The locations where mortgages make more sense than paying rent: Cameron Kusher

Today RP Data released an update to their Buy versus Rent report which provides a suburb by suburb summary about the standard costs associated with servicing a mortgage compared with paying rent.

Before everyone starts pointing out that the analysis doesn’t include the costs associated with a property purchase and ownership (stamp duty, conveyance, rates and taxes are some examples), nor does it include an assumptions around capital growth or decline. 

The purpose of the report is to provide a base level summary about mortgage costs across four different scenarios versus rental costs for a particular product type within a specific suburb.

The four scenarios used for mortgage costs are laid out below together with the number of suburbs where we the typical mortgage payment is likely to be lower than the typical rental payment:

Compared with the same analysis for one year prior the number of suburbs where it is more affordable to pay down a mortgage than rent has increased substantially. 

In June last year there were only 179 suburbs on the list.  The big jump in numbers can be attributed to a few factors.

Firstly, the fact that property values have grown at a slower pace than rental rates. 

Most capital cities are still recording dwelling values which are lower than their previous peaks.  Of course there is also the fact that mortgage rates have moved back to around generational lows which makes the cost of servicing debt much more affordable.

For those who don’t mind paying a little bit more than the typical rental payments within a suburb, the opportunities increase substantially.  If you are willing to pay an extra $50/week on top of the typical rental payment the number of suburbs where paying a mortgage can be more affordable than paying rent rises to 1,761 suburbs.

Cameron Kusher is senior research analyst at RP Data.