Are mortgages really cheaper than renting?

Results of an interesting study released in the new year by Deutsche Bank claim that mortgages are indeed “not expensive relative to rent”, suggesting the average renter spends more of their household income on rent than what an average home owner spends on their mortgage repayment.

What’s more, they also state that housing affordability has improved due to lower than average interest rates, making claims of so-called “mortgage stress” somewhat overstated.

No matter what conclusions you draw from a whole bunch of statistics derived from a certain set of formulas gathered over a period of several years, the fact remains that the goal posts have changed for home buyers looking to take on a mortgage in this millennium.

For those of us on the front lines dealing with the human side of this equation, the reality is whilst rates are indeed low and the average mortgage repayment is certainly a little leaner than in comparison to a few years previous, it’s really of little consequence, particularly if you can’t get a mortgage in the first place.

Sure, the ability to repay a loan may be somewhat easier, but that does not mitigate the need for some kind of deposit or equity to bring to a transaction.

If you are a first home buyer as a bare minimum you cannot even think about getting a home loan unless you can bring at least a 5% to the transaction, which for an average purchase, still equates to tens of thousands of dollars.

This may be realistic for those on a sizeable income, but where does that leaves a single person on an average wage? Not to mention the huge stamp duty charges non first home buyers have to come up with.

The “study” also neglects to factor in the fiscal realities of home ownership. Rates, insurances, maintenance and the like all add to the overall expense.

Yes it’s not technically a “mortgage” expense but it comes with the territory. In September, Standards and Poor’s Ratings agency revealed mortgage arrears had increased by 25% in the twelve months prior. This must surely indicate there are many whose mortgage is not for a property on Easy Street.

Housing affordability doesn’t affect those it doesn’t affect. But there are many on the lower end of the income spectrum who will quite simply never be able to qualify for a mortgage unless by divine intervention. And believe us when we say, there are more than you may think.

Investors want to see property prices rise, but where this will leave the next generation trying to get a home loan is anyone’s guess.

Perhaps before enrolling your child in that expensive private school this year, some may suggest it would be more beneficial to them to instead keep that money aside to use as a deposit on a house for them down the track.

Because let’s face it – who knows where those goal posts will be for the next generation?