robo500

Hi,

Is it the same in Australia as it is in the Uk in that in general renting will cost more than buying your own place and having a mortgage?

What is the current mortgage rate for Australia on a straight forward repayment mortgage? So i can get an idea of how much we can afford to pay.

Thanks

bcworld

http://www.ratecity.com.au/home-loans/low-interest

Of course it depends on the size of the loan, but in Australia people can often afford to rent in areas they can't afford to buy in.

robo500

thanks bcworld strikes me as kind of strange that as in the Uk its dearer to rent than to buy as im most cases your paying off someone elses mortgage and then some extra on top

bcworld

Many landlords happily make a loss on their investment properties as this can be used as a deduction on their tax return.

Thinking about my place. I reckon it would rent for $400pw tops.

An 80% mortgage on it would probably cost, at today's rates, about $580-600pw interest only.

Steve2009

You raise an interesting point and I'm surprised this isn't taught in schools, perhaps it will be in time given the current GFC troubles.

There are two components to a mortgage payment; the interest portion and the repayment portion. You can consider the interest payment as rent on the (outstanding) sum borrowed. The repayment reduces the outstanding balance of the sum borrowed.

Rent in Australia is unlikely to be more than the interest payment on a comparable property. This is similar to many other countries but particularly so in Australia due to negative gearing. Negative gearing allows property investors to offset their losses on investments against other income for the purposes of calculating their taxable income. As such property investors accept a cash loss on their investments in the hope of a capital gain on the value of the property over time.

Australia_bound?

We rent and it's dirt cheap, no rates so all is good.

As prices are 'expected' to fall in the near future I'd say buying possibly isn't the best way forward.

kar-kier

I found buying in the UK dearer than renting, same with over here!! I could never afford to buy the house i currently live in!

robo500

kar-kier i totally agree as initial searches of properties in the perth area suggest that indeed i can comfortably rent a really nice house however to buy a similar property we probably could only just afford it, but the thought of retiring later on in life and not having your own house fully paid for kind of scares me lol

Steve2009

The prudent thing for a long term renter to be doing is saving the amount they would be paying as the repayment portion of their mortgage each month or investing it.

Essentially that is what you are doing when you undertake a mortgage, you rent the banks money while saving up your own money to invest in your future housing utility. (Except maybe that all of your eggs are in one basket)

Arguably property is not always the best investment available and there are alternatives. Any investment may outperform or under perform savings rates over any given period of time.

Given the fact that you are even asking these questions I think you're more prudent than many. Whatever you decide to do I'd advise you not to overstretch yourself because there is more to life than housing.

jimbo_d

Steve that's the most balanced opinion I've heard from you, excellent advice!

kar-kier

The only problem comes when you can't afford to save any - hence if you had the extra you would using it on your own mortgage!!

Steve2009

Thanks, I've been boning up on Dale Carnegie.

Steve2009

It may be possible that you could rent a cheaper property and unlock some cashflow to build savings. It may also be possible that if you did have extra cashflow that you would choose to rent a more expensive property rather than take on a mortgage. All of these decisions have trade-offs, such is life.

It may also be the case that you are genuinely struggling for one reason or another and genuinely cannot trim any fat or increase your incomings. I understand many people are in this position or at least feel that they are and I can empathise with them.

Vegemite Kids

A quite a few people in Perth rent the house they live in but also own cheaper house(s) either elsewhere in Perth / on the East Coast or overseas that they rent out to others and use as part of their superannuation / pension planning / retirement philosophy.

Just cos you rent your "daily living" house doesnt mean you cant also own property. I know quite a few renters that have built/are building quite a nice property portfolio that they will then sell off to fund their retirement. ETA: And they negatively gear those properties against their tax returns, so the mortgage they hold on that property is fully paid for by others and the tax man.

Might be worth thinking about as an alternative way to 'have your own home fully paid for' on retirement.

There's a lot to be said for it as a strategy, cos if you ever need to move house you just give your xx days notice and off you go. No worries about what the housing market is like or how long will it take to sell etc etc. Also if the market is at what you believe is a high and you think prices will drop, you can take advantage of that belief and sell off the property that you own but rent out without it affecting or disrupting your daily family life or standard of living.

But a word of caution. If you do think about going down that route, make sure you have a very very good financial advisor.

robo500

thanks for all the good replies i think the way forward for us would be to rent out our house here in the Uk (i need to get my head around what penalties we would run into with this) while renting somewhere in Perth to live in which we can comfortably afford and also leaving us a bit of money spare every month for some savings