Paying off a mortgage each month could now be cheaper than renting for many Australians – and experts say tenants could have enough savings in the bank for a deposit without realising.

Paul Williams is a a mortgage broker in Melbourne for Mortgage Choice and said the current market allows some renters to now make the leap into buying.

“Rents are generally rising, as are mortgage repayments, but at the same time property prices have come down a tad, so what we are finding is that it’s not a lot more to pay off a mortgage than it is to rent,” Mr Williams said.

Rapid changes in the market over the course of the year mean this suddenly more favourable standing will catch some Aussies by surprise.

“Many tenants don’t realise this until they have the conversation about what’s possible,” he said.

The biggest barrier to homeownership for most first-home buyers isn’t price – it’s the deposit. Picture: Getty

Mr Williams added that the variety of government incentives available can help tenants make the leap from renting to owning, including a suite of new measures they may not have previously been aware of.

“A lot of young people we speak to don’t actually understand that there are several benefits available that you can add on to the level of savings that they’ve already achieved,” he said.

Data shows that overall lending is down, with some would-be buyers clearly uncertain about the market.

Australian Bureau of Statistics figures for September recorded a 8.2% fall in lending for homes.

Saving for a deposit

There’s no denying that the most difficult aspect of purchasing a home is saving up a deposit, which is generally 20% of a property’s purchase price.

Once that deposit is saved, paying off a mortgage each month is often a similar burden to paying rent.

“As home prices have increased, the chief hurdle for most first-home buyers has been saving a deposit,” explained Paul Ryan, senior economist at PropTrack.

However, under new government schemes, first-home buyers don’t necessarily need a 20% deposit to purchase a home.

The First Home Loan Deposit Scheme which was introduced in 2020, allows first-home buyers to buy with as little of 5% of a home’s value without needing to take out lender’s mortgage insurance.

The Commonwealth Government guarantees the difference between what the eligible buyer has saved and the 20% deposit threshold lenders usually require before they’ll provide a loan without LMI.

“I think it’s fair to say that that’s been quite successful,” Mr Ryan said.

“That has been, I think, fully subscribed every year that it’s run. And we saw a big increase in the number of buyers throughout COVID, partially attributable to that policy.”

Government first home buyer schemes help renters get into the market faster. Picture: realestate.com.au/sold

The program will help 10,000 Australians annually to buy a home with a deposit as small as 2% and see the government take up to a 40% stake.

“So, people that have gotten themselves to a point where they’ve got strong incomes to meet mortgage repayments may well be able to purchase sooner than they expected,” Mr Ryan said.

Why the government is pushing renters to buy

Former prime minister Scott Morrison notoriously said in an interview that those struggling to afford rising rental prices should just buy a home.

It was a controversial statement – but one with some substance.

The fewer people renting in the middle of the market, the lower the demand for those dwellings and therefore the less pressure on price movements. In theory, that allows those at the lower end of the market to find a home, and find one that’s affordable.

But governments also focus on support measures to buy a home because of how most people value the so-called ‘Great Australian Dream’.

“I think it’s partly cultural – I think Australians’ views on homeownership is very strong, so I think there’s a strong desire there for a lot of people to purchase a home before starting a family or those early stages of a career,” Mr Ryan said.

Former prime minister Scott Morrison said the best way to help renters is to help them buy. Picture: Getty

Renting laws are also not as favourable to tenants in Australia, which motivates many to switch into the buying market if they can.

“There’s an understanding that renting conditions can be poor in this country… and so it’s been seen as undesirable to rent long-term, as compared to say, European countries where people are perfectly happy to rent their entire lives,” Mr Ryan added.

Source: www.realestate.com.au