Is it cheaper for a couple to buy than rent now?

KhanTheMan

A debate thats been going on in other threads for a while.

If a couple are renting a house or apartment, could it be significantly cheaper to buy it than rent it now?

Interesting reading

http://www.daft.ie/report/Daft-Rental-Report-Q3-2008.pdf

Have a look at page 10. Cheaper to buy than to rent?

Especially with the lower interest rates now (and still predicted to fall a lot more), than those used in the calculation there, and even with only a 30 year mortgage instead of the 35 years DAFT have done their calculations on.

Also AIBs new FTB offer?

http://www.independent.ie/business/personal-finance/lower-35pc-rate-to-encourage-firsttime-buyers-1549336.html

Are people going to start buying again?

johnnyskeleton

No.

Tell me roughly what sort of property you would be interested in purchasing (i.e. location, apt/house, bedrooms, standards etc) and we can analise the figures, but buying property when prices are dropping makes no sense unless the yearly rent is greater than the monthly mortgage interest, the annual decrease in property and the annual additional cost of buying as opposed to renting (service charges, bin charges etc).

You also have to remember the once off costs such as stamp duty, solicitors costs etc.

Perhaps most important of all are the personal and emotional benefits of renting over buying. If you lose your job it's not nearly as stressful trying to pay the rent as it is trying to pay a mortgage that is worth more than the property would be if you sold it.

KhanTheMan

johnnyskeleton wrote: »

No.

Tell me roughly what sort of property you would be interested in purchasing (i.e. location, apt/house, bedrooms, standards etc) and we can analise the figures, but buying property when prices are dropping makes no sense unless the yearly rent is greater than the monthly mortgage interest, the annual decrease in property and the annual additional cost of buying as opposed to renting (service charges, bin charges etc).

You also have to remember the once off costs such as stamp duty, solicitors costs etc.

Perhaps most important of all are the personal and emotional benefits of renting over buying. If you lose your job it's not nearly as stressful trying to pay the rent as it is trying to pay a mortgage that is worth more than the property would be if you sold it.

We should only be dealing with hard figures, not what ifs. Everyones got their own opinion on what ifs and at the end of it all, noone really knows for sure.

The debate i want to have here, is not whether it is right to buy or not. Lets just limit it to - is it cheaper to buy than rent right now for a young renting couple in Dublin. so as not to spoil the thread with the needless emotion that spoils every other property thread.

lets say a typical ftb property for a young couple. A 2 bed house or apartment, in the Dublin area, valued at less than 300k for example.

I've done the figures and yes it is cheaper to buy than rent these properties. Even taking into account the taxes and costs.

Have you read the Daft article?

You say no. What are you basing your figures on?

uncanny

KhanTheMan wrote: »

I've done the figures and yes it is cheaper to buy than rent these properties. Even taking into account the taxes and costs.

Have you read the Daft article?

3 Bed Dublin City Centre No Letting = €2,186 per month
3 Bed Dublin City Centre Letting 1 Double and 1 Single = €1,033 per month.

That implies you are earning €1,153 per month from rent-a-room, €13,836 a year.

However, individuals or couples are not allowed to earn more than €10,000 a year from rent-a-room or become-a-reluctant-landlord-because-you-couldn't-possibly-afford-it-otherwise, as the scheme should more properly be described.

You would be landed with a nice big fat additional tax bill if you relied on these figures.

ronbyrne2005

Dont forget to factor in capital depresciation too. Also interest rates may be lowered for a few years but will return to more normal levels over the lifetime of mortgage.

silverharp

if you want to be ruthless about it and treat property like a financial security , then in this market you want to see a capitulation before you consider buying, on this logic maybe in a couple of years you buy a repossessed property off the bank when rental yields are 9%/10% using the novel approach of saving up a significant deposit.
if you think now is a good time ask yourself what % of properties have been repossessed, review other markets in previous crashes work out an average and compare

KhanTheMan

uncanny wrote: »

3 Bed Dublin City Centre No Letting = €2,186 per month
3 Bed Dublin City Centre Letting 1 Double and 1 Single = €1,033 per month.

