Housing affordability is a huge issue. Working out whether to jump onto the property ladder or continue renting can be a confusing decision. We’ll go through some of the pros and cons of both options to help you make an informed decision.

Renting: the pros

Frees up your savings

By choosing the renting life over home ownership, you’re not spending your savings on a deposit and all the costs associated with buying a home. You’re freeing up money to spend or invest elsewhere. Depending on where you invest the money, you may actually get a greater return on investment than if you’d bought a house. You need to think carefully about your investment goals and strategy.

Or you may be at a time in your life when you’re not yet ready to have all your savings and monthly income going towards a deposit and a mortgage. Does travel or study beckon?

It gives you more flexibility

Renting gives you flexibility. As a tenant you can freely relocate from home to home and area to area once your lease expires. The significant costs associated with buying and selling means that you have less flexibility when choosing to move house.

Allows you to diversify your investments

Buying a home, especially for first home buyers, often means that all your savings will be going towards the one asset. Do you feel comfortable with most, if not all, your savings tied up in a single investment? Renting allows you to use your savings across a broad range of investments. By diversifying your investments, you’re also spreading the risk.

Renting: the cons

Rental costs are ongoing

If history is a past indicator, the cost of renting will steadily increase over the years due to inflation and rise in property prices. Depending on where you live, your mortgage repayments may initially be higher than the cost of renting, but over the life of the loan, the interest charged reduces as the principal is paid off.

Many people pay off their mortgage in under 30 years. Sure they’ll still have costs for home maintenance and council rates, but they’ll be free of large monthly payments to live in their home. But if you choose a life of tenancy , you’ll always have rental payments. Once you hit retirement and your income is reduced, it may be difficult to find a large sum of money each month. You may also be less able to absorb rent increases.

No forced savings

A mortgage is like forced savings. You’re obligated to pay your mortgage every month – putting money towards an asset that could potentially increase over time. But with renting, it can be tempting to spend spare cash rather than saving or investing it.

Buying a house: the pros

It gives you stability and freedom

Buying a home provides you with certainty; there's no risk that you'll be displaced by a landlord. Tenants have very little say in how long they can occupy a rental property beyond the lease term. Living in your own home also allows you the freedom to renovate and decorate your home as you please.

Rise in house prices over time

Having an asset that may increase in value over time is appealing. While house prices have consistently risen over the long-term, they can also have periods of weak growth or even fall in value. You need to remember that home ownership is a long term investment strategy.

The ability to use the equity in your home

Home equity is the proportion of your home that you own. Provided that the value of your house is increasing, as you pay off your loan, your equity will also be increasing. You may then be able to use the equity to fund an investment such as shares or a managed fund.

Buying a house: the cons

You’ll be paying interest

The interest and fees you pay over the life of a loan can be significant. Be prepared for interest rates to fluctuate during the term of your loan, especially if you have a variable interest rate or when your fixed rate period expires.

There are opportunity costs

This is the cost of having your money tied up in property. If you choose a life of renting, you’ll have the money you would have saved for a deposit to spend elsewhere. This might be for travel, study, entertainment or your own business. It could also be used for other investments that potentially could yield greater or quicker returns than a residential property will.

Ownership costs are more than just a deposit and loan repayments

Buying and selling isn’t cheap. According to the Reserve Bank of Australia, it costs about 4% of the sale price of your home to sell (agents fees, advertising) and about 6% of the purchase cost to buy (stamp duty, government fees, conveyancing costs, loan establishment fees). Not to mention the ongoing running costs of owning a property including council rates, repairs, depreciation, body corporate fees, water and insurance costs. It’s much more than just saving for your deposit.

Rent? Buy? How about an alternative?

Michael Sloane from the Successful Investor makes a case for becoming a ‘renting investor’. If you can’t afford to buy in an area where you wish to live, but you want to invest in property, there’s still a way.

He suggests buying in a neighbourhood that is affordable and likely to be a good investment, and renting in a more convenient or desirable location. This works because the geography of renting differs from the geography of buying – it’s more affordable to rent in an inner-urban area than to purchase there. So by buying an investment property that you can afford, and continuing to rent close to work, near the beach or in the city, you won’t be compromising your lifestyle.

This option also makes sense if:

  • Your lifestyle or work situation isn’t permanent. If you’re not sure where you want to settle, it may not make sense to plant your roots in property yet.
  • You don’t see the burden of a large non-tax deductible mortgage on your home as the best use of your money.

Doing the sums: the best option for you

As we’ve seen, the case for buying or renting isn’t a simple one. There are many different factors to consider including your financial resources, lifestyle, family needs, investment goals and appetite for risk. Doing research and talking to an expert is a good idea. To assist you with your decision, as a starting point, we’ve got a handy rent vs buy calculator. Based on you current rental repayments this tool will help you work out if you could afford a home loan.


Can you afford that home?

Get an estimate of how much you could borrow in around 3 minutes.

After more information?Other related articles

Saving for your home loan deposit — a case study of a single person

Single and saving for a house deposit is hard work and not getting easier. Here are some tips to help you get there sooner.

Saving for your home loan deposit — a case study of a couple

For the average Australian couple, saving your house deposit is hard work and not getting easier. Here are some tips to help you get there sooner.

Saving for your home loan deposit — tips to get there faster

Saving a deposit for a home loan for the average Aussie is difficult. Our three part series offers tips to help you get there sooner.

Our home loan dictionary

We’ve put together a glossary of home loan terms to help you understand what they all mean.

After more information?Related products and services

Home loans

NAB offers flexible home loans to suit you whatever stage you’re at. Buying a home, investing, renovating, refinancing.

Savings accounts

Whatever you're saving for, our savings accounts can help get you there sooner.

Credit cards

Whether you're looking for our lowest interest rate, a low fee card or a card that rewards you for everyday spend, we have a credit card to match.

Home and contents insurance

Your home and its contents are more than just assets to you. For peace of mind, get the right insurance with either NAB Home Insurance Essentials or NAB Home Insurance.

We're ready to help you

Call 13 78 79

Mon-Fri 8am - 7pm (AEST/ADST)
Sat-Sun 9am - 6pm (AEST/ADST)

Talk to an expert
Enquire online