Owning cheaper than renting in Christchurch

It only costs $18 a week more on average to service a mortgage than pay market rent for first-home buyers purchasing in June, according to CoreLogic data.

In Christchurch, it was $68.50 cheaper per week on average to pay a new mortgage rather than carry on renting.

New owners in Auckland and Wellington aren’t so lucky, and usually find themselves spending roughly $100 or more a week.

The figures are based on prices paid for first homes in June, a 2.5 per cent mortgage interest rate and a 30-year repayment term.

They reveal the advantages first-home buyers have if they are able to save a 20 per cent deposit and get on the ladder, paying a comparable amount in order to pay off an asset rather than put money in landlords’ pockets.

However, CoreLogic chief property economist Kelvin Davidson said the sums didn’t take into account other expenses that came with owning (such as rates, insurance, and maintenance) or the impact interest rate increases could have.

Rising interest rates were likely to increase mortgage repayment amounts more than rents, Davidson said, because rents are constrained by what renters can afford to pay.

Meanwhile, with mortgage rates at record lows, even a small adjustment would have a big impact on repayment, he said.

Auckland had the biggest difference between mortgage payers and renters in June, with the average new homeowner paying $127 more per week than a renting household.

Wellington wasn’t far behind, with the average new homeowner paying roughly $96 more per week than a renting household.

In Hamilton the difference was $42 per week, and in Dunedin the difference came in at $22.

A CoreLogic analysis of data from the last three years shows the price of servicing a mortgage compared with paying market rent was always harder in Auckland and Wellington, whereas in Christchurch paying a mortgage became a more cost-affective option than the rest of the nation about mid-2019.

‘‘The big-picture trends for me in each of those areas is the relatively low and stable difference between renting and buying across New Zealand up until the last quarter or two, as falling interest rates broadly offset rising house prices, with Auckland and Christchurch improving off the back of flatter house prices and falling mortgage rates,’’ Davidson said.

‘‘But of course the rebound in prices lately has outstripped any rental growth, and changed the relativities. I’d expect that to continue as mortgage rates rise.’’

When asked why Christchurch was such an outlier, Davidson said it had been a flatter market for a long time.

‘‘It really has been the outlier in terms of price growth,’’ he said. ‘‘It’s certainly accelerated lately, but it’s starting at a lower point.’’

John Bolton, the chief executive of mortgage broking firm Squirrel, said with interest rates as low as they were, from a financial perspective it was generally better to own than to rent.

While homeowners did have to factor in costs on top of the mortgage, such as rates, insurance and maintenance, there were wider benefits that came with owning a home, he said.

‘‘Not only is it a good, long-term investment which will see value growth, but it provides greater housing security ... Our system is engineered towards home ownership and that means there is more latitude for homeowners than there is for renters.

‘‘If a homeowner gets into financial trouble, their bank will work pretty hard to help them.’’

It is also possible for people to make improvements and add value to a property they own, Bolton said. ‘‘Renters don’t have the ability to do that and quite often rentals are not in great condition.

‘‘With lots more people working from home these days, the home environment has become more important. So being able to adapt a property to your needs is another bonus of ownership.’’

‘‘It [Christchurch] really has been the outlier in terms of price growth.’’

Kelvin Davidson

CoreLogic chief property economist