Renting of late has become 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 € 1800 per month. 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 despite rising interest rates.
- Costs – rent normally includes building insurance, Local Property Tax, maintenance, repairs, gardening ( if there is one ) and all furnishings. 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 recession 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.
Under the recent Central Bank guidelines, first time applicants can borrow up to 4 times annual gross income from next January whether single or joint application. Other considerations are 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.
- 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.