Is it better in 2021 to buy or rent a house?

Is it worth buying a home to have the security and peace of mind that comes with owning a home? Or, should you rent to continue the flexibility and security it affords? It all comes down to your personal and financial preferences.

The biggest financial decision many people have to make is whether they want to buy a house or rent. It is important to weigh all the advantages and drawbacks before making a decision.

Are you more likely to choose homeownership?

More than two-thirds of Australians polled in a recent Finder survey believe that the conditions are right to purchase a home – a level of confidence not seen since the start of the pandemic – and for good reasons.

Many potential buyers have the opportunity to take advantage of record-low interest rates and government grants that have created a flood of opportunities.

Experts warn that buying a property to get state-sponsored subsidies can cause more damage than good over the long term. As with any major financial investment, buying property requires careful planning. These are the potential advantages and disadvantages of homeownership.

Pros

1. It provides you with a sense security and freedom.

Your own home provides you with a sense of security because you know you will not lose your mortgage payments and that you will be protected from being evicted. Your landlord will not be able to negotiate rent increases or lease terms. You also have the option to make improvements and renovations to increase your home’s value.

2. Property values tend to rise over time.

The latest figures from CoreLogic revealed that Australian home prices have not only exceeded pre-pandemic levels, but reached a “fresh record high,” shattering the previous peak recorded in September 2017. Many homeowners have been waiting for this news, as a rise in property values often means that there has been an increase in market prices.

If the housing market experiences a downturn, however, property values may also fall. If this happens, it’s important to stay calm and remember that homeownership can be a long-term investment.

3. Each payment can help you build equity.

Your equity increases as you pay your mortgage. You can tap into this equity and use it to fund huge personal spending such as a child’s education, new car, home renovation, or investment property.

Cons

1. It requires heavy financing.

The high cost of financing can make buying a house a daunting task. You need to carefully evaluate the ongoing and initial costs of homeownership in order to determine if it is right for you. These are:

Costs upfront

• Deposit – usually 20% of the property’s value
• Lenders mortgage insurance (LMI) – if you do not have enough for a 20% deposit
• Loan establishment fees
• Stamp duty
• Utilities connection fees
• Conveyancing fees and solicitor fees are legal fees

Forgoing costs

• Mortgage payments
• Land tax
• Council rates and corporate fees
• Repair and maintenance expenses

2. You may see a decrease in the value of your property.

As stated earlier, a decrease in the housing markets can have a negative impact on the value of your property.

How much does an average home in Australia cost?

CoreLogic has just released its national home-value index, which revealed new record highs across the country. Here is a rundown of the average home prices, according to the comparison firm’s January 2021 data. 

Are you better off renting?

Renting is a good option in certain circumstances. You may find yourself drawn to a location where renting is cheaper than buying a property, or you have a lifestyle that isn’t suitable for homeownership. However, just like owning a home has its advantages and drawbacks, tenants also have their benefits.

Pros

1. It allows you to be more flexible.

Many people believe that homeownership is a way to buy security. However, renting allows you to have flexibility. Once your lease ends, you can move around freely as a tenant.

2. The property maintenance is not your responsibility. 

Generally, your landlord is responsible for the repair and maintenance of the property – unless, of course, you intentionally caused the damage. Your landlord is also responsible for the payment of council taxes and fees to body corporate. You are responsible for maintaining the property as a tenant.

3. It is possible to buy it cheaper in some areas.

There are many career and lifestyle opportunities in areas that are close to or within the city limits, but properties can be too costly. Many young professionals start their careers in this area. It is a smart decision to rent at this time in your life.

Cons

1. You feel limited freedom and stability.

You have very little control over how long you are allowed to stay at the property as a renter. Your landlord may ask you to leave the property after your lease ends, or they might decide to sell the house. You are also not allowed to make any structural changes in the home – like drilling holes in or painting the walls – unless you have your landlord’s permission.

2. Rent money is dead.

This is probably the biggest argument against renting. Rent money is something that you cannot get back. If you buy a home, equity can be built and you can eventually pay off your mortgage. These are not the benefits of renting. You can also rent out your property to help pay off your landlord’s mortgage.

What is the cost of renting?

Rent.com.au has just released the January 2021 rental market snapshot. Below is a breakdown of the costs to rent an apartment unit or a house within each capital city.

Is it cheaper to buy a house than rent?

Australiane, a mortgage broker, recently reported that buying your own property could save you money in several areas across the country. However, there are many variables that can make it difficult to determine if renting a home is better than buying one. It is a good idea to evaluate your financial and personal situation before making a decision about homeownership or renting. You can use our rent versus purchase calculator to help you decide which option is right for you.