SMALL CHANGE COULD HELP SIOBHÁN TO BUY A HOME

SiobhÁn works in the hSE, where she is battling through its worst crisis yet – Covid 19.

After endless lockdowns in shared rental accommodation, she would love to buy her own home. She pays €1,000 a month in rent, which is very low for Dublin.

Yet she’s frustrated that Central bank rules won’t let her to get a big enough mortgage to buy a home even though her repayments on it would be a quarter less than what she is paying in rent.

Proposed new rules should limit rent rises to the rate of inflation (currently 1.6%). but even under that scenario, over 35 years, her rent would rise to €1,715 a month and she would pay €557,197 over 35 years.

if she were allowed to buy, as years go by, the mortgage stays the same as rent inexorably rises. Mortgage payments will also stop.

With lower mortgage payments, she could afford to put more money into her pension and save on tax too. in 30 years, her mortgage would be paid off and she would own a home and a pension.

Just a simple change to the Central bank’s rules would enable her to buy a home and assure her financial future, says financial advisor Michael Dowling of Dowling Financial.

her main problem is the 3.5 times income rule. She earns €50k so can only borrow €175k. it doesn’t matter if she can repay a far higher loan as her rent record shows.

Yet, as things stand all she could buy for €175k, would be a site and little else in areas anywhere near where she works and lives in Dublin.

The 3.5 times income rule has remained for six years even though interest rates have fallen and new lower fixed-rate loans enable people to not only pay less overall, but to be assured of low, longterm interest rates.

A fairer system would be to assess repayments as a proportion of net Disposable income (nDi), says Mr Dowling.

‘There are those who would argue that 38-40% nDi should be the measure but 35% was always the traditional figure from my early banking days.

‘Paying rent over a number of years demonstrates repayment capacity which is very important in seeking a mortgage,’ he pointed out.

‘Tenants are paying on average of 36% of their nDi on rent.’ on this basis most tenants, including Siobhan, should qualify for a mortgage.

Mr Dowling recommends that she goes for a 20-year fixed-rate at 2.9% from Finance ireland. on a €175,000 loan over 30 years, this would involve monthly payments of €728.

This is just 29% of her nDi and over a quarter less than what she’s now paying in rent.

however, the Central bank maintain that easing the rules could also push up property prices by enough to leave her back at square one. As ever, changes in a market as complex and massive as property is rife with potential complications.

*Siobhan’s name and some details have been changed