Acquiring a property is an increasingly formidable task for the younger generation, more so now than it has ever been. As a rookie journalist, I used to perceive the £12,000 value of a semi-detached house in Northern England as an insurmountable finance pit, given my meagre income that was less than half this cost. In the present times, a property offering that is a slight notch above double the earnings is seen as a golden opportunity, irrespective of possible unforeseen troubles.
The Central Bank of Ireland revised its mortgage lending regulations last year, thus allowing house-buying novices to secure a loan of up to four times their collective earnings. However, a majority of the population in Dublin find this nowhere near sufficient to afford a new house.
The Irish real estate values, as declared this week, tower about 10% above their rates during the period of economic boom known as the Celtic Tiger – a phase that was deemed excessively unrealistic even back then.
Rental charges in Ireland have also seen a significant spike. According to the latest data from Daft.ie, the standard rent in Dublin for the first quarter of this year has been €2,395 per month, which is a 2.5% increase from the same time in 2023. You might have to shell out more than €2000 for a one-bedroom flat in certain areas of the city.
In Cork, the rentals soared by 8% to €1,870 per month, and in Limerick, it soared by 17.5% to €1,933. In Galway, it rose by 5% to €1,861, and in Waterford by 7% to €1,495. Throughout the other areas of the State, average monthly rents jumped by 6.8% to €1,467.
The task of saving up for the required deposit, while managing everyday expenditures, is proving to be increasingly challenging. Nonetheless, the key guidelines stay the same. At the pinnacle of these rules is strategic saving.
First-time purchasers generally need to save about 10% of the cost. Therefore, young duos will need a minimum of €33,500 in savings, considering the median price of €335,000 for a house sold across the State in the year ended April last.
The median property price is considered as the amount that a property situated right in the middle of the broad spectrum of properties purchased in a certain timeframe would cost. It tends to be a more dependable figure in comparison to an ‘average’ which may be skewed by an irregular quantity of property sales at the extreme ends of the price spectrum.
In the case of Dublin, within a similar timeframe, the median price came out to be €448,750. Meaning, first-time purchasers would need to muster up a deposit sum of €44,875.
You can follow a few practical steps to prepare for your home loan. Initially, scrutinise the housing market. You’d have a certain preference for the type of residence and locality you’d like but could you afford it? View the advertised prices listed by local estate agents. Try to comprehend how these figures correspond to the actual prices in transactions by having a word with the agents.
Another important step is to refer to the Property Price Register where all domestic sales data gets recorded, although there might be some delay between final acceptance of a sale and the update of its details.
Even if you’re not ready to purchase immediately, it is advised, based on recent trends, to anticipate a yearly rise in property prices in the mid -high single-digit rate. Don’t aspire to acquire a house that is clearly beyond your reach. It’s not just delusional, but can also demotivate you in something that’s already quite challenging. You might need to reorient your ambitions and settle for certain concessions, and it’s better to do so right from the beginning.
In the process, estimate what you can reasonably afford. This might be slightly complex if your income is inconsistent, if you’ve recently shifted places, have changed careers or if your earnings consist of extra payable like bonuses.
It’s also wise to seek advice from a mortgage broker to realise what kind of elements a bank will consider in their assessment of your annual income and the type of evidence they will require.
Finally, inculcate the habit of saving. Some of us are naturally good at setting aside part of our weekly or monthly earnings for future endeavours such as vacations, grand expenses or a home deposit. However, some people might have to learn the knack of saving.
A savvy elder peer once recommended me to save whatever I earn from a pay rise immediately before I start spending it. While it’s true that I didn’t follow this advice strictly, I still appreciated its wisdom.
If you struggle with saving, you need to invest time to draft a weekly or monthly expenditure plan. Assess your outgoing expenses and scrutinise your consumption patterns. What are your necessary expenditures and which ones are optional? In this era of cashless payments, it’s incredibly easy to spend money unthinkingly, a habit you must strive to break.
The majority of us believe we spend sensibly, but a closer look almost always reveals areas where savings are possible. Choices such as switching utility suppliers, replacing branded products with inexpensive but comparable substitutes, moderating leisure spending, or opting for a less extravagant holiday, can embed more saving into our regular routines.
If you’ve minimised your spending to the bare minimum based on your current revenue, contemplating alternate or extra work apart from your current job may become necessary. The decisions can vary from being simple to complex, but a budget will certainly bring discipline to your saving endeavour.
However, storing your savings idle is unproductive. Active investment of your savings can cause them to grow so wisely select your savings account. While depositing, your sight should not be long-term, so unit fund investments are not suitable. Concurrently, letting your money sit in a demand deposit account accruing negligible interest is equally unproductive.
However, this is where a staggering 90 per cent of Ireland’s savings are located.
Explore the options in the market that provide better interest rates and make a practical decision about the duration for which you can lock your money in.
To ensure that your money serves you optimally, consider the many options made available especially for first-time buyers to enter the property market. These encompass Government-funded schemes like Help-to-Buy that enable you to reclaim the income tax and DIRT you’ve paid in the past four years to offset the cost of buying a home. This allows you to reclaim either €30,000 or 10 per cent of the house’s worth you’re purchasing, which could be a significant aid in securing your purchase.
The First Home Scheme, a state provision that affords eligible individuals up to 30% of the cost of a new home, may be a viable option for those who have fully utilised their mortgage offerings and are still in need of additional funds to secure a property. The scheme allows for the government to gain an equity stake in the home, which can be repurchased over time as the homeowner’s financial situation improves.
Alternative forms of financial aid comprise loans from Local Authorities to bridge the difference in the mortgage offer and the actual property price, pending on the individual’s income and the property’s cost. An affordable purchase scheme provided by local authorities and a vacant property refurbishment grant are also available. Each scheme has its unique set of terms and conditions, so it’s essential for potential participants to carefully research to identify the most beneficial option. These schemes could make homeownership a reality for individuals struggling to afford it.
The so-called ‘Bank of Mum and Dad’ serves as yet another financial lifeline for those fortunate to have parents willing and able to provide monetary assistance. These funds, provided as either loans or gifts, can help to bridge the gap between their offspring’s borrowing capability and the property’s cost. However, any substantial gift can affect the potential amount one may receive inheritance tax-free later on.
Do keep in mind you’re not exclusively bound to your own bank for mortgage services. It pays to look around and explore various alternatives, with numerous lending options available from mainstream providers and non-bank lenders like Avant, Finance Ireland, Dilosk’s ICS Mortgages, Nua Money, and MoCo.
Different types of mortgage rates, such as green rates for energy-efficient homes, fixed rates of varying lengths and interest rates based on loan to value, and variable interest rates, might be more advantageous when the European Central Bank reduces interest rates. A fixed rate provides the surety of a consistent monthly payment, a critical consideration for new homeowners likely to have tight finances. Nonetheless, a bad fixed rate might strap you into a costly loan, so it’s critical to weigh all options. Those unsure or irregular in income should contemplate using a mortgage broker for their expert advice.
Feel free to put forth any personal finance queries you’d like us to address. Please refer to last week’s newsletter focusing on whether prize bonds are a sounder bet compared to the Lotto.