Thursday 8 December 2016

Here is how to speed up that deposit as you hunt for a home of your own

John Cradden

Published 13/03/2016 | 02:30

Be it ever so humble, there’s no place like... Neuschwanstein, King Ludwig II’s castle in Bavaria
Be it ever so humble, there’s no place like... Neuschwanstein, King Ludwig II’s castle in Bavaria

It is probably one of the most formidable savings challenges to have faced a large cohort of house buyers in Ireland: how to save amounts ranging from €20,000 right up to €50,000 on average for a deposit in order to qualify for a new mortgage.

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Figures from the Banking and Payments Federation show that the value of the average deposit for Dublin buyers rose by 38pc in the year to the end of 2015 - from an average of €38,000 to €51,000.

In the commuter-belt areas, an average deposit of €33,000 is needed. In Cork, meanwhile, it is €32,000, up from €24,000 a year ago.

In Galway, the average deposit is now €27,000, up from €21,000. And for buyers outside the cities, the average deposit required rose to €20,000 at the end of last year from €16,000 in 2014, according to the data.

Needless to say, the figures have stoked the ongoing debate raging over the current Central Bank mortgage lending restrictions, which dictate that buyers need to stump up 20pc of the house value before they can qualify for a mortgage.

The regulations are hitting first-time buyers in metropolitan areas the hardest because, while they can qualify with 10pc of the property values for amounts borrowed up to €220,000, the figure rises to 20pc for amounts over this.

Movers or trader-uppers are also affected, not least because the scourge of negative equity has meant that many will have to save close to the entire amount required for a deposit.

Given the rising political pressure over the issue, you could possibly gamble on the Central Bank easing these restrictions from this November, when it releases the results of its promised review of the current lending guidelines.

But in the meantime, if you're determined to get on the ladder, move or trade up, there's nothing to be lost by embarking on a more aggressive savings strategy. Here are six things you might want to keep in mind.

1 Create a budget

Devising and following a proper household budget can make a huge difference. And there is loads of advice online, not to mention tools and software to make it easier to manage.

"Sit down and list all your incomings and your outgoings and see what's left over," suggests Ciaran Phelan of the Irish Brokers Association. "Now, for the hard part, cut back on your discretionary spend: money for clothes, nights out, holidays might have to be redirected into your deposit saving fund."

2 Switch and save

Look for money-saving options - are you doing your groceries in the most cost-effective outlets, are you getting the best value on your car insurance, health insurance, mobile phone contract, energy supplier etc?

"This part is really up to you - sometimes it's just easier to take the first product that's offered or let your contract with a provider roll over, but shopping around will invariably save you money," said Mr Phelan.

3 Seek a better savings rate

The switching strategy should also extend to your savings account. Savings interest rates are a little rubbish at the moment but it is better to switch to a regular savings account earning the top rate of 3pc (see KBC, EBS and Nationwide UK) than one earning closer to 1pc.

4 Rent somewhere cheaper

This may be easier said than done, given rising rents, particularly in Dublin, but it might be worth considering if you are only at the beginning stages of your deposit savings strategy.

5 Move back with your folks

If raiding the bank of mum and dad is out of the question, parents can still offer support without having to part with their hard-earned savings, says Patricia Hinch, director of property-management firm Regency.

"The biggest impediment to individuals' or couples' ability to save is their ongoing high rents, particularly in Dublin.

"So while moving back in with parents for a period may seem wholly regressive and potentially stressful for everyone involved, simply looking at the math would indicate that it could halve or more the time it would take to save the necessary deposit."

6 Take a risk?

If, for whatever reason, you're in a particular hurry, its tempting to consider putting some of your cash into a high-risk investment - but of course, this comes with the all-important caveat.

"A high-risk investment strategy has the potential to earn you a lot in the short term, but also has the potential to devour whatever savings you have to date," said Bob Quinn of Kildare-based The Money Advisors.

Sunday Indo Business

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