I have been asked by a lot of clients, friends and contacts recently what my views on the market are and, what I think first time buyers in the market up to circa €450,000 should do. Everyone seems to have a sibling or child facing the dilemma of whether they should take the plunge.
At the sub €500,000 price point, if you intend the property to be your home for the next 5+ years, if you see the right property that’s for you and you can afford it, it would be mad not to. With rents spiralling upwards and the average rent for an apartment in Dublin now exceeding €2,300 per month, the cost of rent alone makes it a sensible option. On a 5-year horizon, the saving in rent alone would be say €132,000, based on a 2-bedroom apartment in Rathfarnham at €2,200pm. Far better to be paying down a mortgage than supporting someone else’s investment. When you can buy the same apartment for €380,000 with a deposit of €38,000 (first time buyer 10%) and mortgage repayments over a 30-year term of circa €1,662.47per month (based on an interest rate of 4.15%) how can it not be sensible.
Economists (yes, I know they can be wrong) are telling us that it is likely that interest rates will peak and start to come down next year and while not easy to secure, finance is at least available. We would all like to buy at the bottom of a crash but only a few lucky souls with cash in their pockets at the right time can do it, the rest of us must buy when finance is available and reasonably cheap and both apply at present.
When I started work interest rates were at 7% and had been at 14% a year or two before, so while they are higher than what we have got used to, they are still much lower than when I was looking to buy my first house (6.9%) and back then we had to pay the dreaded stamp duty at 9% of purchase price. Add to all this that housing supply is still not even close to where it needs to be and shows no sign of improving in the short to medium term and it is likely rents will only increase if you can even find somewhere. With rents increasing there is a dysfunction with property currently being so much better value to purchase. The market will correct this in time as all markets do.
My final thought is this - if you were to buy my hypothetical apartment at €380,000, not only will you save a potential €32,2510 (over 5 years) on the difference between the market rent and your mortgage but you will also pay off circa €32,000 in capital (based on a 4.15% interest rate and the above purchase). That circa €64,000 is the equivalent of an insurance policy against a severe market drop of circa 17% over your initial 5-year purchase horizon and to top it all off you have the best security of tenure you can have and will be able to hang a picture or paint it the colour of your choice without permission. Of course, the very best bit is in 30 years it’s all yours so you won’t have to worry about paying rent in retirement. If you sell it after 5 years even if the values have stagnated, you will still be €64,000 better off than you would have been and will have a super deposit of €102,000 towards your next home which would allow you to upsize to a house at circa €500,000 based on standard 20% second time buyer deposit rules currently and without an exception.
