Suburbs where it’s cheaper to buy a house than rent

With mortgage rates dropping on the back of the Reserve Bank's decision to cut the OCR and property experts warning that rents will rise as a result of government changes to rental sector, aspiring homeowners will likely be asking whether it's better to buy than rent.

OneRoof and its data partner Valocity compared rent levels with mortgage payments around the country to see if there are some places where it’s cheaper to buy.

OneRoof and Valocity compared the monthly mortgage repayment on a median sale price for more than 900 suburbs across the country in the first week of July, excluding areas with less than 20 rentals and 30 sales, and assumed an interest rate of 5 percent on 30-year term with a 20 percent deposit.

OneRoof editor Owen Vaughan said the figures didn't take into account the rate cut or include additional housing expenditure like insurance and maintenance costs. It assumed a 20 per cent deposit.

“The lower mortgage rates currently being advertised by the banks are unlikely to last the length of a 30 year loan so the calculations were done on 5 percent interest rate to give a more accurate figure."

The research found 187 suburbs where it is cheaper to buy than rent and another 94 suburbs where the monthly mortgage repayment was less than $100 extra a month than rent.

The data also showed more than 200 suburbs where it is considerably cheaper to rent than buy, with the difference between mortgage repayments and renting was more than $1,000 a month, and one suburb, Auckland's Herne Bay, where the monthly difference is $5,451.

Overall, the more affordable the suburb, the lower mortgage repayments were relative to rent.

“First home buyers should be encouraged by the data. It will give them a good guide as to how they could structure their budget and see beyond what can be a challenging effort to save for a deposit," Vaughan said.

"Conversely, for investors, the data provides a guide to where the best returns are in New Zealand. Anywhere where rent outstrips mortgage repayments by a huge margin would be worth further investigation."

According to the data, the locations with the biggest share of suburbs where buying is cheaper than renting are Whanganui, Invercargill and Rotorua. "Whanganui leads the pack and is the place buyers should turn their attention. The monthly mortgage repayments were cheaper than the monthly rent in every suburb.

"Whanganui could also lay claim to the suburb with biggest difference between monthly rent and mortgage repayments. Otamatea, where the median house value is $562,500 and the median rent is $864, renters could make a $1,040 a month saving if they decided to buy in the suburb instead," Vaughan said.

"Westmere, in the town, had next biggest difference, with renters potentially saving $969.12 a month if they opted to buy."

The gap was next biggest in Auckland Central, the only Auckland suburb where buying is cheaper than renting. Vaughan said: "The difference between buying and renting for the suburb is, according to the data, $670.82 a month. This is due to the high volume of apartments in the suburb, which typically come at a more affordable price point compared to the rest of Auckland."

The median value for Auckland Central is $520,000, $300,000 lower than the overall median value for the city. However, buyers there would still need to save, on average, $104,000 for a deposit.

Invercargill had the next highest share of suburbs where buying is cheaper than renting. Of the 26 suburbs reviewed, renting was a cheaper option than buying in just three suburbs. The average gap between monthly mortgage repayments and rents was $227, in favour of mortgages.

Rotorua was the next best place to buy. Of the 33 Rotorua suburbs reviewed by OneRoof, monthly mortgage repayments were lower than the monthly rents in 22, with the biggest savings for aspiring homeowners to be found in Fordlands, where the difference was $600.67 a month and the median value of properties sitting at $215,000. Renting was a cheaper option in the city's more expensive suburbs, including Lake Tarawera and Lake Okareka, where renters were more than $900 a month better off and Lynmore, where renters are $674 a month ahead.

Dunedin had 16 suburbs where buying was cheaper than renting, and another 14 where the cost of the monthly mortgage repayment was less than $100 more than the monthly rent. Of the 85 Christchurch suburbs reviewed, repaying a mortgage was cheaper than paying rent in 23 suburbs, with the highest savings to be found in low-priced suburbs, such as Phillipstown, Linwood and Aranui.

There were no suburbs in Wellington, Hamilton , Tauranga and Queenstown where renting was more expensive than buying, and the extra cost of servicing a mortgage was smallest in suburbs with lower median values. In Wellington, the extra cost of servicing a mortgage was smallest in Grenada North - $213.39 a month more than monthly rent; in Hamilton the extra cost was smallest in Bader, where buying works out to be just $128.77 a month more expensive than renting. In Tauranga, the extra cost was smallest in Parkvale - just $126 a month more.

In Queenstown, the extra cost was smallest in Luggate, the city's most affordable suburb - just $609.58 a month. The extra cost was biggest in Kelvin Heights, where the monthly rent is $4,968 and the monthly mortgage repayment $7,096.

Vaughan said: "Auckland had the biggest share of suburbs where difference between the monthly mortgage repayment and rent was biggest. Of the 217 suburbs reviewed, there were 160 where the difference was $1000 or more. Renting was by far the better option in Herne Bay, Saint Marys Bay, Takapuna, Parnell and Epsom, where repaying a mortgage was $4,000-plus a month more than renting. However, renting in these suburbs still comes at a cost: between $4000 and $5,500 a month."

OneRoof property commentator Ashley Church said: "Overall, if you compare the cost of renting to the costs associated with owning a home (mortgage, rates, insurance, maintenance, etc) it’s cheaper to rent.

"But the moment you step back and factor the effect of time into your comparison that position collapses and home ownership wins hands down because of the capital growth homeowners achieve over the lifetime of a purchase."

He added: "The short-term gain of saving a few dollars by renting rather than paying a mortgage is a momentary illusion. Over the lifetime of a New Zealander the advantages of buying are immeasurably greater and it should be the aspiration of every Kiwi to buy their own home as soon as possible."