Inflation sits at 6.1 per cent according to figures released last week. Interest rates have already risen three times this year to 1.35 per cent. They are set to keep increasing every month until the end of the year, putting pressure on the household budget.
CoreLogic for the reporting period up until July 31 shows that the median national house price has dropped by 2 per cent to $747,182.
So have the numbers changed for those couples trying to sort out whether they should rent or buy right now? They have – and here’s how.
Property prices are falling because of inflationary pressures. With inflation sitting at 6.1 per cent, the cost of building or renovating a new home has increased by around 20 to 30 per cent. As a result, many housing projects have been paused or completely scrapped.
Good time to buy? Could be…
Inflationary figures are already showing rents increasing, particularly in Sydney and Melbourne. Rents on Tasmania’s west coast have jumped 18.7 per cent over the last three years and Central Hobart is not far behind with rents climbing 5.1 per cent. Northern Western Australia has experienced a 16 per cent increase and Perth 4.8 per cent.
Regional NSW rents have also fared well. Asking rates in the Central Tablelands climbed 12.8 per cent and the South Coast increased by 13.4 per cent.
Asking rents in Sydney’s eastern suburbs only increased 2.4 per cent compared with the Worden Valley in the ACT which jumped 11 per cent.
So not a good time to rent? Well yes…
Let’s take that average house at $747,182. How do repayment compare to rental?
first up, you’d lose 10% of the purchase price in deposit. So you might have a mortgage of $672,463.
So you would pay $3,074 per month on a 25-year mortgage at the May amount of 2.64 per cent.
So that would be $768.50 a week.
A house of the same value would rent at $600 a week in NSW, SA and Queensland, and $550 in Victoria.
So you would save $168.50.
Rentvesting is another thing to consider.
Mortgage Choice owner/broker Chris Longwill says that you don’t necessarily need to live in the suburb that you buy in – also known as rentvesting.
“If you don’t like the area, just rentvest (rent your owned home out, and go rent in an area you like).”
Buyers agent Ravi Sharma is a fan of rentvesting: “You get to live where you want. You have low maintenance costs at your rented home and there are potential tax benefits and multiple income streams, including possible capital gains.”
He says that if you are planning to rentvest you should look at the last five years data before making a decision because the area you want to buy in may not be the most financially sound. When you are thinking of rentvesting, he recommends casting your net far and wide rather than just your local area.
Finder Australia money expert Sarah Megginson says that rentvesting allows you to get onto the property ladder by purchasing in an area that you wouldn’t choose to live in.
She says first home buyers need to consider stamp duty and first home buyer grants and notes that: “Once you buy a property you lose access to grants and concessions that first home buyers get.”
She adds that if you do buy outside of a capital city: “The growth in regional markets is slower” so you’ll need to be more patient.
“You are building wealth rather than paying someone else’s mortgage off and setting yourself up for retirement.”
Mr Longwill adds that you won’t have to worry about agent/landlord inspections and that you are your own boss and you can make changes to the house without anyone questioning you.
There are long-term advantages too: “If you decide to sell, you will very likely make money as your mortgage balance over time has dropped and your home value has increased and you can release some equity, later on, to buy a car with the same interest rate as your home loan.”
If you want to build a property portfolio then: “you can leverage the equity to help buy an investment property and build wealth and assist your kids later down the track.”
Given interest rates are increasing, Mr Longwill says you are better off taking a 30 year home loan and making extra repayments.
If you already have a mortgage and are looking at refinancing he says: “Look to get a ‘basic variable’ home loan rather than a packaged one as they are lower rates and no annual fee but you can still have any savings working against your mortgage the same as an offset account.”
He advises people to put their savings onto their mortgage to assist in reducing the interest charged and recommends using your tax refund for your mortgage.
“Budget that rates will to 5+ per cent by the end of the year and work out your repayments from that. There are online tools that are useful like www.moneysmart.gov.au.”