Are you currently renting and thinking about buying? Seeking a mortgage isn't possible for everyone, but if it's possible for you there are a number of reasons why it might be better value than renting.
Rents are currently falling in Dublin but rising everywhere else. According to the latest report (February 2021) from www.daft.ie the average monthly rent in Dublin was rent in Dublin was €1,414 – 0.9% higher than the previous year.
For this sum of money over 35 years at 2.35% (best three year fixed rate in Ireland on 90% loans) you could pay a mortgage of €405,000, BUT to justify this mortgage amount you would need a joint income in excess of €115,70!
And simply paying this rent on a monthly basis for the last one or more years will not guarantee the lender that you have the continuing ability to pay back a mortgage.
So buy or keep renting? John Lowe of MoneyDoctors.ie discusses five important considerations:
1. Current rent
Would you be better off converting your monthly rent into a mortgage repayment? Your monthly rent will help toward establishing an ability to repay especially if the mortgage you are going to apply for has repayments less than your current rent. Rent together with any additional savings will confirm that ability.
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 legals, stamp duty, valuation, and more. Once you own it, the internal costs would include utilities (electricity, gas, TV license etc), bin charges, housing association expenses etc. Doing a pre-budget is essential.
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 during these pandemic times?
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 2008 recession is proof of that. All investment is based on the return being made with the exception of your home… you need somewhere to live.
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, no lender will approve that application. Under Central Bank guidelines, applicants can only borrow up to 3½ times annual gross income whether single or joint application.
Other considerations are overtime, bonuses and dividends/profits. Employment has to be permanent – so no probation period or PUP/EWSS payments. You will also need to have a good credit history – no missed payments plus a well conducted current account. Check with the Irish Credit Bureau (www.icb.ie) or www.centralcreditregister.ie – it’s free and only takes a couple of days.
You will require at least 10% of the purchase price of your new home. If you qualify for the Help to Buy Scheme on new or self- build homes where your last 4 years’ income tax and DIRT tax paid may determine the grant up to 10% or € 30,000 whichever is the lesser – and a maximum purchase price of €500,000 – so effectively you could receive €30,000 on a new home costing €300,000 and therefore only requiring the ancillary costs – valuation, stamp duty, legal fees plus outlay + VAT.
You'll also need moving in costs, and you will also be required to have a saving ethic established – at least 6 months saving record – so the new monthly mortgage repayment does not come as a complete shock to you.
Whatever you do, take professional advice and start on the path to owning your own home.