To buy or not to buy? Renting versus buying your dream home

Australians have forever identified with the notion of owning their own home. In recent years a buoyant economy (characterised by low inflation and interest rates, rises in average wealth, low unemployment, high consumer confidence) and the introduction by the Federal Government of the First Home Buyer's Scheme have resulted in a rising tide of property investment. This surge in demand has created upward pressure on house prices.

This is great news for home-owners but has made life increasingly difficult for many Australians to gain entry into a forever inflating housing market. This trend has caused some to reassess whether buying, and the attendant pressure of higher monthly mortgage repayments, is really worth it. We've put the following list together to help you assess the pros and cons of renting versus buying.

Why should I rent?

  • MONEY IN YOUR POCKET - It is likely that your weekly rental will be less than paying off a mortgage (assuming that you'd purchase a home with similar amenity and location and that you'd paid the typical deposit of around 10%). You could put this money towards a holiday, or perhaps boost your share portfolio.
  • LIFESTYLE - You may love the sights and sounds of Bondi or Carlton but can't afford to buy a home around there.
  • FLEXIBILITY - The majority of leases and one-year in length, far shorter than the average mortgage. Leases can also be assigned in the event you need to move.
  • LESS RESPONSIBILITY - Most maintenance and property repairs are the responsibility of the owner, not the tenant.

Why shouldn't I rent?

  • RENT RISES - Competition for housing will in time translate into higher rents. Compare your (expected) monthly mortgage payment (and outgoings) with your rental payment. Remember, renting should be cheaper.
  • LANDLORDS - The responsibility of repairs may fall upon the landlord but this does not guarantee a prompt or sufficient response.
  • IT'S TEMPORARY - Leases can end abruptly!

Why should I buy?

  • THE FEELING - Don't discount the positive psychological boost that ownership provides.
  • FINANCIAL SECURITY - If you are confident you can make the repayments on your loan then home ownership can be a secure investment. Retail property as an asset class is generally expected to appreciate in value over the longer term.
  • OTHER INVESTMENTS? - If you are contemplating additional purchases or investments in the future, you can borrow against your home at competitive interest rates.
  • FREEDOM - If you want to knock down that wall, or paint your front door red, you can! The ability to alter your home is especially important for families and couples anticipating children. Moving home is repeatedly cited as one of the most stressful experiences of our lives. Owning your home allows you to adapt that home to your changing requirements.
  • FORCED BUDGET - Those initial years of high repayments may seem may require some tightening of the budget in other areas, but it beats wasting income on frivolous purchases.

Why shouldn't I buy?

  • DEPOSIT - Don't forget that it is most likely the financier and agent/vendor will require a deposit (unless you opt for a no-deposit loan).
  • CONSTRAINTS - There are many fees associated with buying and selling property. These can prove a disincentive to moving and thus constrain your flexibility.
  • ON-GOING COSTS - Are you aware of the ongoing fees and charges like council rates, general house maintenance and insurance?
Hopefully these help!
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Published on July 7-th, 2007 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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Not all providers in the market are included in the comparison.

Any information or advice contained on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs.