Renting Versus Buying
Is it Cheaper to Buy or Rent a Property?
Tenants in Ireland are paying unprecedented levels of rent and would-be tenants describe viewings of rental properties as resembling job interviews in which they try to sell themselves to the property owner / estate agent. So in this article, we ask why don’t people buy instead?
This varies by property type and area but for the purposes of this example, we are going to use two bed accommodation in Phibsborough. For those unfamiliar with the area, it is a vibrant, popular neighbourhood a couple of kilometres outside Dublin city centre. It has a Luas stop on the green line, is serviced by a host of buses, has a vibrant mix of cafes, restaurants and pubs and is generally a very nice place to live. At the time of writing, renting decent two bed accommodation in Phibsborough costs in the region of €1600/month and upwards.
The cost of buying two bed accomodation in Phibsborough varies depending on the quality of the property but good standard, two bed apartments close to all amenities are listed for sale at in the region of €270,000.
So if a buy to let investor buys one of these properties at €270,000 and rents the property for €1600/month, the gross rental yield would be just north of 7%.
The Monthly Cost of Buying a 2 Bedroom Property in Phibsborough
Let’s assume that you are a first time buyer and as such need to come up with a 10% deposit. Let’s leave the deposit issue to one side for the time being; we will revisit later. A mortgage of 90% of €270,000 will be required or €243,000. Assuming a repayment period of 30 years and 3.5% APR (shop around for the best deal of course), monthly repayments will be in the region of €1090/month. You can play around with the figures at our handy mortgage calculator below. So €1600/month at least to rent versus mortgage repayments of just over €1000 seem compelling.
Raising the Deposit
Many tenants would love to buy a property but are stuck in a cycle of high rents preventing them saving a deposit which prevents them from buying. If they could just get the deposit, the mortgage repayments would be more affordable than the rent they are paying. This is an immensely frustrating situation for buyers to find themselves in.
In the above example, the buyer would need a deposit of €27,000. In addition, circa €1500 of legal fees would be due as well as 1% stamp duty. So €31,200 in savings would be required. That is a daunting figure and beyond the reach of many who are struggling to pay their bills and high rents each month. However, there is some help available.
Government Help to Buy Scheme
The government Help to Buy scheme will refund 5% of the purchase price up to a maximum of €20,000 assuming you have paid this amount in tax in the preceding four years. For more details, see:
So, on the above example, the buyer would be eligible for a tax refund of €13,500 - that’s a good start to raising the deposit!
Bank Cashback Offer
Bank of Ireland (and some other lenders) are offering cashback on new mortgages taken out with them - for more details, see:
https://personalbanking.bankofireland.com/campaigns/2-cashback-offer/. So, assuming a mortgage of 243,000 that equates to €4860 cashback.
Coming up with the Balance
Between the tax refund and the 2% cashback, €18,360 of the required €31,200 has been raised, leaving €12,840 still required to be funded. In terms of coming up with this last piece of funding, below are some avenues to consider.
Move Back Home………..for a while!
While not ideal and not an option for everyone, it can be a useful option for some to quickly build up some savings instead of handing all your cash over each month to a landlord.
Friends and Family:
Remember, that if you do get this transaction over the line, you will be approximately €600 better off per month than what you would have been had you rented. Maybe you can convince a friend or family member to loan you the funds and pay them back out of the savings you have achieved by buying.
Sell Your Car
If you have any equity in your car, sell it, then once the property has been bought, use some of the €600/month savings to buy a car perhaps on PCP finance.
Very often it will be significantly cheaper in terms of monthly outgoings to buy rather than rent. Raising the deposit is the stumbling block for many but hopefully the government Help to Buy Scheme and the Cashback deals on offer from banks mean that coming up with the money isn’t quite as daunting as it can appear at first glance!