Better to buy than rent as prices drop
Friday June 05 2009
Further evidence is emerging of how much cheaper it is to buy a home rather then rent it. Rents may continue to fall but they are not expected to fall by as much as house prices so in the near term the buying option will continue to prove more attractive.
The amount which can be saved by purchasing is partly due to the high levels of income tax relief for mortgage interest payments, especially for first timers in their first year of their mortgage. Nevertheless economist Ronan Lyons, who analyses house price and rental trends for the daft.ie website, says that figures for the first three months of this year indicate that even if there were no mortgage interest relief, there are a number of areas where it is cheaper to buy than rent.
First-time buyers were able to save in the region of €3,000 more than renters in their first year of ownership -- based on quarter one 2009 figures.
He also makes projections based on rents falling by as much as 33pc from their peak and house prices falling by 40pc from their peak. On this basis Mr Lyons says buyers would continue to be better off than renters in every part of the country. First-time buyers of three-bedroom properties would expect to save anywhere between €1,800 in West Leinster and €7,000 in Dublin city centre.
He also looks at the prospect that high amounts of vacant properties around the country would put pressure on rents for the next 3-5 years and that this could result in both rents and house prices falling to half their peak values. The tax system as it currently stands certainly strongly favours home ownership. However he signals that it may not always be as favourable.
"If the Government decides that the balance of emphasis when correcting its fiscal black hole should be on raising taxes rather than cutting expenditure, it may abolish mortgage interest relief and bring in a universal residential property tax.
"This could significantly alter the maths of buying versus renting and bring about the 'nation of renters'. As it stands, though, even if rents were to halve over the coming year, the premium people pay to actually own their home appears too small for this to happen."
