Thursday, 10 April, 2014
The Irish Times
If you’re happy renting it seems to make sense to stay put but there may be a financial cost in doing so
Should I keep renting?
- There’s a flexibility to renting, particularly if you are not sure if you are committed to the idea of servicing a mortgage. In the meantime, it’s not a bad idea to set up a direct debit for your rent, so it’s clearly documented in case you look for a mortgage in the future.
- Rents may have gone up, but tenants know what they have to pay each month and if the boiler breaks it’s the landlord who has to fix it.
- There is that old adage that “rent is dead money” and the worry is that you will have nothing to show at the end of it. But rising interest rates can make a property purchase very expensive. After all, a house on the market for €140,000 will actually cost about €235,000 over 30 years once borrowing costs are factored in.
- You only need to pay a month’s rent as a deposit on a rental property – to buy a property you’d need to save a lot more, maybe as much as €17,400 for the average FTB purchase price of €174,000.
- The cost of property tax and stamp duty need to be factored in.
- Most people know someone whose property is in negative equity and the worry is that this could happen to you.
Or should I buy?
- There’s no denying that buying is a much bigger commitment than renting. However, there may be a possibility of renting your property if you have to move, for example, or indeed of selling it, provided that the market hasn’t slumped back into negative equity. However, if interest rates shoot up, renting your property may not cover the cost of servicing your mortgage.
- Home insurance, renovations, a new washing machine . . . when you own your home there are many expenses. However, according to Bank of Ireland, in many cases monthly mortgage repayments are lower than monthly rent payments due mainly to the fall in house prices since their peak. On the other side rents have risen in recent years and in Dublin rents can be €1,000-€1,400 per month or higher for a two-bed apartment or house or three-bedroom semi-detached house, depending on where you live.
- For many, this is the major advantage of buying a home. You “rent from the bank” for 30 or so years, but at the end of that period the home is yours. And while borrowing costs push up the cost of purchase, you may actually end up paying more in rent over the long-term.
- Buying a property these days means you will have to have at least a deposit of 8 - 10 per cent waiting in your bank account, which is no mean feat. However, saving something each month can yield a tidy sum – for example, putting away €200 a month will give you €12,768 after five years based on a return of 2.5 per cent.
- If you’re a first-time buyer you will have to pay stamp duty and property tax, with stamp duty levied at a rate of 1 per cent on all purchases up to €1 million. However, if you buy a new property you won’t have to pay property tax until 2016. Some banks offer a small percentage of the mortgage value to help towards stamp duty.
- Negative equity is always a possibility when you buy a property. The best protection for this is to put as much equity into the property as you can afford by beefing up your deposit.