Should you rent or buy before tax relief ends?
'Someone who has the option of renting a home for €900 a month or buying it for €230,000 -- for them it makes sense to buy'
The impending deadline for mortgage interest tax relief adds a further twist to the debate about whether to buy or rent in the current market.
A few days ago, Finance Minister Michael Noonan dashed hopes among home seekers as he ruled out the prospect of extending the mortgage interest tax relief deadline for buyers into next year.
So home seekers hoping to trade up, as well as first-time buyers, who may not find the home of their choice or the funds with which to buy within the next six months, look set to lose out on tax relief.
It seems very unfair to families in the current market, considering how difficult it is to buy, especially in the most sought-after areas where the choice of family houses is in limited supply.
Among the other factors to be considered at present are the declining rates of interest on savings after yesterday's cut in interest rates by the ECB. This means that funds placed on deposit will earn very little and what little they earn is then taxed at 30pc DIRT.
On the other hand, mortgage rates are also low, which makes it very cheap to borrow. Should the home increase in value then the buyer is on to a winner.
But the Government decision not to extend tax relief is doubly unfair as such tax relief would help to pay the new property taxes due to come into force in the coming years.
Indeed, it is the combination of property taxes as well as other factors, which may serve to shunt some future home seekers out of the buyers market and into the rental market. Yet another factor next year could be the trends in both prices and rents.
At present, the signs are that property prices and rents are stabilising. But some observers, such as the ESRI, predict price rises in certain areas where employment will increase, while others forecast that prices will continue to fall in areas and especially for apartments in unemployment blackspots.
Consequently for those who are considering living in an aparrment in a remote area, away from the hustle and bustle of city life, it could be worthwhile to rent for some time yet as prices might possibly fall sufficiently to compensate for the loss of mortgage tax relief.
Should the new property tax be calculated on the basis of site values, then such remote dwellings may well have a much lower property tax than houses in sought-after urban areas.
There are also those who might consider gambling on prices dropping back again next year when the mortgage interest tax relief is no longer available as an incentive to buy. Those people might well prefer to rent.
Karl Deeter of Irish Mortgage Brokers, has developed a calculator that compares the financial costs of buying with that of renting.
It shows that someone who has the option of buying a house for €310,000 or less, or alternatively renting the same house for €1,200 or more, should buy that house.
Another example is for someone who has the option of renting a home for €900 per month or buying it for less than €230,000. For them it also makes sense to buy.
His calculator, which can be accessed on the myhome.ie website, takes a number of factors into account and the possibility of renting for up to five or 10 years.
Of course, finance is not the only factor influencing the choice between renting or buying. Lifestyle and employment are other factors that can favour renting. Traditionally, single people like to rent in areas where they enjoy local leisure facilities or in areas within walking distance of their work.
Renting also makes sense for those who plan to move jobs between cities or countries and during periods of economic uncertainty.
On the other hand, couples with children are happier to live near schools and other child-related facilities, which can mean settling in an area long term.
For them, it can make sense to buy and take on the long-term commitment of a mortgage. The longer the stay in the property, the more likely it is to appreciate in value at some stage during that term.