If you’ve ever thought the cost of your rent was so expensive you could afford a mortgage instead, you’re not far wrong.
Australian tenants pay just $62 less a week in rent than homeowners pay on an average mortgage, a new analysis of a survey and government statistics shows.
“While renting may be preferable to some people due to lifestyle factors, taking out your own mortgage isn’t much more costly than rental payments – and this allows you to build up equity in your property,” Finder.com.au spokeswoman Bessie Hassan said.
Renters pay $1200 a month in rent compared to mortgage holders’ repayments at $1467, according to the comparison website, which matched its survey findings and Australian Bureau of Statistics finance data.
Domain Group data shows Sydney’s median advertised weekly rent for a house was $550 in March 2017, while for an apartment it was $530.
In Melbourne, house rents recorded over the same period were $420 a week while apartments were $395.
But those renting are still left with the difficulty of saving a deposit.
Renters who had a consistent rental history of making payments on time might be able to use this to their advantage, Ms Hassan said.
“There are some banks that accept rent as genuine savings, which can lend weight to your ability to pay back a mortgage,” she said.
In some situations and depending on the lender, this could allow renters to borrow more than 80 per cent of the value of the property, Dream Financial mortgage broker Paul Bevan said.
A minimum of 5 per cent was still usually required in cash funds as a deposit.
“Depending on the [loan to value ratio] six to 12 months of continuous rental history is acceptable as evidence of genuine savings,” Mr Bevan said.
But some experts say the focus should be on bringing down the cost of renting, rather than using these funds to justify a home loan, including Don’t Rent Me founder Antony Ziebell.
“Put a real cap on rent increases so as to steady speculative investment,” Mr Ziebell said.
This would benefit those who don’t want to borrow with a small deposit, which comes with additional fees and risks.
This includes lender’s mortgage insurance, which is a cost charged to borrowers with deposits smaller than 20 per cent.
There is also a higher risk for borrowers without a significant deposit buffer of “negative equity” – where they owe the bank more than they can sell their home for. This could happen if property prices fell and the value of the home was less than the size of the mortgage.
Interest rates are also at historic lows, which is making repayments more affordable – but this could change should rates increase in the future.
First Home Buyers Australia co-founder Taj Singh recommended negotiating a multiple-year lease and considering a flatmate.
“Struggling first-time buyers tell us time and time again that the biggest hurdle to home ownership is saving the cash for a deposit, which can be hundreds of thousands of dollars,” he said.
He said it would be a good option for the government to provide assistance to long-term tenants with good rental ledgers with deposit assistance.