It’s twice as dear to rent... but loan rules still exclude a home purchase
Limiting mortgages to three-and-a-half times income is barring buyers from getting on the property ladder
WE ALL knew that rent costs had gone through the roof. But the latest figures show it is now TWICE as dear to rent as it is to buy in many counties in Ireland. Only in two of the most expensive areas in the whole country – Dublin 4 and 6 – is repaying a mortgage on a three-bedroom home more expensive than paying rent, the latest rent review from Daft.ie reveals.
And even then the difference is only marginal.
In every other area of the country, including Dublin, it would be cheaper – close to half the cost in many cases – to service a mortgage than paying rent on the same property.
In Meath, a mortgage would be €741 while rent is €1,317. Even if the interest rate were to increase by 2% the mortgage would still be lower at €941
The respective figures for Louth are €666 (mortgage), €1,231(rent) and €845 (mortgage if there was a 2% increase in the interest rate)
This is economically nuts. It points to a major dysfunctionality in Ireland that is costing the young and not-so-young people of Generation Rent dearly.
‘These figures illustrate the travesty of the situation for young people in particular, many of whom are now approaching middle age and who cannot acquire their own homes,’ said Pat Davitt, head of the Institute of Professional Auctioneers and Valuers (IPAV).
‘The solutions thus far are clearly not working and something very different needs to be done to get more affordable homes built. It requires a whole-of-government approach, often talked about but not yet implemented.’ Mr Davitt said such solutions must include the entire planning process as well as the entire tax treatment of housing and investors in housing.
He said if European Central Bank interest rates rise in the next few years there will be ‘much bitter regret that the younger generations in 2020 and 2021 were excluded by State policy from accessing mortgages when they could get attractive fixed interest rates for
periods of up to ten years.’
Mr Davitt has previously said the rental market needs to be reviewed in its entirety. He said one of the issues that has contributed to inflated rents was the decision to leave owners of new properties exempt from the Rent Pressure Zone rules.
‘New properties were left outside of the RPZ legislation entirely until July 19 when it was tapered and the exemption from then applied to first lettings only. However, the exclusion means higher rent levels are set which later become the comparables for others to justify raising their rents.’
I agree with IPAV but its latest release didn’t mention the Central Bank rules on borrowing which are more than partly to blame here and need to be looked at. They mean you can borrow no more than 3.5 times your income. When I put this to IPAV, a spokesperson said: ‘Absolutely, you are spot on. IPAV has, over several years, presented proposals to Government and to the Central Bank to revise the mortgage rules.’
Of course, changing the mortgage rules, like every other positive measure in the mortgage market, could put upward pressure on prices. But maybe we have to accept higher prices in some areas and at least people on average incomes might have a chance of buying. As it stands, even if you’re paying twice as much in rent as you would for a mortgage you could be refused
a mortgage on the grounds that you can’t afford it!
The stringent Central Bank rules on borrowing will ensure it is never again blamed for a financial crisis in the way it was in 2008. Yet it has severe social consequences for young homebuyers as outlined above. Is this a classic example of a State agency covering itself from blame regardless of the consequences elsewhere?
Supposing someone earning €32k a year in Offaly wanted to buy a home. They wouldn’t be allowed to borrow more than
€112k under Central Bank rules – 3.5 times their income. That is way too low to pay for a house even in Offaly, a relatively affordable county. Yet they would be well able to afford €499 a month for an average mortgage there.
When the rules came in they were regarded as extremely stringent. Yet since then, interest rates have fallen through the arrival of new players like Avant Money. The Central Bank interest rates should be reviewed in the light of this – and for the sake of Generation Rent.