That implies you are earning €1,153 per month from rent-a-room, €13,836 a year.

However, individuals or couples are not allowed to earn more than €10,000 a year from rent-a-room or become-a-reluctant-landlord-because-you-couldn't-possibly-afford-it-otherwise, as the scheme should more properly be described.

You would be landed with a nice big fat additional tax bill if you relied on these figures.

Well, done on the balanced, realistic view there

KhanTheMan

silverharp wrote: »

if you want to be ruthless about it and treat property like a financial security , then in this market you want to see a capitulation before you consider buying, on this logic maybe in a couple of years you buy a repossessed property off the bank when rental yields are 9%/10% using the novel approach of saving up a significant deposit.
if you think now is a good time ask yourself what % of properties have been repossessed, review other markets in previous crashes work out an average and compare

Why dont you tell us what percentage of properties have been repossessed then?

jetski

Previous crashes are irrelivant to ours.

johnnyskeleton talks about the personal and emotional benifits of renting over buying.... there is simply no comparrision to living in your own home compared to renting and living by the rule of some landlord who dosent give a rats once youve paid his mortgage.

Getting back to the ops Question.... for me if i rented my place out id be in the green by about a tone a month.

SimpleSam06

jetski wrote: »

there is simply no comparrision to living in your own home compared to renting and living by the rule of some landlord who dosent give a rats once youve paid his mortgage.

Then again as a recent buyer, you might be considering it a wise move to talk up the market in the face of all the evidence.

Snaga

jetski wrote: »

Previous crashes are irrelivant to ours.

Why is it different? (in anything other than scale).

silverharp

jetski wrote: »

Previous crashes are irrelivant to ours.

johnnyskeleton talks about the personal and emotional benifits of renting over buying.... there is simply no comparrision to living in your own home compared to renting and living by the rule of some landlord who dosent give a rats once youve paid his mortgage.

Getting back to the ops Question.... for me if i rented my place out id be in the green by about a tone a month.

if you treat your house as a consumption item then you are absolutely correct. In a way I do, but I have my mortgage paid and it represents about 1/2 my net worth, and it is a house I can live in for the rest of my life. So potentially if the yields become interesting in 2-4 years I may get interested in investment properties but thats a long way off.

johnnyskeleton

KhanTheMan wrote: »

We should only be dealing with hard figures, not what ifs. Everyones got their own opinion on what ifs and at the end of it all, noone really knows for sure.

The debate i want to have here, is not whether it is right to buy or not. Lets just limit it to - is it cheaper to buy than rent right now for a young renting couple in Dublin. so as not to spoil the thread with the needless emotion that spoils every other property thread.

lets say a typical ftb property for a young couple. A 2 bed house or apartment, in the Dublin area, valued at less than 300k for example.

I've done the figures and yes it is cheaper to buy than rent these properties. Even taking into account the taxes and costs.

Have you read the Daft article?

You say no. What are you basing your figures on?

I wanted you to nominate a property or area so that I could do a breakdown analysis. If I chose the property myself I would accused of selecting an area where rents are low and prices are high.

2 bed house/apt Co. Dublin less than 300k. Daft returns 784 matches. I sorted them by price (lowest first) and selected the first one I could see in an area that would have a lot of properties for sale or to rent. I found Belfry Hall, Citywest Road, Citywest. Sure enough, I found a similar property to let.

To let: €1,100

To buy €265,000 or €1,340 per month based on an 80% mortgage (53k deposit) over 20 years @ 4.58% from AIB, who I believe have the best interest rate at the moment. I trust you have no difficulty with the 20 year annuity term, as the 30/35/40 year interest only etc loans have played a significant role in inflating the bubble. For the purposes of this example we will say that there was no stamp duty and they have a solicitor friend who will do the conveyance for free. We will also say that they get TRS of €266 per month for the first 6 years and that their managment company fees are €2400, so that's a net €66 deduction from their monthly installment. So they actually pay €1,274 each month.

