What owners pay and don’t get back
Only the part of a mortgage payment that repays the loan builds wealth. These don’t:
| Cost | Roughly, each year |
|---|---|
| Mortgage interest | Most of each payment in the early years |
| Council rates | Often several thousand dollars |
| House insurance | Rising fast, especially in flood- and quake-prone areas |
| Maintenance and repairs | Often 1% or more of the value |
| Body corporate fees (apartments and many townhouses) | Varies |
| What the deposit could earn | The return you give up by not investing it |
New Zealand has no stamp duty, but buying still costs legal fees, a building inspection and moving. Selling costs more: agents often charge around 3% of the price, plus GST.
Here’s how it adds up for an $800,000 home, against $700 a week rent for a similar one:
- Mortgage interest
- $611
- What the deposit could earn
- $162
- Repairs and maintenance
- $154
- Council rates
- $62
- House insurance
- $48
Owning costs you don't get back $1,036 a week
Less 3% a year growth in the home's value −$462
Net cost of owning $575 a week
Rent for a similar home $700 a week
Buying costs less here, but only if prices grow: with no growth, owning costs $336 a week more than renting
Assumes rates of 0.4% and repairs of 1% of the value a year, $2,500 of insurance, and 5% a year on money invested instead. Prices can fall as well as rise.
A rule of thumb
A quick comparison: the costs of owning that you don’t get back come to roughly 4% of the home’s value a year. That’s about 1.5% to 2% for rates, insurance and repairs, plus the cost of the money tied up (mortgage interest and what your deposit could earn, about 5%), less the growth you might expect in the home’s value (say 3%).
Example: an $800,000 home
4% of $800,000 is $32,000 a year, or about $615 a week. If you could rent a similar home for less, renting may cost less, as long as you invest what you save.
It’s a rough guide: interest rates, prices and costs vary a lot between places, and house prices don’t always rise.
When buying makes more sense
- You’ll stay for years, so the costs of buying and selling are spread out.
- You want stability: no rent rises, no end of tenancy, and freedom to renovate or keep pets.
- You’d never invest the difference. Paying off a mortgage is a forced saving plan, and KiwiSaver can help with your deposit.
- Your own home is usually tax-free to sell. The bright-line test doesn’t apply to your main home.
When renting makes more sense
- You might move within a few years, for work or family.
- Homes near you cost a lot compared with rents, as in many expensive suburbs.
- You’ll invest the difference, for example by raising your KiwiSaver rate or putting a regular amount into a PIE fund.
Bottom line
Rent pays for a home to live in, just as an owner’s interest and rates do. Compare the full costs, not rent against the mortgage payment. Try the rent vs buy calculator with your own figures, and see what buying would cost each month with how much can I borrow?