $370 $1,603 $242,517 $218,265 -$378 -$621 -$412 -$667 Waverley NSW Sydney Waverley 6 Unit $630 $2,730 $473,644 $426,279 -$336 -$812 -$402 -$901 Blayney NSW Central West Blayney 185 House $360 $1,560 $249,101 $224,190 -$301 -$551 -$336 -$598 Silverdale NSW Sydney Wollondilly 55 House $650 $2,817 $499,088 $449,179 -$294 -$795 -$364 -$889 Berkeley Vale NSW Sydney Wyong 62 Unit $335 $1,452 $229,576 $206,618 -$291 -$522 -$323 -$565 Glenreagh NSW Mid-North Coast Clarence Valley 347 House $350 $1,517 $248,086 $223,277 -$263 -$512 -$298 -$558 Wentworth NSW Murray Wentworth 859 House $223 $964 $138,789 $124,910 -$263 -$402 -$282 -$428 Bradbury NSW Sydney Campbelltown 44 Unit $335 $1,452 $237,531 $213,778 -$251 -$490 -$284 -$534 Wellington NSW North Western Wellington 256 House $220 $953 $140,064 $126,058 -$245 -$386 -$265 -$412 Condobolin NSW Central West Lachlan 388 House $215 $932 $135,863 $122,276 -$245 -$381 -$264 -$407 Narara NSW Sydney Gosford 54 Unit $360 $1,560 $263,181 $236,862 -$230 -$494 -$267 -$543 Pelaw Main NSW Hunter Cessnock 118 House $350 $1,517 $255,725 $230,152 -$224 -$481 -$260 -$529 Metford NSW Hunter Maitland 128 Unit $330 $1,430 $238,997 $215,097 -$222 -$462 -$256 -$507 South Grafton NSW Mid-North Coast Clarence Valley 488 House $280 $1,213 $196,202 $176,582 -$222 -$419 -$249 -$456 Bellbird NSW Hunter Cessnock 112 House $370 $1,603 $274,536 $247,082 -$216 -$491 -$254 -$543 Muswellbrook NSW Hunter Muswellbrook 180 Unit $300 $1,300 $218,657 $196,791 -$195 -$414 -$225 -$455 Fairfield NSW Sydney Fairfield 24 Unit $355 $1,538 $266,651
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