On these basic figures, buying is €174 extra per month, but that's not the end of the matter. Let's say that instead of putting down the 53k on the deposit they put it into Northern Rock at 5%, less dirt is 4%, or €2,120 pa or €176 pm. So they are actually €350 better off if they rent (another way of looking at this is that if they got a 100% mortgage, they would pay an extra €202 per month). Let's also look at the hidden costs i.e. repairs furniture which could add €100 extra per month which the renter's landlord would pay, but the purchasors will have to pay themselves. So they are €450 worse off per month or €5,400 per year.

Now, I know you don't want to discuss the ifs and whatnots, but it is generally accepted that rents and house prices will fall over the next two years. Let's say the rent drops in 2009 by €100 to €1,000 p.m. and the house price drops by 5% or €13,250 pa (€1,104 pm). That puts them a massive €1,204 better off if they rent per month, or €1,654 in total. While with these figures for rental and house price drops we can argue the toss, I think the above figures are more than reasonable as I would estimate a ~ 10% drop in both rents and house prices in 2009 alone, nevermind 2010.

Finally, let's look at the human side. With employment rising an unprecedented 57% over the last year with more job losses predicted for 2009, there is a good chance that one or both of this couple could lose their jobs. The stress of being unable to pay the rent is nowhere near the stress of getting into arrears in your mortgage. Selling is very difficult at the moment and will likely remain so for the next few years. Even if they sell for €250k a year later, that's a €15k loss of their own money. But lets not presume the worst, lets say that they are both civil servants and after 5 years they wish to buy a bigger home because prices have come down and they are expecting their first child. They will be lucky to get their deposit back from the sale of this property and they will also now have to pay stamp duty on their new house. Let's say the stamp duty is €10,000, and they have nothing left from the sale of the apartment after the mortgage, estate agents and solicitors are paid off. The couple who rented will be [53k (deposit) + 21k (350 per month for 5 years, note that this could be earning interest which I haven't included) + 4.8k (rental drop from 2009 onwards) + 10k stamp duty =] €88.8k better off than they would be if they buy now in a falling market. If they get some money back from the sale of the property then subtract it from this figure, but even if they get their deposit back they are still €35.8k worse off, or 1 years average industrial wage.

So take your pick. If you assume rents and prices will stay the same for the next 5 years, they will be €21k worse off if they buy over rent. If rents and prices keep dropping, they will be much worse off.

You see, in the boom times it made sense to pay whatever was being asked for a property, because with capital appreciation of 10%, you could live there for free and make a profit from buying a property. Now that it's gone the other way, it is a guaranteed loss.

johnnyskeleton

jetski wrote: »

Previous crashes are irrelivant to ours.

johnnyskeleton talks about the personal and emotional benifits of renting over buying.... there is simply no comparrision to living in your own home compared to renting and living by the rule of some landlord who dosent give a rats once youve paid his mortgage.

Getting back to the ops Question.... for me if i rented my place out id be in the green by about a tone a month.

I would imagine it's much worse to live by the rule of some bank who can arbitrarily increase interest rates and for whom serving one months notice to quit is not enough to get you out of any difficulty you may be in. What if you move into the area and at night it's a warzone? What if the walls of the apartment are paper thin? What if there are major structural problems and the developer has become insolvent? What if you want to move but no one will buy your shoebox for anywhere near what you paid for it? Because of these considerations I would only buy in an area I knew well and in which I could see myself living for the rest of my life. In the context of a young couple, very few if any of these could afford to buy somewhere that they would be happy to live in long term i.e. a house suitable for a family.

silverharp

johnnyskeleton wrote: »

