Owning can be cheaper than renting, say property analysts

It costs only $18 a week more on average to service a mortgage than pay market rent for first-home buyers purchasing in June, according to CoreLogic data.

New owners in Auckland and Wellington usually find themselves spending roughly $100 or more a week.

In Christchurch, it was $68.50 cheaper per week on average to pay a new mortgage rather than carry on renting.

The figures are based on prices paid for first homes in June, a 2.5 per cent mortgage interest rate and a 30-year repayment term.

They reveal the advantages first-home buyers have if they can save a 20 per cent deposit and get on the ladder, paying a comparable amount to pay off an asset rather than put money in landlords’ pockets.

However, CoreLogic chief property economist Kelvin Davidson said the sums didn’t take into account other expenses that came with owning (such as rates, insurance, and maintenance) or the impact interest rate increases could have.

Rising interest rates were likely to increase mortgage repayment amounts more than rents, he said, because rents are constrained by what renters can afford.

Meanwhile, with mortgage rates at record lows, even a small adjustment would have a big impact on repayment. Auckland had the biggest difference between mortgage payers and renters in June, with the average new homeowner paying $127 more per week than a renting household.

Wellington wasn’t far behind, with the average new homeowner paying roughly $96 more per week than a renting household. In Hamilton, the difference was $42 per week, and in Dunedin, it was $22.

A CoreLogic analysis of data from the past three years shows the price of servicing a mortgage compared with paying market rent was always harder in Auckland and Wellington, whereas in Christchurch paying a mortgage became a more cost-affective option than the rest of the nation about mid2019.

‘‘The big-picture trends for me in each of those areas is the relatively low and stable difference between renting and buying across New Zealand up until the last quarter or two, as falling interest rates broadly offset rising house prices, with Auckland and Christchurch improving off the back of flatter house prices and falling mortgage rates,’’ Davidson said. ‘‘But, of course, the rebound in prices lately has outstripped any rental growth, and changed the relativities. I’d expect that to continue as mortgage rates rise.’’

John Bolton, of mortgage broking firm Squirrel, said with interest rates as low as they were, from a financial perspective it was generally better to own than to rent.

While homeowners did have to factor in costs on top of a mortgage, such as rates, insurance and maintenance, there were wider benefits that came with owning a home, he said.

‘‘Not only is it a good, long-term investment which will see value growth but it provides greater housing security . . . Our system is engineered towards home ownership and that means there is more latitude for homeowners than there is for renters.’’

‘‘Auckland had the biggest difference between mortgage payers and renters in June, with the average new homeowner paying $127 more per week than a renting household.’’ Kelvin Davidson

CoreLogic chief property economist