Rent or buy?

According to the Reserve Bank of Australia, a home is “the most important asset owned by the majority of households”. Yet, with a decade or more of steady price inclines, the Great Australian Dream feels further away than ever for many of us.

But don’t be fooled into believing the longer term rental market will relieve any financial stress – as property prices and their relative mortgages have increased, so to have rental costs.

So, what should you consider when weighing up your options?

Renting

Transitioning through the different stages of life, the flexibility of shorter rental agreements can give you the opportunity to live in a range of different homes and locations, adapting to the changing needs of your household.

But each time you move can be a serious drain on your hip pocket, along with your energy and enthusiasm – after all, moving house is known to be one of life’s most stressful events. Even so, Australian renters move house more than any other OECD country except Ireland.

Costs for entering into a new rental agreement can include bond, several weeks' rent in advance, connecting utilities (electricity, gas, phone), removalists and more. The cost of exiting a property can be hefty as well, including professional cleaners, pest control, packing and moving. If you have to take time off work to sort out the outgoing and incoming moves, you also need to consider a potential loss of income.

However, there has been discussion around rental reform in NSW – with other states expected to follow – that will offer improved rights to renters, including longer leases, relaxed restrictions around pet ownership and more.

Buying

When planning for home ownership, you should consider a buffer of savings to cover a range of expenses beyond the required deposit.

As well as the cost of the property, there are a range of fees beyond legal fees and stamp duty which are often overlooked. These may include pest control, hazardous material and building inspections, and removalist costs to name a few.

For deposits of less than 20 per cent, you will generally be required to pay Lenders Mortgage Insurance (LMI). This one-off payment protects your finance lender in the event your mortgage goes into default.

Finally, it’s not only our individual circumstances that we need to take into account when weighing up the pros and cons of property ownership. Our local and national economy, business activity and employment also need to be taken into account when weighing up the risks and opportunities of your decision. The Australian economy has gone 27 years without a recession, and the general consensus is that what goes up, must sooner or later come down.

Did you know?

First home buyers all across Australia can access a range of grants and concessions, with different opportunities in each state and territory.

Currently, in New South Wales this includes paying no stamp duty on homes valued at less than $650,000. You can also access $10,000 towards the construction of a new home (in Queensland this is $15,000). Meanwhile, first home buyers in the NT are eligible for a $26,000 helping hand to build a new home or buy an established property.

As a first home buyer, investigating all your options towards bridging the deposit gap is key.

Our scenario

James and Carley have just had their first child and are looking for a family home, but can’t agree on whether to rent or buy.

The average property value for a four bedroom home in the area is $520,000. With a 15 percent deposit, the expected mortgage repayment would be around $990 per fortnight, based on around 4 per cent interest rate.

Meanwhile, their fortnightly rental payments would be $1040.

While every lender and circumstance is different, some set up costs for first home buyers in NSW may include:

Rent		Buy (first home buyer)
Bond	$2080	Deposit 15%	$79,000
Utilities connections	$300	Lenders Mortgage Insurance	$4,600
		Mortgage registration/stamp duty	$283
		Building inspection fees, establishment fees, legal and conveyancing fees	$3,000+
Removalists	$5,000	Removalists	$5,000
Cleaners	$1,000	Cleaners	$1,000
		Utilities connections	$300
Total to put aside	$8,400		$93,000

Heads or Tails?

If James and Carley choose to rent, they may need to move 10 times over the lifetime of an average mortgage, paying the above set-up costs 10 times over for a total of $84,000.

Additionally, each time James and Carley move their little family, it could cost a combined $3000 in lost income for time off work – $30,000 in our scenario.

All of a sudden, James and Carley have more than if they had invested in a property. But they don’t own their own home.

At the end of the day, James and Carley’s decision comes down to whether they want to invest in themselves or their landlord. With either decision, their first priority should be to build a savings strategy to help achieve both their short and long term goals.