Owning a home more affordable than renting: report

Owning a home more affordable than renting: report
Owning a home more affordable than renting: report

Owning a home in Australia has become more affordable since 2011, while renting has become more expensive, a recent report reveals, making a case for young people to consider buying a home rather than renting to boost their wealth, says Amanda Watt, the head of banking business act.

act. is a newly established banking service that redirects profits back into social projects.

Watts noted home owners with a mortgage paid an average of $453 per week on housing costs in 2013-14. In real terms, this was largely unchanged from 2011–12, according to the Australian Bureau of Statistics’s (ABS) Housing Occupancy and Costs 2013-14 report released recently.

Combined with rising incomes, in real terms, or after inflation, buying a house has become more affordable.

The ABS said an increase in average household incomes has seen owners with a mortgage spending 16% of their income on housing costs in 2013-14, down from 18% in 2011-12. 

In contrast, households renting from private landlords paid an average of $376 per week in 2013-14, a rise of $12 from the 2011–12 average in real terms, the report said.

Lower income households renting from a private landlord paid on average $313 per week, which represented 34% of their gross weekly income. In comparison, lower income households with a mortgage paid $326 a week on average, or 27% of their gross weekly income, on housing costs.

With interest rates at historically low levels, home ownership and paying off home loans has become more affordable when combined with an increase in income levels, act.’s Amanda Watt said. In addition, low unemployment would support young home buyers taking out a mortgage.

But home buyers needed a strategy to position themselves for a purchase.

“Save a bigger deposit. Time is money, so the more you borrow, the more you will repay in interest. If you are saving for your first home, start making the sacrifices now and save as much as you can before you buy. Claim the first home owner's grant and any other subsidies your state government offers," she said. 

“Once you get a loan, use an offset account. Offset accounts are a great way to cut interest costs. Offset accounts link your home loan to a savings or transaction account. The balance in the savings account is then used to offset the home loan balance, reducing interest costs. There are tax benefits also as tax isn’t paid on the interest credited to your savings account because the interest is not actually being earned as it offsets the home loan interest,” Watt said.

Despite the increase in housing affordability, the report says that since 1994-95, the proportion of households that own their home outright has dropped to 31% from 42%. Households with a mortgage has increased to 36% from 30%, while the proportion of households renting privately has gone up to 26% from 18% between 1994-95 and 2013-14.   

For each product act. has, including home loans, act. allocates ‘impact dollars’ – real dollars taken from the profit it earns – and gives them back to its customers, who can then donate to a project of their choice listed on letsact.com.au

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