Renting over the last couple of years has become increasingly difficult and a nightmare for many students, new employees and families where firstly, properties are scarce and secondly, those that are available are overpriced and out of the realm of possibility for many of us.
At the same time, getting on the property ladder has never been more challenging, with more young people and couples priced out of cities and rising interest rates worsening the struggle for those already paying a mortgage.
Deciding which goal to chase can take some consideration. For people who are able to afford and maintain rent, it can sometimes be better to pursue buying where possible. Similarly, there are some are benefits that come with renting in comparison to buying.
John Lowe of MoneyDoctors.ie lists five key areas to review and consider when weighing up whether to rent or buy:
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, especially as mortgage interest rates may be on the decrease over the coming months. This, of course, depends on whether there are suitable properties near where you want to live and work.
2. 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 will 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.
3. Lifestyle – are you at a stage in life where planning your financial life needs to start sooner rather than later? What is your top financial priority now? Do you want the responsibility and all that goes with that of owning a home right now? Does your work keep you in one place where it again might make sense to buy your own place? Conversely, is your work more flexible and moves you around more?
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.
4. Income – all lending is based on the ability to repay. You might have a property worth €500,000 and looking to borrow 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 four times your annual income and four 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 a 1.75% interest annual charge on the capital after six years), 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 the Central Credit Register for five years – and a decline for any credit request. Check for yourself – it’s free and takes three to four days for the report.
5. Savings – not only will you require at least 10% of the purchase price of your new home, 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.
If you qualify for the Help to Buy Scheme where your last four 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, effectively you could receive €30,000 and therefore only require your costs if buying for €300,000 (valuation, stamp duty, legal fees plus VAT and outlay and moving in costs).
So think carefully before you rent or buy – it is all about getting value.
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
