Historically speaking this has certainly been the case. Most people would choose to rent rather than buy their home simply because the mortgage payments were too high. Young people would choose to rent in a trendy inner suburb, but some years later would look to buy in a cheaper outer suburb. The landlord in turn would be able to “write off’ their tax the negative gearing on his investment – ie. the loss he experiences from the fact that rental payments fall short of his investment holding costs.

Today, with property prices coming down and interest rates being at historically low levels, the trend appears to be reversing.

 

According to new research By RP Data, there are now 494 suburbs across Australia’s capital cities and regions where it’s cheaper to make home loan payments than pay rent. Certainly that should make property very attractive to many First Home Buyers.

So why would you not buy your home if it is cheaper to do so than rent?

Lack of Deposit

Although you may be able to afford your rental payments, to be able to make a property purchase you also need to have a reasonable deposit. This is where a number of potential home buyers face difficulties. If your rental property is worth $500,000, yo need to have at least $40,000 (between deposit and purchasing costs) to be able to buy. Few people can manage this and therefore continue to rent.

Bad Credit

If you have some history of bad credit, while this will not preclude you from qualifying for a home loan, you need to have an even larger deposit and the costs of your home loan can be higher because you would be seen by the lender as a higher risk borrower.

Perhaps you have no real bad credit but simply have a dispute with a service provider and they have placed a bad mark on your credit report pending the dispute resolution. This will not affect your ability to find a rental property but can affect your ability to qualify for a mortgage.

Lack of stable employment

Perhaps you are working casually or for cash – this may not be a problem while you are renting but can be a problem if you are looking to buy a home. It can be difficult to qualify for a mortgage is you can not demonstrate stable and adequate income. Under the responsible lending legislation your lender and or mortgage broker has a legal obligation to ensure that you have sufficient income to afford your loan. They will want to see your payslips or tax returns or bank account – something to verify your income. People who are working for cash will simply not be able to qualify.

Too many debts

Then there s the issue of your overall financial position. Your landlord does not ask you about all your other debts, credit cards, personal loans, car loans etc. However your lender will. They will need to make an assessment of your ability to afford the new mortgage and much of this will relate to your other debts and obligations.

Categories: Renting

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