Menu
Property

Save your money and buy a house, it's cheaper than renting

IT IS now much cheaper to own a property rather than rent a property.

A year ago it was financially a lineball decision whether owning or renting was cheaper.

This year, it is quite different.

At a recent conference in Brisbane, Peter Tulip a Reserve Bank senior research manager and Ryan Fox a researcher presented a paper which showed that the costs of owning your own home has fallen substantially in the last year.

Dr Tulip made it clear that the paper came from him and his co-author and not the bank.

The reason for this change is that long term bond rates have fallen over the last year. This means that the market now expects the current low mortgage rates to persist for 10 years or more.

The market can be wrong, but have you noticed that five year fixed rates are now available for about the same price as three year fixed rates? This is new.

The seven and 10 year fixed rates are still more expensive but that may also change at some stage.

So, despite rising property prices in the capital cities, especially Sydney, property has become cheaper to own. It sounds crazy but the cost of money (the mortgage interest rate) is a big part of the cost of housing.

The conference paper summarised the difference in a single number: Renting a house currently costs 3.9% a year, owning a house costs 2.7% a year.

This number is calculated from the purchase price, stamp duty and other transaction costs, the expected mortgage interest rate and how much it costs to run and renovate the property minus the expected capital gain.

I have never like the adage "rent money is dead money" because in many cases it makes a lot of sense to rent rather than to buy but I would agree that "rent money right now is expensive money".

*CHRISTOPH SCHNELLE (cs@inyourinterest.com.au) is the principal of In Your Interest Financial Planning Pty Ltd and Auth Rep 308223 of FYG Planners Pty Ltd AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances.

 

 

Topics:  housing real estate



Burglar wakes Summit couple

COUPLE woken in early hours when they saw a man leave their bedroom.

Car destroyed after it was left on roadside engulfed in fire

CAR FIRE: Firefighters from Sawtell were called to a burning Ford Falcon left on the side of Hulberts Rd, Sawtell on Sunday, February 18, 2018.

WATCH: Firefighters tackle car blaze late last night

Rubbish truck's load catches alight

A J.R. Richards and Sons rubbish truck container caught alight on the Pacific Highway.

Fire in skip bin causes traffic hold ups

Local Partners

Couple’s big $2 million gamble

The family has loved "stripping back their life" and only travelling with the bare necessities. Picture: Instagram

Tracey and Rob were sick of Sydney life, so they sold their home

The millionaire real estate mogul who rents

Luis D Ortiz, the real estate genius who made millions in New York, then walked away, is on his way to Australia.

The millionaire real estate mogul who prefers to rent

Coffee king forks out $6.5m for Queensland home

Philip and Gianna Di Bella now have a new New Farm at home. Picture: Annette Dew.

Phillip Di Bella has forked out $6.5 million for a New Farm home