How a move from renting to buying could save you a small fortune
The most important things in the world, according to the writer Brendan Behan, are to ‘get something to eat, something to drink and somebody to love you.’
Fair comment from the great man, but many of his fellow Dubliners would add getting a home of their own to that wish list.
That has not been an easy task for would-be buyers in recent years, with rising prices, tougher mortgage rules and a supply shortage putting many of them off.
The result in Dublin and many other parts of Ireland is that more people have been forced to ‘eat, drink and love’ in rental properties.
So how does it work out that owning is actually cheaper each month than renting?
Home ownership falling
The latest census figures from the Central Statistics Office show that almost half a million Irish homes are now rented, a 4.7% increase from 2011 to 2016.
That’s almost 30% of all occupied properties and the figure has gone on rising in the two years since the census.
Owner-occupied households fell from 1,149,924 to 1,147,552 between 2011 and 2016. As the rental sector grew, home ownership fell from 69.7% of the market to 67.6%.
The last time the ownership rate was this low was 1971 and the biggest decline has been in urban areas – particularly Dublin – which were down from 61.6% to 59.2% in the five years to 2016.
The rise of generation rent
Across Ireland, 535,675 households were mortgaged in 2016, down 8% from 2011 (583,148), but in urban areas the number of owner-occupiers dropped from 40% to 30% between 2006 and 2016.
As owner-occupier rates fell, the number of rented households in Dublin and other urban areas shot up over the decade to 2016, from 27% to 36% of the market.
The total number of homes paying €1,200 or more in monthly rent to private landlords rocketed by 166% from 18,485 in 2011 to 48,993 in 2016 – more than 85% of these were in greater Dublin.
Ireland’s new ‘generation rent’ are predominantly younger people who would previously have gone straight onto the property ladder, but who now believe that is unaffordable.
This is illustrated by the fact that the majority of Irish people aged 35 or above are home owners, but those under 35 are the dominant age groups in the rental market.
The average age of home ownership continues to grow, with more younger age groups than ever perpetually stuck in the rental market:
- 32 in 2011
- 28 in 2006
- 27 in 2002
- 26 in 1991
Not surprisingly, ownership rates increase steadily through the age groups and reaches nearly 90% for people in their late 60s.
Taoiseach Leo Varadkar acknowledged this trend when he said last month:
"It used to be the norm in Ireland that people would buy their first home in their 20s - I did. Now we find that the average person buying their first home is in their 30s and that's something we need to change."
Dublin rents continue upwards
There was a time when renters could at least console themselves with the knowledge that it is cheaper than repaying a mortgage – but not anymore.
Rents rose by an average of 30% in Dublin city in the five years to 2016 and there were also increases in Dún Laoghaire-Rathdown (26.2%), Fingal (22.8%), south Dublin (22.7%) and Kildare (20.3%).
Buying can save you money
All the evidence shows that it is now cheaper to buy than rent if you can raise the necessary deposit, nowhere more so than in Dublin’s property hothouse.
The shortage of housing stock has also affected the rental market and this deficit means that landlords are charging around 9% more than last year.
This is not a blip either – rents have risen in every quarter since 2012 – and show no signs of falling in the immediate future.
So, if you’re ready to get saving for a deposit and want to reduce your monthly outgoings, figures from multiple sources show that buying is the better choice.
Our own data reveals that in Dublin, buyers will pay an average of €383 to €440 per month less than renters, a difference of between 25-30%.
This is illustrated for the north and south sides as follows:
- Average 2018 house price: €343,177
- Average monthly mortgage payment: €1,302
- Average monthly rental cost: €1,742
- Monthly saving on buying v renting: €440
- Average 2018 house price: €459,229
- Average monthly mortgage payment: €1,742
- Average monthly rental: €2,125
- Monthly saving on buying v renting: €383
That’s an annual saving of between €4,596 and €5,280 or a minimum of almost €23,000 over five years.
