Making the change from renting to buying

In Australia, particularly in Sydney and Melbourne, we are so used to property values rising that a price correction causes shock waves throughout the market. However, a softening market is good news for first-time buyers. If you have been renting and wondering when it will be the right time to buy, it could be now.

There is the old saying that rent is dead money – you are paying off your landlord’s mortgage, not your own. Let’s look at how the numbers stack up.

The cost of renting vs buying

The median weekly rent for all dwellings, houses and apartments, in Sydney is $583 and in Melbourne is $451. This is significant money. As a very general guide, the Commonwealth Bank home loan calculator shows that a loan of $400,000, over 30 years with an introductory rate of 3.84% per year, will require repayments of $433 a week.

Despite the softening market, rents in Melbourne are rising. It’s one of the 10 fastest growing cities in the developed world with the population expected to increase by around 10 per cent in the next four years, according to CoreLogic, so demand for rentals is not going to decrease. Meanwhile, in Sydney, rental prices have dipped for the first time in 12 years.

The benefits of apartment living

It’s a rare first-home buyer who can afford to buy a house in an area they would really like to live in, particularly if that happens to be close to the city and near transport, cafes, amenities and entertainment. Inner-city houses are at the high end of the property market, whereas there is a fabulous range of apartments in these areas that cost less than a house and land on the fringes.

The shared facilities of new apartment buildings also make them very appealing, offering amenities that would not be achievable with a first house, such as a pool and gym. Many have a residents’ kitchen and dining area, often opening to an outdoor leisure area, where you can entertain a large number of guests.

Figure out the finances

The first thing to do, if you are considering making the change from renting to ownership, is to talk to banks and lenders. Have your finances assessed and discuss potential options. Check out incentives from developers who may be very keen to get an off-the-plan project off the ground, or who may have reached a stage where they are keen to sell remaining apartments.

Finance can be a little tricky if you don’t have a 20 per cent deposit, but don’t let that stop you discussing your situation with banks and lenders. There are options for low-deposit purchasers. You may be required to take out Lenders Mortgage Insurance – a one-off payment to protect the lender against the event where you might fail to make loan repayments. Ask whether the first-home buyers grant can form part of your deposit, or if your circumstances allow you to use some of your superannuation.

Find the right apartment, find the right financing, and make the change.