Many people contemplating their future spend a lot of time on the topic of accommodation, whether that's purchasing a new home, upgrading their present home or moving to a better location.
During this time spent at home many of us have had time to assess, review and ponder on this particular subject. John Lowe of Money Doctors looks at the 5 important questions to consider when it comes to buying or renting your home.
1. Currently renting?
Would you be better off converting your monthly rent into a mortgage repayment? It very well may pay you to take out a mortgage now rather than pay rent. With rents at an all time high, it is becoming more and more sensible to start thinking about buying.
Interest rates are low (2.2% fixed for 5 years being the lowest on the market) and lenders are more accommodating when it comes to applications.
2. Comparing costs?
Rent normally includes building and contents insurance, Local Property Tax, maintenance, repairs, gardening (if there is one) and most furnishings.
Buying your own place apart from the mortgage repayment itself, you have all these costs and these should be factored in to the comparison plus other costs such as bin charges, property management charges, housing association expenses etc.
3. Lifestyle changing?
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 but when it comes to your home, in some respects that return is irrelevant.
4. Does your income qualify you for the loan that you want?
All lending is based on the ability to repay. You might wish to buy a property worth €500,000 and borrow just €165,000 (Mammy and Daddy supplying their maximum inheritance upfront of €335,000) 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 current Central Bank guidelines, applicants can only borrow up to 3½ times annual gross income whether single or joint application. There are exceptions and the lenders have 15% to 20% discretion on loan to values and income requirements of their total loan books. Other considerations are overtime, bonuses and dividends.
Employment has to be permanent – so you must have passed the probation period. You will also need to have a good credit history. One missed loan repayment stays on the new Central Credit Register or Irish Credit Bureau - www.centralcreditregister.ie or www.icb.ie – both free. Email them and a report issues within a few days for 5 years – and a decline for any credit request.
5. Do you have savings?
Before anything else, you will need at least 10% of the purchase price of your new home (if you qualify for the Help to Buy Scheme - new homes or self-build only - where your last 4 years' income tax paid may determine a 5% grant up to a maximum purchase price of €400,000 – so effectively you could receive €20,000 and therefore only requiring a further 5% of the purchase price plus costs) and all the ancillary costs – valuation, stamp duty (1%), legal fees plus outlay + VAT (all in less than 1%) 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. Generally between your existing rent and savings record, most applicants qualify.
Contact me if you need assistance – these are important decisions.