The great debate to be a tenant or a home owner

Low rental vacancy rates, rising rents, healthy immigration and robust competition between tenants are excellent market conditions for the one in seven Australian tax payers who own an investment property.


March 22, 2011

Low rental vacancy rates, rising rents, healthy immigration and robust competition between tenants are excellent market conditions for the one in seven Australian tax payers who own an investment property.

On the flipside, it is a highly undesirable situation for tenants. Many have gone through or are in the process of inspecting rental property after rental property as one of scores of hopeful applicants, bidding fiercely for a roof over their head, enduring regular rent rises and preparing for the increasing cost involved with not being their own landlord.

Mortgage Choice spokesperson Kristy Sheppard says, “RP Data recently reported capital city rents increased by 4.2% in 2010 and commented that they are expected to rise by 7% this year*. To put this into real terms, in Sydney it equates to an extra $33.60 on the average weekly rent of $480 for a house and $30.80 on the average weekly rent of $440 for a unit**.”

“Then consider that it looks likely we'll see interest rate rises of around 0.5% by the end of 2011. For a 30-year $300,000 principal and interest home loan at 7% - by no means the lowest rate available - this equates to $23.47 extra on the required weekly repayment of $460.29.

“Times are tougher financially for both tenants and mortgage holders but at least the latter group has an asset to show for that money spent. Also, those who are investment property owners can, and often do, up the rent they charge to compensate for their repayment rises.

“No wonder Mortgage Choice's studies show rising rents are greatly influencing many Australians to become property owners. It was the number two motivation for our 2011 Future First Homebuyer Survey respondents, all of whom were planning to buy before February 2013. 42% of our 2011 Recent First Homeowner Survey respondents agreed, having bought in part because increasing rents made owning a property more attractive than renting.

“When it comes to home loan approval criteria these days, some lenders now consider rental history as genuine savings. Also, a number have increased the amount they will lend to 95% of the purchase price and several are dropping their fixed rates, which is good news for borrowers who need the peace of mind that comes with locking in a guaranteed steady repayment level.

“Those debating being a tenant versus a homeowner should note that although rents will rise this year we're also likely to see interest rate and property price rises. This makes the choice more complicated, requiring focused planning and a thorough investigation into the long term benefits.”

Home loan repayment guide (based on a 30-year P&I loan at 7%)

Loan amount

Weekly loan repayments

$250,000

$383.58

$300,000

$460.29

$350,000

$537.01

$400,000

$613.72

$450,000

$690.44

$500,000

$767.15

* RP Data Rental Review December 2010 Quarter

** Australian Property Monitors Rental Market Report December 10 Quarter

 

For further information or to arrange an interview, please contact:

Belinda Williamson                                                              
Mortgage Choice                                                          
(02) 8907 0472             
belinda.williamson@mortgagechoice.com.au


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