There are specific areas throughout the capital where the monthly differential can be up to 56%.
A study by Irish house builder Cairn Homes found that in Dublin 13 a couple with a joint income of €86,000 would pay €494 less per month than for an equivalent rental – a saving of €5,928 annually.
Cairn said the gap between the two household sectors goes on growing and it is now 37% cheaper to buy than rent compared to 2014.
Getting on the ladder
Of course, nobody is pretending that buying a home in Ireland is a piece of cake – government mortgage lending rules introduced in 2015 set strict criteria designed to avoid a repeat of the economic mistakes of the past.
Ireland also has the highest interest rates in Europe due in part to the low level of home repossessions by banks.
But once you are an owner-occupier you have an asset that is expected to appreciate in value over time and cost you less in monthly payments than renting would.
In addition, exemptions to the lending allowances for first-time buyers in particular have been improved for 2019.
As of January 1, the requirements for first-time buyers will be:
- The mortgage loan amount is capped at 3.5 times income for most buyers.
- Lenders can go above that cap for 20% of first-time mortgages on their books, double the allowance of other buyers.
- The minimum deposit required is 10% of the purchase price, half that required for other buyers.
- A lower deposit will be allowed for 5% of first-time mortgages on the books of lenders, compared to 20% for other buyers.
Another government initiative to help first-time buyers is the Help to Buy scheme.
The good news is that Help to Buy continues until the end of 2019 helping first-timers with a deposit to buy or self-build a new house or flat.
To qualify, they must:
- Not have bought or built a house or apartment on their own or with anyone else.
- All be first-time buyers if purchasing in joint names or a group.
- Have signed a contract to buy the property on or after July 19, 2016, or received the first mortgage instalment if self-building.
Buyers will get a refund of income tax and Deposit Interest Retention Tax (DIRT) paid over the previous four tax years on condition that:
- They are first-time buyers.
- They buy or build a new home before December 31 next year.
- They live in the property as their main home for five years after purchase.
- Their mortgage is with a lender who qualifies under the HTB rules.
- Their loan is a minimum of least 70 per cent of the purchase value.
Buyers can claim the lesser of €20,000 or five per cent of the purchase price or the amount of Income Tax and Deposit Interest Retention Tax (DIRT) paid in the four previous years.
The refunds are either paid directly to the buyer, the building contractor or the account of the loan provider.
There is also the Government-backed Rebuilding Ireland Home Loan, offering first-time mortgages via local authorities at up to 90% of the value of a property.
The maximum purchase price is €320,000 in County Dublin, meaning a loan of €288,000 could be available at lower rates.
To qualify, you must undergo credit checks and:
- Be a first-time buyer aged between 18 and 70.
- Have been in continuous employment for two years as primary earner or one year as secondary earner.
- Have a maximum annual gross income of €50,000 as a single applicant or €75,000 as joint applicants.
- Have been turned down for a mortgage or offered insufficient funds by two banks or building societies.
- Not be a current or previous home owner in Ireland or abroad.
- Buy the property as your sole place of residence.
- Buy or self-build a home with a maximum 175 square metre internal floor area.
Right time, right city
When it comes to the Irish property market, Dublin remains in its own bubble.
For Irish property buyers, it certainly is a hot market, with more homes being built, population growth outstripping the EU average and more jobs being created.
The facts speak for themselves:
- Dublin property prices have grown by 90% since 2012 - house prices rose by 6.5% and flats by 11% in the year to July.
- Home sales were up for the first half of the year to 8,316, including a 29.4% rise in new homes.
- Multinationals such as Google, Twitter and LinkedIn are moving in and bringing jobs with them.
If you are a renter who yearns to become an owner and can muster the deposit and meet the lending criteria, this could be your time. In order to figure out how long it would take to save the deposit, check out our Deposit Decoder where you can easily figure out how much to set aside and for what period of time.
As auld Brendan himself said: ‘If you greatly desire something, have the guts to stake everything on obtaining it.’