Saturday 27 May 2017

Factors for choosing to rent or buy

Frank Conway

The question being asked by a lot of prospective first-time buyers is if now is the righ t time to buy, or should they continue renting or even living with mum and dad?

Buying a home, despite the overall drop in prices is still a considerable financial commitment, and a new home purchase needs to be carefully planned. Today, buying is complicated as a result of three primary issues: access to finance, job security and house price uncertainty. Access to finance is a major concern that continues to make purchasing difficult, if not impossible. Job security and property prices will eventually reach their own equilibrium where buyers will make their own decisions.

So let's look at some of the numbers involved. Taking a property purchase of €200,000 as an example, the lowest deposit required by any bank is 8pc; this means buyers will need to come up with €16,000 before any bank will consider them for a mortgage.

With an 8pc deposit, borrowings for the mortgage will be €184,000. Assuming a standard variable rate of 4pc (there are lower-cost deals) and a loan term of 30 years (there are longer-term loans available), monthly repayments will be €878.44.

First-time buyers who complete their mortgage before the end of 2011 will still qualify for the maximum mortgage interest relief. Using the example cited, this would mean €152 per month being credited back to their bank account through to the end of 2012, assuming there are no changes in interest rates. Lower amounts will continue to be credited in the following years until the end of the mortgage interest relief period in 2017.

For a full list of tax relief schedules visit www.revenue.ie Mortgage holders are required to take out mortgage protection on their loans. A female aged 30 could expect to pay €10 -- €15 per month for mortgage protection, whereas a male borrower should expect to pay up to €20. The essential cost of financing the purchase of an average three-bedroom property priced at €200,000 will be in the region of €750 per month.

But some of that cost could be recouped by homeowners who rent out a room or rooms in their home to private tenants. Such rental income earned will be exempt from income tax, provided this income does not exceed €10,000 in a tax year. This is called the rent-a-room relief.

Looking at the rental market on several property rental websites suggests rents for a similar three-bedroom home in west Dublin cost between €900 -- €1,300 per month. In Cork city and Limerick city, rents range from €650 -- €1,100, depending on property type and location. So those buying homes in Dublin which are priced close to the €200,000 average are likely to be better off buying than renting.

The decision to buy is ultimately a very personal one. It is also a long-term one. Buying a home should always be done on the basis that it serves a basic human need -- shelter. It should not be done as a display of wealth. Equally, while buying cannot be viewed through the cold lens of a financial transaction, the finances must add up and buyers must be comfortable with the purchase and be reasonably assured of servicing the monthly debt. Ultimately, the decision to buy must meet all tests, financial and emotional in order for buyers to be comfortable.

Frank Conway can be contacted at frankc@moneycoach.ie

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