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Monday 24 October 2016

Should I simply rent, given that I can't get a mortgage to buy a property in Dublin?

Eoin McGee

Published 07/02/2016 | 02:30

Email your questions to or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'. Stock image
Email your questions to or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'. Stock image

I'm in my early 30s and still living at home with my parents. I enquired about getting a mortgage recently but the best I could get was one for about €120,000.

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I live in Dublin and want to stay living there - so a €120,000 mortgage isn't much use to me as I wouldn't be able to buy a property with that kind of money. Renting seems like an incredible waste of money - particularly when it would cost me €1,100 a month (or more) to rent a one-bed apartment in Dublin. (I'm reluctant to house-share).

I'm earning €35,000 and have savings of about €30,000. Should I forget about getting a mortgage - and simply rent?

Declan, Lucan, Co Dublin

You are not alone - should I rent or buy is a question on many people's minds at the moment. It seems like a waste of money to spend so much on rent - but when you break it down, why do we buy a house in the first place?

Typically, it is so we can live rent-free in retirement. But when you factor in all the costs of owning a house (such as repairs and maintenance, taxes and so on), you can actually find that renting for life does make some financial sense.

Don't get me wrong, owning a house will most likely leave you better off financially in the very long term but don't be completely down in the dumps if you are forced to rent long-term.

You want to buy in Dublin - house prices in Dublin have levelled off somewhat and have shown some sign of a pull-back but I am not sure you should build a financial plan on there being another major crash that will get you into the market any time soon.

What's good is you have savings of €30,000 and the fact that you still live at home helps here too as you should be able to save more. On €35,000 per annum, you probably take home about €2,370 per month.

The average asking price for a property in West Dublin in the last three months of 2015 was €264,000, according to the latest Daft report.

Assuming you're a first-time buyer and that lending rules don't change, that means you need to come up with a deposit of €30,800 - plus costs. You already have the bulk of that €30,800 deposit saved.

A mortgage of €230,000 over 30 years will cost you €1,166 per month based on a variable rate of 4.5pc (which is the highest variable interest rate you can expect to pay). You should be saving this much per month at the very least. The more you save consistently, the easier it is to prove to the bank when you go to get your mortgage that you have an ability to repay. As your take-home pay is €2,370 a month, however, mortgage repayments of €1,166 could however be quite tight for you financially.

Another challenge facing you is that under Central Bank lending rules, you can't borrow more than three-and-a-half times your income - that is €122,500. In some cases, you may be able to borrow up to €144,000.

This limit means you may have to set your sights on an area outside Dublin, where property prices are lower - but this may not be practical or something you're interested in.

Otherwise, you'll have to save up a lot more money - to be in a position to buy a property priced at €264,000. If you take it that you can borrow no more €144,000, that means you'd need savings of €120,000 to hand to be able to buy that property. So given you already have €30,000, you'd need to save an additional €90,000.

The problem with this is that house prices could increase by the time you save that amount of money anyway.

Your situation highlights a problem that exists for many people - you can put your head down and start saving or you can hold out hope on a couple of fronts.

Firstly, the new governor of the Central Bank has reiterated that he will be reviewing the current lending restrictions later this year - so there may be something in that to help people in your situation.

Secondly, you could find a partner who is rich or at least has a decent income - and you might then decide to buy a house together. (Be sure you love each other before you make such a commitment, however!) You would be shocked how much your ability to borrow increases when there are two of you applying for the mortgage.

I am recently married and my husband is a plumber. He works for a local plumber, so he is not self-employed. However, as the local plumber is only a one-man show, so to speak, he doesn't offer any work pension scheme to my husband.

My husband is now 34 and so far has not paid into any pension fund. I work for the public sector and have a pension there.

We would like to do something to ensure my husband puts some sort of private pension in place.

How would he go about doing that and is it worth my husband's while paying into one?

Helen, Drogheda, Co Louth

To answer your question directly, yes, of course he should open a pension. It is never too early or too late to start paying into a pension. If your husband pays tax at the higher rate, he can turn €60 into €100 every time he makes a contribution into his pension - no other investment does this. Even he if pays tax at the lower rate, it will only cost him €80 to put €100 worth of a contribution into a pension - once you consider the tax advantages.

However, before you set up any type of new financial commitment, do a tidy-up first. Make sure you have money set aside for any short-term emergencies. Clear your credit card bill if there is money still left on it after Christmas. Review your loans - and decide whether it would make more financial sense to clear those loans first or start contributing to a pension.

Pensions are important - but remember, once the money goes in, you are not getting it out until you retire.

There are lots of options in terms of what type of pension will be right for your husband - so he should consider them all carefully. It is also important that your husband makes the appropriate investment decisions.

I'm a self-employed freelance photographer and considering setting up my own private pension.

I figure that a Personal Retirement Savings Account (PRSA) is the best way to go about doing this. I've heard they can be expensive though?

Colin, Montenotte, Cork

Broadly speaking, there are two types of PRSAs offered by the main PRSA providers in the market: standard PRSAs and non-standard PRSAs. Standard PRSAs are cheaper.

PRSAs were established by the government back in the early noughties for several reasons - to provide mobility, so people could bring their pension with them from job to job, to provide transparency of costs and to get more people to take out pensions. By and large, they haven't achieved any of these objectives.

You could argue that the costs have been capped, particularly on the standard PRSAs, but most people prefer to opt for the more expensive non-standard versions because they then get more investment choices.

Deciding on what is best for you is difficult to answer here as there are so many variables.

You need to consider how much you are paying in; how long will you be paying in for; do you want to buy individual shares or bonds; might you want to buy a property using your pension; is it possible you could become a limited company at some point; what is your appetite for risk - and perhaps more importantly, what is your capacity for loss?

When you get through all that, you might find the PRSA is perfect for you - or that a personal pension is better because the charging structure is more attractive.

Don't get too bogged down in these questions, setting something up is better than doing nothing.

Just make sure that the plan you set up can be transferred without penalty down the road if your attitude or circumstances change.

Email your questions to or write to 'Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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