Australia’s average residential property price in December 2020 was $728,500, and some capital cities averaged substantially more1 even before the pandemic hit our shores. So it’s not surprising that renting seemed the only option for many. But for those of us who have maintained a job and income security over the past twelve months, now may be the time to take advantage of low interest rates and home buyer grants (if eligible).
Whether you decide to buy or rent, there are a number of things to consider. And with pros and cons to both, it’s a good idea to do your research and find out if it aligns with your long-term outlook including job prospects, family plans and other lifestyle needs. We take a look at both options below.
It’s not surprising that almost one third2 of Australians rent their home, with the steep cost of buying property being one of the main reasons people choose to rent. However, it’s not simply monetary factors that drive the decision to rent – there are several other factors that make renting an attractive option.
On the whole, and depending on where you want to live, renting usually provides more financial freedom than buying a property. Sure, you’ll need to cover the bond, utilities and the ongoing rent, but these will generally be lower than servicing a mortgage and the ongoing costs associated with owning property.
With the financial freedom often provided by renting comes the added flexibility to move locations when you choose to without the hassle of selling a property – you just need to give notice, pack up and clean. It can also give you a taste for an area before you take the next step of settling in permanently.
Renting also gives you greater options to use surplus funds for investing. Rather than tying up all your funds into a single investment (such as property), you can diversify how and where you invest those funds.
One of the downsides to renting is not being able to change the space you live in significantly. In a rental property you’ll need permission to make any material changes such as painting a wall, and in some properties even to hang a picture.
It’s also worth considering that despite agreeing on a rental cost at the beginning of a lease, rent can be increased periodically depending on the tenancy agreement you have in place. In turn, budgeting and financial planning can be difficult.
Another important factor for many of us, albeit not a financial one, is the difficulty that can come with owning a pet when you’re renting. Australians love their pets and while not impossible, owning a pet when you’re renting can limit your options.
Finally, and perhaps most significantly when renting, despite your rental outgoings you aren’t left with anything tangible at the end of the lease.
Buying a house is often the biggest purchase you’ll make in your life and committing to a 25 or30-year home loan may seem daunting, but there are definite upsides.
Firstly, it’s yours! You can change the aesthetics, renovate, landscape or make any other changes to suit your lifestyle. Owning your own property will provide you with the stability of knowing that it’s unlikely you’ll have to move unless you decide to, so you can settle in and make it your own.
Initially the upfront costs involved in purchasing a property are significant. They include a deposit, stamp duty*, mortgage and conveyancing fees, home and mortgage insurance (if your deposit is less than 20%), however there are ways to manage these costs depending on your circumstances;
When owning your own home, it’s important to understand that it’s likely that all or most of your investment potential will be absorbed within property. Whilst a property is generally a significant asset, it does result in being limited in terms of diversifying your investments. And, like most investments, property has the potential to reduce in value.
Another consideration when buying a home is that your flexibility to move becomes somewhat limited – unlike renting, the cost of moving is much greater when taking into account real estate agency fees, solicitor costs and stamp duty (if you purchase again).
Unlike renting, owning your own home means that you have a tangible asset in return for your outgoings.
The decision to buy or rent isn’t simple. There’s a number of factors to consider including your financial resources, lifestyle, family needs and investment goals. It pays to do your research before carefully weighing up the benefits and disadvantages of each before settling on a choice.
For more information on buying versus renting, visit the Home Sweet Home tab on our eLearning platform Money Matters.
* The NSW Government have proposed changes to stamp duty. For more information visit NSW Government Treasury.
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