Renting over the last couple of years has become problematic and a nightmare for many students, new employees, families where firstly properties are scarce and secondly those that are available are overpriced and frankly not worth the money.
My own son two years ago rented a one bed apartment in a fashionable part of Dublin…at € 1,800 per month since gone up to € 2,200. When I saw the apartment, I googled a similar apartment in the same block that with a 90% loan would cost less than half his current monthly rent. He has since bought.
John Lowe of MoneyDoctors.ie itemises 5 areas to review and consider in your quest to rent or buy :
- Current rent – would you be better off converting your monthly rent into a mortgage repayment ? You may be better off trying to buy a property. With rising rents, it is becoming more and more sensible to start thinking about buying especially as mortgage interest rates may be on the decrease over the coming months.
- Costs – rent normally includes building insurance, maintenance, repairs, gardening ( if there is one ) and all furnishings. It does not include Local Property Tax. Buying your own place you have all these costs and should be factored in to the comparison plus other costs such as property management, bin charges, housing association expenses etc.
- Lifestyle – are you at a stage in life where planning your financial life needs to start sooner than later ? What is your top financial priority NOW ? Do you want the responsibility and all that goes with that of owning a home NOW ? Does your work keep you in one place where it again might make sense to buy your own place ? The risk of course is that the property you buy may not be worth what you paid for it when you come to sell it. The last few years is proof of that. All investment is based on the return being made.
- Income – all lending is based on the ability to repay. You might have a property worth € 500,000 and looking to borrowing only € 100,000 but if you do not have the income to repay that loan, the lender will not approve. The last thing the lender wants to do is repossess the property because you cannot make the repayments. For first time buyers it is 4 times your annual income and 4 times of your partner if you have one. Don’t forget the Help to Buy Scheme ( see below ) or the First Home Scheme ( up to 30% of the property price, repayable at a future date but with no repayments other than after 6 years a 1.75% interest annual charge on the capital ) both eligible for new homes and first time borrowers.
Other considerations include overtime, bonuses and dividends. Employment has to be permanent – so no probation period. You will also need to have a good credit history. One missed loan repayment stays on www.CentralCreditRegister.ie for 5 years – and a decline for any credit request. Check for yourself – its’ free and takes 3 to 4 days for the report
5. Savings – not only will you require at least 10% of the purchase price of your new home ( if you qualify for the Help to Buy Scheme where your last 4 years’ income tax paid may determine a 10% or € 30,000 whichever is the lesser grant up to a maximum purchase price of € 500,000 – so effectively you could receive € 30,000 and therefore only require your costs if buying for € 300,000 ( valuation, stamp duty, legal fees plus VAT & outlay and moving in costs ) but you will also be required to have a saving ethic established so the new monthly mortgage repayment doesn’t come as a complete shock. You would want to be saving at least the monthly mortgage repayment you are hoping to obtain plus another 10%.
So think carefully before you rent or buy – it is all about getting value. Buying makes sense.