Is buying really better than renting over the long term?
QWe are among those stuck in the rental trap. We already pay €1,200 a month and are bracing ourselves for further rises.
To help me convince my partner to make even more sacrifices – so we can save a deposit and buy a home – can you work out how much rent costs us and compare it to the benefits of buying?
There are no homes for less than €310,000 where we live so we need a mortgage for €250,000 over 30 years when we save a deposit.
(My partner owned a home before, so that rules us out as firsttime buyers, which is why we need such a large deposit).
AYou’re right about rents. New figures this week showed Dublin rents reaching an all-time high – 3.9% higher even than the peak of the boom in 2007.
The increases are also spreading to the rest of the country but, from the figures you gave, I’m guessing you’re in Dublin.
Buying is a no-brainer compared with renting over the long term.
Even as things stand, a mortgage would save you money on a weekly basis (see table). But over a long period, it would save you a fortune.
The good thing about mortgage payments is that they don’t go up.
Rents, however, are rising at up to 10% a year. They won’t keep going up at that rate but, even at increases of half that level, your rent bill would rise to €5,000 a month after 30 years. That would bring the total paid over 30 years to €1.1million – nearly three times what you would pay for a mortgage.
At the end of that period, renters own nothing. At the end of your mortgage period, you would own the home that’s worth over €300,000 now – but would be worth over €1.3million then, even at an average annual increase of 5%.
That’s a bit like winning the lottery. Renting is like winning the lottery in reverse. Instead of winning a million, you lose it over 30 years. There has been a lot of discussion recently about the shortfall in pensions but your home can be part of your pension.
If you own it and don’t have to pay rent when you retire, that’s a saving of €1,200 a month in aftertax income – around €300 a week. Retired renters would need to earn a lot more than €1,200 before tax just to cover your rent.
However, all of these figures are based on a couple sticking around for 30 years.
If you are likely to up sticks, sell your home and move somewhere else in a couple of years’ time, it’s a different story.
The benefits of very short-term property ownership are outweighed by the risk of a downturn and the costs of buying and selling property.
If you sell up after five years or more, you should still make a considerable gain by owning rather than renting.
QI sold a property this year and made a gain of about €70,000 on which I will pay about €20,000 in Capital Gains Tax (CGT). Am I entitled to anything back if I sell my family home and make a loss of about €100,000?
AIf your ‘family home’ is your principal private residence, it is exempt from CGT. Any loss, therefore, would not be allowable and could not be offset against other chargeable gains.