Comment: First-time buyers should ditch the lattes before seeking Budget help
A couple on moderate wages could save their deposit in just three years by prudently managing their money, writes Brendan Burgess
Published 09/10/2016 | 02:30
If you listen to the construction industry and politicians, you would believe that the big bad Central Bank has condemned decent, hard-working people to a life of rental misery.
With high rents and high house prices and the new Central Bank deposit rules, there is no possibility of them ever managing to save the deposit.
If only the Central Bank would relax the rules, then everyone could get on the housing ladder and live happily ever after in a nice four-bed semi in south county Dublin, as indeed is their God-given right.
Well, a study published by the Central Bank during the week showed that, for most couples on average to good salaries, they should be able to save the deposit in a reasonable enough time.
While it is taking some couples up to four years to save the deposit to buy a house in Dublin, in other parts of the country, they can get the deposit together with just one year of saving.
So house buying has not become the preserve of the children of rich parents. Most working couples who are prepared to save will be able to buy their own home.
Let's take a garda buying a house with his girlfriend, a nurse. They have both been working for around four years.
- Read more: Budget 2017: Pension row as Fianna Fáil won't buy Leo's 'cuddly act'
- Read more: Budget to fund 800 new gardaí, 1,000 nurses and 650 teachers
Their combined gross salaries amount to around €65,000. They have a net pay of around €54k a year. If they are living in Dublin, they are probably paying around €15,000 a year in rent. If they are living outside Dublin, it's a lot less than this, down to as low as €6,000 in Ulster. They can run one car and have a modest lifestyle for around €22,000 a year, which leaves them with savings of around €20,000 a year.
After three years, they would have €60k. With 3.5 times their income, they would get a mortgage of €230k. So they can buy a house or an apartment for around the €300k mark. Sure, they will not be able to buy a three-bed house in south county Dublin, but they should be able to get a decent three-bed home in most other places in the country. Even in Dublin, there are 1,400 homes currently for sale at prices less than €300,000, according to Daft.ie.
So, it's taken them three years to get the deposit together. That is saving from scratch with no existing savings and they can buy a house without any assistance from their parents. Of course, if they already have been saving and/or if their parents give them a dig-out, they will be able to buy in less than three years.
Let's be clear, saving €20,000 a year means living on a budget of €1,800 a month. They will have to curb their lifestyle. They will have one car. They will have to stop buying take-away coffees. They won't be going on two foreign holidays a year. And when their friends invite them out to the pub for a session, they will more often than not, have to say, "sorry, we are saving up to buy a house".
Of course, if they want to smoke 20 cigarettes a day, dine out twice a week and stay bang up to date with the latest fashions, they will not be able to get on the housing ladder. But that is their choice and not the fault of the Central Bank.
If anything, the Central Bank rules are helping couples who want to buy a house. They have prevented the lenders from reckless lending. The publicity around the rules has helped to keep house prices in check.
Our garda and nurse might be happier if they could get a 100pc mortgage with no inconvenient requirement to curb their lifestyle to save money. But if every couple gets a 100pc mortgage, then prices would skyrocket. So in the absence of the Central Bank rules on prudent lending, our couple might get on the housing ladder earlier, but they would have a much larger mortgage for the same house!
It seems to me that they are better off scrimping and saving for a few years before buying, than scrimping and saving for the next 20 years to meet the much higher mortgage repayments.
It is extraordinary how the Central Bank has become the scapegoat for people's difficulties in buying a house.
At a social function recently, a couple in their late twenties were complaining that the Central Bank rules were preventing them from getting onto the housing ladder.
I was really surprised at this, as they were both professionals earning above the average industrial wage and had been doing so for a few years. But it turns out that they were renting an apartment in Dublin 4 and, last year, had spent €25,000 on their wedding, wedding dress and honeymoon. And they were blaming the Central Bank because they couldn't get on the housing ladder?
In my opinion, they simply had their priorities wrong. They wanted to live in Dublin 4 and walk to work and, no doubt, enjoy the cosmopolitan lifestyle associated with it. They wanted a big wedding. If they were serious about getting on the housing ladder, they could have got married on a budget and used the money as a deposit to buy the apartment in which they now live.
- Read more: Budget 2017 update: Here is everything we know so far
- Read more: Noonan cuts USC, inheritance tax and Dirt in 'catch-all' plan
The Central Bank study covered the case of a moderately well-paid couple without children. But what about families who are renting who already have children? It is argued that with childcare costs and high rent, they will never be able to get on the housing ladder. But that is a choice that they made.
Like our couple who chose to blow €25,000 on a wedding before buying a house, a moderately well-paid couple who chooses to have children before buying a house, should not expect the taxpayer to come to their rescue now and provide them with the means to buy a house.
Which brings us to next Tuesday's Budget. Should the government help first-time buyers to buy a house? One thing is absolutely clear, the Fianna Fail proposal to give a grant to all first-time buyers, whether they buy a new house or a second-hand house is irresponsible in the extreme.
It will do absolutely nothing except push up the prices of all houses, new and second-hand. It won't increase the supply of houses. It is a subsidy from those of us who pay taxes to those who are selling their houses. Buyers will see little or no benefit.
The key focus of the Budget must be on encouraging the building of new houses. It's not clear that there is any case for interfering.
However, if the government wants to interfere, they could provide a VAT rebate for newly-built houses which meet the highest standards of energy conservation and general building regulations. This would make it more profitable for developers to build more houses, which should increase the supply. But there should be no preference shown towards first-time buyers.
We need to see more houses built. It should not matter if they are purchased by first-time buyers, second-time buyers or, for that matter, investors. If investors were incentivised to build 10,000 houses in Dublin, it would increase the availability and bring rents down for those who will never be in a position to save the deposit to buy their own homes.
Brendan Burgess is the founder of the consumer forum, Askaboutmoney.com