CoreLogic has released a new report showing that it is cheaper to service a mortgage than rent across one-third of the nation’s properties, with New South Wales and Victoria primarily responsible for warping the results:
CoreLogic analysis suggests servicing a mortgage is now cheaper than paying rent on 36.2% of Australian properties, which is higher than the pre-COVID proportion of 33.9% reported in February last year.
The analysis was undertaken at the individual property level, using a set of mortgage assumptions and valuation estimates, to approximate mortgage repayments. These were then compared with rental estimates at the individual property level. Using these estimates of mortgage and rent, the data reveals striking differences in housing costs across different parts of Australia.
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The proportions of properties cheaper to rent or buy by region are outlined in Figure 1. The data is also broken down by SA4 sub-regions in figure 2. The highest proportion of properties where mortgage serviceability is cheaper than rent is across Regional NT (96.4%) followed by Darwin (86.5%).
These results make sense. Mortgage rates have fallen sharply over the pandemic, as illustrated clearly in the next chart from CoreLogic:
New owner-occupier variable rate mortgages can now be readily obtained at interest rates below 2.5%, whereas new fixed rate loans are even cheaper at around 2%.
At the same time, gross rental yields are around 4% or above outside of Sydney and Melbourne:
Thus, many buyers in markets outside of Sydney and Melbourne have the opportunity to secure a property at a holding cost that is close to or below the cost of renting.
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