To buy or to rent? Here’s what you need to know in 2021
The decision to either buy a house or to rent seems like it’s as old as time itself. And with property prices surging across Australia this year, this issue is again in the spotlight.
It’s the age-old question when it comes to the property market – is it better to rent or buy? This year, the question is more relevant than ever as real estate prices surge across many parts of Australia. Here’s some keys to consider when making the big decision.
Pros of buying
House price increases: property prices have been growing strongly this year in many parts of Australia, especially capital cities like Sydney and Melbourne, and are tipped to reach record highs in 2021. This is good news if you’re a homeowner as a lift in market prices often correlates to a rise in the value of your home.
The result of rising property prices is that as a homeowner you’ll build equity — the proportion of the value of the property that you own — over time. You can then leverage your home equity to bolster your financial security into the future.
Greater certainty: As opposed to renting — when your family’s stability is based on the decisions of a landlord who is within their rights to sell or move back into their property at the end of the lease term – buying gives homeowners more certainty.
When you own your own home, unless you default on mortgage payments and your home is repossessed by the bank, there’s no risk you’ll all of a sudden be in the position of scrambling to find alternate accommodation for you and your family, which can be stressful.
Control over ongoing costs: Interest rates are at an historic low and while they won’t stay that way forever, mortgage repayments generally don’t fluctuate too much, especially on fixed repayments. What’s more, a home loan acts as a default way to save money because unless you take out an interest only loan, mortgage repayments include both principal and interest.
While mortgage repayments might be relatively stable you will also need to budget for other ongoing costs such as strata fees in the case of a unit, property maintenance, insurance etc. If you need help with budgeting check out our article on what to consider when choosing a budgeting app.
It’s also worth noting that in addition to cost control, you’ll also get control over what you want to do to the property, whether it’s a complete rebuild, a renovation or extension.
Pros of renting
Affordability: this comes down to the lifestyle you want. With renting, it’s usually more affordable than paying off a mortgage in highly sought-after residential areas. This is especially the case in major cities where many people are priced out of buying into the market. This means you may be able to afford to rent in an area you can’t afford as a buyer.
Greater flexibility: Whereas having a mortgage means you’re locked down to one place, renting provides the flexibility to move house whenever you want, so along as it meets the terms of your lease agreement. This gives renters an advantage over homeowners whether it’s to accommodate a growing family, for a career change, or simply to move for a change. This advantages further extends if you need to move and property prices have fallen, especially from historical highs like we are seeing today, as a homeowner you could be left in a position of selling your house for less than you purchased it for.
Less upkeep: as a renter, you can take leave of any responsibilities when it comes to property upkeep, which is the domain of the homeowner. All you have to do is keep the property clean and tidy, while your landlord is responsible for more major repairs, strata fees in the case of a unit, home insurance and maintenance. This saves renters money.
Make the best decision for you
These are just some key factors to consider when figuring out whether renting or buying is better for you. The right option really depends on your specific goals and financial situation.
Remember, buying a property comes with significant initial costs, such as conveyancing and stamp duty, as well as repayment obligations and you need to have a financial roadmap to make the dream of home ownership a reality, especially as surging property prices make it increasingly tough for first time buyers to enter the market.