Friday 24 February 2017

Buy or rent? The factors you need to consider before making your mind up

Louise McBride

Louise McBride

'With rents spiralling, it could be wiser to buy a property than to continue renting in the hope that rents will stop climbing. But when does it make financial sense to buy rather than rent?'
'With rents spiralling, it could be wiser to buy a property than to continue renting in the hope that rents will stop climbing. But when does it make financial sense to buy rather than rent?'

Tenants shouldn't get too excited about the new plan to give landlords a tax deal in return for a rent freeze. The tax breaks proposed might not be lucrative enough to entice many landlords on board.

With rents spiralling, it could be wiser to buy a property than to continue renting in the hope that rents will stop climbing. But when does it make financial sense to buy rather than rent?

Buy if you're settling down

"A house purchase only makes sense if you know you will be in that area - and working nearby - for the next five to 10 years," said Dr Brendan Williams, lecturer in urban economics with University College Dublin (UCD).

Buying property with the intention of moving or cashing in on rising prices in a year or two is risky - because should prices crash (as was the case in Ireland very recently), you could be stuck in negative equity and unable to move on.

Buy if you want an investment

The main advantage of buying your own home is that you will eventually own it outright (or immediately if you're lucky enough to be buying in cash). So your home is also an investment which might give you a windfall - or your children an inheritance.

However, time the market right. Time it wrong (like many of those who bought during the boom) and you could lose money - and find yourself under severe financial stress. "You would hope to build equity in your home but that can never be guaranteed," said Dr Williams.

Buy to retire rent-free

Many people consider rent to be 'dead money' as you're effectively paying off someone else's mortgage (if the landlord still has an outstanding loan). For those who have no ambition to own a property, that might not be a problem.

However, come retirement, most homeowners will have repaid their mortgage and so won't have to pay anything to keep a roof over their heads. Tenants, on the other hand, will have to continue to pay rent when they retire.

"If you make a decision to rent, rather than buy, it's important that you save money - as well as paying your rent," said Ronan Lyons, economist at Trinity College Dublin (TCD). "Make a financial plan - for example, you might make more contributions to your pension."

Buy if you want to live in a pad

The monthly rent on a one-bed apartment could be almost twice the mortgage repayments on the same property.

The average monthly rent on a one-bed apartment in Cork, for example is €646, while the typical monthly mortgage repayment is €367, according to a report published by Daft last month.

The same report said that you could expect to pay €1,094 a month in rent on a one-bed apartment in Dublin 1 - but €669 a month in mortgage repayments.

In Longford, one of the cheapest countries to rent in, you'll typically pay €321 a month to rent a one-bed apartment - but €147 a month in mortgage repayments. So for this reason, it could make more financial sense to buy.

Rent if you can't get a mortgage

You might not be able to finance the purchase of your dream home - particularly if you're house-hunting in or near Dublin city centre or in a popular coastal village or town.

Even if you can secure a mortgage, be sure you can afford the repayments. "There's no point stretching yourself to such a limit that you end up in arrears or distress," said Dr Williams.

Rent if you can't handle upkeep

Maintenance bills could easily run into the tens of thousands when you own your own home - or into the hundreds of thousands if you have bought an historic property.

A tenant does not usually have to fork out for such maintenance jobs. Rather, it is up to the landlord to organise repairs and upkeep - or to replace any broken-down electrical appliances.

Rent if you want to dip into savings

Once you put your savings into your home, the only way to cash in those savings is to sell up - which isn't practical should you need money quickly.

"Locking your savings up in a property isn't necessarily a bad thing, however," said Mr Lyons. "You might trust that more than having a savings account which you can dip into over time."

Rent if you want to live in a 4-bed

The mortgage repayments on a 4-bed home could be almost twice the monthly rent on the property, depending on the location, according to Daft's latest report.

For example, the average monthly mortgage repayment on a four-bed home in Dublin 4 is €4,065, while the average monthly rent is €2,133. A five-bed home in Dublin 4 could cost you €5,011 a month in mortgage repayments, but €2,270 a month in rent, according to the report.

The difference between the monthly mortgage repayments and the rent is less marked in some locations.

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