CONFESSIONS OF A 100% MORTGAGE HOLDER
Call me a fool, but I'd rather risk negative equity than pour a fortune into paying rent, says first-time house-buyer Fionnan Sheahan
Grissilinia. If you'd asked me a week ago what it was, I would have guessed that it was either a new form of hospital superbug or maybe a Caribbean island where a group of junketeering TDs were going on a 'fact-finding mission'.
The green-fingered out there will be aware that grissilinia is a rather enduring species of hedge. Taming a shrub was the first hurdle in my path this past week as I attempted to reclaim the garden in my new home from the wilderness it had developed into between owners.
The interior is currently being gutted, wired, plumbed, dry-lined, plastered and renovated before it can be inhabited, but I decided that the neighbourhood shouldn't have to put up with my unseemly hedges protruding onto the footpaths.
Of course, the added advantage of the exercise was getting to meet my new neighbours. After living in a soulless apartment block for the past four years, where you never even know who lives across the corridor, it made for a pleasant change to actually meet your fellow local residents.
But beneath this suburban idyll lies a dark secret... the purchase of my home was financed by a 100% mortgage. Yes, I am one of those misguided individuals who have hocked themselves up to the rafters to get onto the property ladder.
According to some experts, apparently, I am a menace to society who is putting the entire property market in jeopardy. The very fabric of the economy is crumbling away in my profligate hands.
By taking out a full mortgage, I am unwittingly running the risk of owing the bank more than the house is actually worth. Downturns in the property market will hit the 100% club hardest as holders of these absurd mortgages will experience the concept of 'negative equity'. And like a countdown to doomsday, the widespread availability of the total mortgage will actually precipitate the market collapse.
Comparisons are being drawn with London in the late 1980s when 100% mortgages were blamed for the property crash. Overstretched homeowners suffering from a bout of negative equity didn't want to sell at a loss, causing the property market to clog up and adding to the problem of already falling house prices. Now that same plague is due to strike in this country, claim the doyens of fiscal rectitude.
Last week, my fiancee and I blissfully got the keys to our new home in Booterstown, Dublin after a sustained period of saving and a protracted search for a house, characterised by a combination of disappointment and shock at the prices demanded. The healthy double income from two steady jobs meant getting on to the property ladder wasn't the problem. Without the 100% mortgage, however, the purchase would have been of some other stop-gap house rather than a genuine home.
While house-hunting over the past 18 months, it was bad enough dealing with a series of auctioneers with the ethics of Del Boy Trotter and the demeanour of Ross O'Carroll-Kelly. Now I'm being told by the financial experts that the biggest transaction of my life is also the biggest mistake of my life because I opted for the full mortgage.
Until now, few enough professionals were lucky enough to be offered the full cost of a house by the lending institutions. The welcome expansion of the availability of the 100% mortgage is an acknowledgement that the nature of house ownership has changed.
Buyers who can afford to meet the mortgage repayments often don't have the capital up front to meet the full cost of the deposit, stamp duty, professional fees, renovation and refurbishment. The standard mortgage covers 92% of the cost of the house, but buyers frequently borrow part of the remaining 8% from somewhere anyway, so what you gain on the swings, you lose on the roundabout. Put plainly, the advent of the 100% mortgage has the potential to revolutionise the house-buying experience for many twenty- and thirtysomethings struggling to get on to the ladder.
Having the full amount at your disposal will speed up the purchasing process and, as I discovered, allows you to buy a better house, thereby ensuring that when you get on to the ladder, you don't have to start out on the bottom rung.
Regardless of whether it's a 90% or 100% mortgage, what matters is whether you can afford the repayments, both at present interest rates and if they rise. Far more dangerous than the 100% mortgage is taking out a mortgage for an amount that goes way beyond a manageable limit.
Fortunately for some house-buyers, their parents can afford to prop them up in the purchase and give them a valuable start in life. The 100% mortgage is essentially providing that little bit extra needed by the rest.
Combined with reductions in stamp duty for first-time buyers, introduced by the Minister for Finance Brian Cowen in Budget 2005, the granting of full credit will put first-time buyers back into the market for second-hand homes. Previously, the prospect of paying significant five-figure sums in stamp duty scared off many buyers from the second-hand market. Now savings can be targeted at the stamp duty as the deposit will be entirely covered by the bank.
Few new houses are going up on the northside and southside of Dublin, meaning couples have to go out to where the new houses are being built. Hence, we have ended up with a situation where schools in the older areas of the city and county are closing down due to a lack of pupils in the locality. This is happening because low- and middle-income families are being pushed out to the commuter belt. The knock-on effect is that in West Dublin, Kildare and Meath, we have overcrowded schools, inadequate infrastructure, and commuter couples spending hours stuck in traffic on the M50 or the dual carriageway.
All too often nowadays, first-time buyers are forced to purchase houses regarded as a temporary arrangement until they can afford to move on up the ladder. Yet that wasn't the experience for previous generations. The parents of the current first-time buyers were usually able to buy a house that they could call home from the off. 'Starter home' is the quaint phrase used to describe that first step on the ladder. What's wrong with aiming for a 'finished home' at an early stage?
Far worse than the dreaded prospect of negative equity is continuing to indefinitely pour money into the black hole known as the rented sector when a mortgage is within touching distance. Based on rough calculations, I reckon that over the past decade I have paid around ?41,000 in rent. That ranges from ?45 a week for a room in a house in college to ?450 a month to share an apartment near to work. From now on, though, any money I spend on accommodation won't be going towards paying somebody else's mortgage but rather invested in my own home. Surely that makes financial sense.
The wise men are saying that I'm a fool rushing in by pushing my personal finances to the limits. If it's foolish to buy a home adjacent to public transport routes, schools, creches, shops and basic social services in an area with an established sense of community, then I'll happily have 'fool' tattooed across my forehead. If it's foolish to want to buy a home rather than just a house, then I'm certainly guilty as charged.
Now if only bank managers offered gardening advice, that would be a real quality service - even better than a 100% mortgage.