A dilemma is a situation in which a difficult choice has to be made between two or more alternatives. It is precisely what is facing a vast cohort of tenants and would be home-owners here all over Ireland.
House prices and rents have both already started to rise and as the nation recovers from lockdown with wads of money in tow, the prospects are not good for either tenants or home-owners.
John Lowe of MoneyDoctors.ie asks five important questions if you are in either of these categories:
1. 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. For example, a one bedroomed apartment in fashionable Rathmines Dublin 6 with a price tag of €270,000 commands a rent of €1,800 per month. If you had the 10% deposit, a 30 year €243,000 mortgage at 2.3% interest rate (best 2 year fixed rate) would cost €935.07 per month – half the monthly rent!
2. 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 plus other costs such as bin charges, housing association expenses, security monitoring etc. Suffice to say your home can become a money pit between those costs and regular renovations – you need to factor in all these to the equation.
3. 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, especially in lockdown where we have become more accustomed to working from home?
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, as happened from 2008 onwards for the following four years. The recession is proof of that. All investment is based on the return being made but when it comes to your home, it may not be as important.
4. Income – all lending is based on the ability to repay. You might be purchasing a property worth €500,000 and looking to borrow only €100,000 but if you cannot prove you have the capacity to repay that loan, the lender will not approve. The last thing the lender wants to do is repossess a property because you cannot make the repayments.
Under the recent Central Bank guidelines, applicants can now only borrow up to 3½ times annual gross income whether single or joint application. Other considerations are overtime, bonuses and dividends. Exemptions do apply – usually at the start of the year for Loan to Income thresholds especially for the professional classes. Employment also has to be permanent – so no probation period. You will need to have a good credit history too. Check with www.centralcreditregister.ie or www.icb.ie on your credit history (it’s free and takes 3 to 4 days for the report to be posted out to you) and watch those missed payments, unpaid Direct Debits, standing orders and cheques or the regular debits to your favourite bookmaker..
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 refund and allow a 10% of purchase price or €30,000 grant whichever is the lesser, up to a maximum purchase price of €500,000 – so effectively on a new property costing €300,000 you could receive €30,000 HTBS grant and therefore not require any deposit just the costs (legals and valuation).
You will also be required to have a saving ethic established so the new monthly mortgage repayment does nt come as a complete shock to you. Ideally you should be saving at least 6 months prior to your mortgage application on a regular basis. This is addition to any rent you may be paying.
There you have it – decision made. Now all you need is perseverance, determination and strength of mind.