There’s a lot of talk about home ownership right now. Australia’s hot housing market has seen more and more first home buyers stepping onto the property ladder, with the help of record low home loan interest rates and Government assistance schemes. If you’re renting, you could be asking yourself: should I keep renting or buy a home?

Choosing between purchasing a house and renting is one of the biggest financial decisions many of us will make. So, it pays to carefully weigh up the advantages and disadvantages of each before settling on a choice. To help you with one of your biggest decisions, we look at the pros and cons of home ownership versus renting.

Pros of buying a home

Here are some of the benefits of buying a home.

More freedom

Owning your own home allows you to do so much more than what you can renting. Want to redesign your kitchen, add a deck or just make more room for a new family arrival? These are things that landlords just won’t let you do when you’re renting.

When you make changes to your own property, you’re adding value to your investment. Renting may also have more restrictions when it comes to having pets, having guests over, etc… Remember, buying an apartment may mean you still have to get body corporate approval on pets and doing some renovations.

Greater security

“Home sweet home” is the saying, and nothing does quite deliver that sense of security than home ownership. Provided you keep meeting your mortgage repayments, you won’t have to worry about being evicted, staying on the good side of your landlord, getting hit with rent increases or panicking about lease extensions.

Investment growth

For some people, home ownership is seen as a long-term lifestyle and investment strategy. Investing in bricks and mortar assets like a home has a history of growing over time, while allowing you to enjoy life in it as well. In fact, capital city residential property prices grew 5.4% over the March quarter according to the Australian Bureau of Statistics. And despite the global pandemic, there was a 7.5% increase over the past 12 months. While this is good news for those who own a home, it also means getting into the property market gets a little harder. It’s worth remembering that market downturns can occur, causing a drop in house prices.

Build your home equity

A home is probably going to be your biggest investment in life. Unless your repayments are interest only, each mortgage repayment helps you reduce the amount you owe the bank and increases your equity, or the portion you own. As the equity in your home grows, you can use it to fund other things in life like renovations, a holiday, education expenses, or even put towards an investment property.

Assistance

Right now, first home buyers have a number of Government Schemes to help them buy their first home. From the First Home Loan Deposit Scheme and First Home Owners Grant, to stamp duty waivers.

Cons of buying a home

Here are some of the disadvantages of buying a home.

Debt with a capital ‘D’

Buying a home can be a hugely liberating exercise – but it can also be extremely daunting. A home is one of life’s few purchases that requires such a large amount of debt. Along with a loan, there are also a number of upfront and ongoing expenses to meet. So, here’s a list of the big expenses you’ll be up for when buying a home.

Upfront home buying costs

There are quite a lot of upfront fees you’ll have to save for when buying a home. These include:

• Your deposit. The minimum deposit most lenders will accept is 5% of the purchase price.
• Lenders' Mortgage Insurance (LMI) is charged if your deposit is less than 20% of the
• Most lenders charge a loan establishment fee to process your application.
• Valuation fee. As part of your loan assessment, the lender will require a property valuation report – some will charge a fee.
• Building and pest inspection report
• Stamp duty
• Conveyancing and legal fees to transfer ownership of the property.
• Connection fees for electricity, gas, phone/internet and streaming services.
• Removalist fees
• Renovation costs if the property needs updating.

Ongoing costs of a home

• Home loan repayments. Principal and interest or interest only options are available. Your repayments may vary depending on the type of interest rate you applied for. Variable interest loan repayments may fluctuate with the rate, while fixed interest rate loan repayments will be fixed for a set term.
• Land tax and local council rates need to be paid each quarter.
• Body corporate fees are payable if you buy an apartment or property that has shared common areas.
• House and contents insurance can be paid monthly or annually.
• Ongoing maintenance and repair costs may depend on the age of the property.

Property prices may fall

While housing markets over the long term usually trend up, downturns can also occur. This may negatively impact the value of your property for a period of time.

The pros of renting

Here are some of the advantages of renting.

More flexibility

Renting gives you much more flexibility, as you don’t have a mortgage tying you down to the same address. In fact, you can pretty much move wherever you want to once your rental agreement is finished. You can move streets, suburbs, cities or even countries.

No maintenance costs

Since the rental property isn’t yours, most repairs and maintenance (except for intentional damage caused by you) are the responsibility of the landlord who owns it. It’s also up to the landlord to pay body corporate fees and council rates. As a tenant, you’re really only responsible for keeping the property clean and tidy.

Greater choice of locations

Renting can give you far more choice of where you want to live. Say you want to live inner or near city to be close to work, uni, cultural precincts or just the nightlife, renting can be far more affordable than trying to buy a property in these areas. This makes renting way more appealing to younger workers.

Cons of renting

There are a few disadvantages to renting to consider.

“Rent money is dead money”

You’ll hear this saying a few times when renting – particularly from your parents. It’s basically saying that your rent is paying someone else’s mortgage or helping them grow their wealth. In other words, you’ll never see a return on your rent money. It’s gone, never to be seen again.

On the other hand, buying a property means your repayments are slowly but surely building equity in that property – what you own grows with each repayment. You could even access that equity to buy an investment property or pay for some renovations that improve the value of the property. Eventually, those loan repayments will stop and you’ll own the property outright – unlike rental payments which will keep needing to be paid.

At the mercy of your landlord

While renting delivers flexibility it can also bring uncertainty. You may never be 100% sure of how long you can keep staying at the property. For example, the landlord may want to sell the property or chose to move you out so they can live in it. There may always be that panic when you get towards the end of your lease.

Never really yours

As a tenant, you can never really do everything you’d like to make the property your own. Things like structural improvements to the property can’t be done, while permanently hanging frames or painting walls are also usually off limits.

Whether you choose to keep renting or try home ownership is really up to your personal circumstances, your desired location and long-term goals. From a financial perspective, you can find properties in locations where it’s cheaper to buy than rent, and vice versa. In fact, the REA Buy or Rent Report for 2021 lists the top 10 suburbs in each capital city where it’s cheaper to buy and cheaper to rent. Online home loan calculators are one way to compare what your home loan repayments may be against what you pay in rent. Why not check it out now?

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