Saturday 22 July 2017

Mortgage payments are now lower than renting

Thousands forced rent because they are unable to get on into the property market; KBC puts pressure on rivals with rate cut

New figures show it is now cheaper to buy than rent for many
New figures show it is now cheaper to buy than rent for many
Charlie Weston

Charlie Weston

It is now cheaper to buy a property than to rent one due to soaring prices, experts say.

However, thousands of would-be first-time buyers will be locked out of the housing market for at least another two years due to a lack of suitable houses.

There are close to 475,000 people in the private rental sector, with almost half of these described as 'reluctant renters'.

Around 215,000 people are eager to move out from their parents and form a new household by either renting or buying a home, according to a report to be published on Monday by the National Association of Building Co-operatives.

Proposed new mortgage caps and a lack of housing supply will leave large numbers renting against their wishes, Lorcan Sirr, a lecturer in housing at Dublin Institute of Technology, told the Irish Independent.

Yesterday Finance Minister Michael Noonan piled pressure on the Central Bank to ease off on its plans to force most new buyers to come up with deposits of at least 20pc of the value of the property they are buying.

Shauna Byrne moves into her new house at Abbey Close, Tullow Co. Carlow
Shauna Byrne moves into her new house at Abbey Close, Tullow Co. Carlow

He also said he'll be pushing the Central Bank not to implement the rules in full in January.

Read more: Demand for bigger deposits should be softened - Noonan

Minister for Finance Michael Noonan
Minister for Finance Michael Noonan

It had been expected that the controversial measures ensuring most first-time buyers would need a hefty deposit would be in place by the start of next year, although Central Bank Governor Patrick Honohan has already hinted at delays. "The full rules don't have to come in at the beginning of January," Mr Noonan said yesterday.

And, in a boost for those who can find a property and have the means to borrow, KBC Bank said it was cutting its variable and fixed rates for new buyers.

The move comes weeks after AIB reduced its variable rates by up to 0.25pc.

Pressure is now mounting on Bank of Ireland, Ulster Bank and Permanent TSB to lower their variable rates, which are among the highest in the eurozone.

Read more: 'Buying this house is a good investment in our future . . .'

A survey of 15 large centres around the country has found that it is now cheaper to buy than to rent a typical three-bed home.

Figures compiled by Daft.ie show that monthly mortgage repayments on a typical three-bed house were less than it could be rented for in 15 parts of the country.

In North County Dublin it costs €1,125 to rent a three-bed house, but it could be bought with an 80pc mortgage for a monthy repayment of €968.

In Galway city rents for three beds are typically €822 a month, but repayments amount to €771 for those with a 20pc deposit, borrowing for 30 years at 4.3pc.

Read more: Join the scramble to buy? Not me

Trinity College Dublin assistant professor and economist at Daft.ie Ronan Lyons, who conducted the study, said the research showed it was cheaper to buy.

But a chronic shortage of housing is holding back the market.

He suggested those forced into renting should invest money as well as renting, so they have a nest egg in their old age.

Dr Sirr there were now thousands with no choice but to rent.The lecturer, who edited the book 'Renting in Ireland', said this "locked-out generation" would typically need to be saving €1,000 a month to build up a 20pc deposit.

This is on top of rent of around €1,200 a month as well as living expenses.

Read more: Government is stuck in the past with its attitude to renting

Part of the problem was that there was little housing built specifically for renting, suitable for long-term leases and families, Dr Sirr said.

People unable to buy were faced with renting for a long time, he said.

Others were making a conscious decision to rent because the only properties they could afford were too far from work.

Asked if rent was not "dead money", he said that many people who bought expensive property during the boom had ended up in negative equity.

This is where the value of the property is less than the mortgage owed on it.

Negative equity represented "dead money" , Dr Sirr said.

Read more: Will the market get what it needs?

It will be two years before the State housing strategy produced enough properties to ease the over-demand for properties, he said.

Mortgage expert Karl Deeter said in pure cash terms it makes more sense to buy than rent at the moment.

He said that couple paying rent of €1,250 a month will end up shelling out €480,000 over 25 years, assuming rents rise by just 2pc a year.

The monthly repayments would be roughly same as the monthly rental amount on a property worth €255,000.

This assumes an interest of 5pc, with a mortgage over 25 years, and a deposit of 10pc.

Mr Deeter, of the Irish Mortgage Brokers firm, said those who bought would be financially better off by more than €100,000 after 25 years.

"And they would have an asset at the end. The renter will have no asset," he said.

Mr Deeter, who readily admits he makes a living from selling mortgages, said whether or not to buy was an emotional decision for people.

"Most people will come down emotionally on the side of buying. We have high ownership rates in this country."

Tips to get a mortgage

1. Start saving now

Show your lender that you have the ability to save money on a regular basis, especially in the case where you are being given a gift of the deposit from a parent or relative, according to Kevin McNerney of the Trusted Adviser Group.

2. Clear short-term debt

Lenders focus on the amount of short-term debt a prospective client has, like car finance, bank loans, taxes due, etc.

3. Get your current account in order

If your current account is constantly overdrawn, lenders will be reluctant to offer a mortgage, as it gives the impression that you cannot manage your day-to-day living expenses.

4. Unpaid items/overdrawn charges

Make sure that there are no unpaid cheques, standing orders, or direct debits on your bank account.

5. Online gambling, impulse purchases and discretionary spending

These are a "no-no" with the majority of banks. Where a person has online gambling transactions, even if only €10, lenders will not be happy.

6. Bank accounts

If you have a number of bank accounts, you should explain clearly how you operate them, and which ones are deemed your primary accounts. You should also clearly explain how you are paid.

Irish Independent

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