Finally, let's look at the human side. With employment rising an unprecedented 57% over the last year with more job losses predicted for 2009, there is a good chance that one or both of this couple could lose their jobs. The stress of being unable to pay the rent is nowhere near the stress of getting into arrears in your mortgage. Selling is very difficult at the moment and will likely remain so for the next few years. Even if they sell for €250k a year later, that's a €15k loss of their own money. But lets not presume the worst, lets say that they are both civil servants and after 5 years they wish to buy a bigger home because prices have come down and they are expecting their first child. They will be lucky to get their deposit back from the sale of this property and they will also now have to pay stamp duty on their new house. Let's say the stamp duty is €10,000, and they have nothing left from the sale of the apartment after the mortgage, estate agents and solicitors are paid off. The couple who rented will be [53k (deposit) + 21k (350 per month for 5 years, note that this could be earning interest which I haven't included) + 4.8k (rental drop from 2009 onwards) + 10k stamp duty =] €88.8k better off than they would be if they buy now in a falling market. If they get some money back from the sale of the property then subtract it from this figure, but even if they get their deposit back they are still €35.8k worse off, or 1 years average industrial wage.

So take your pick. If you assume rents and prices will stay the same for the next 5 years, they will be €21k worse off if they buy over rent. If rents and prices keep dropping, they will be much worse off.

You see, in the boom times it made sense to pay whatever was being asked for a property, because with capital appreciation of 10%, you could live there for free and make a profit from buying a property. Now that it's gone the other way, it is a guaranteed loss.

very well expressed, every possible "button" was pressed to get a top in this housing market. there are simply too many homeowners carrying too much debt and orther financial risks for this to unwind anytime soon.
In the US , conservative advisors were advising last year for people to wait until property was the valued at 100 months rent before considering buying.

DJDC

Previous crashes are irrelivant to ours.

Classic

We should only be dealing with hard figures, not what ifs. Everyones got their own opinion on what ifs and at the end of it all, noone really knows for sure.

The debate i want to have here, is not whether it is right to buy or not. Lets just limit it to - is it cheaper to buy than rent right now for a young renting couple in Dublin. so as not to spoil the thread with the needless emotion that spoils every other property thread.

Idiotic post. Anyone who has any basic understanding of probability knows the expected value E[X] is the key figure when considering the price of an investment.This is done by caculating the sum of all the potential payoffs*probabilities of that payoff occuring.Do you really think prices are going to suddenly bounce in the next 12 months despite the world going through its worst recession since the 1980s??House Prices are still overvalued when one considers the likelihood of further price falls i.e probabilities of lower(negative) payoffs. Until the global outlook improves so that the furure expected value is a postive, prices will keep dropping no matter how much state institutions try to prop them up. With the S&P at its lowest level in 20 years and unemployment set to grow dramatically in the new year, anyone who buys a house now is just plain stupid.

KhanTheMan

johnnyskeleton wrote: »

I wanted you to nominate a property or area so that I could do a breakdown analysis. If I chose the property myself I would accused of selecting an area where rents are low and prices are high.

2 bed house/apt Co. Dublin less than 300k. Daft returns 784 matches. I sorted them by price (lowest first) and selected the first one I could see in an area that would have a lot of properties for sale or to rent. I found Belfry Hall, Citywest Road, Citywest. Sure enough, I found a similar property to let.

To let: €1,100

To buy €265,000 or €1,340 per month based on an 80% mortgage (53k deposit) over 20 years @ 4.58% from AIB, who I believe have the best interest rate at the moment. I trust you have no difficulty with the 20 year annuity term, as the 30/35/40 year interest only etc loans have played a significant role in inflating the bubble. For the purposes of this example we will say that there was no stamp duty and they have a solicitor friend who will do the conveyance for free. We will also say that they get TRS of €266 per month for the first 6 years and that their managment company fees are €2400, so that's a net €66 deduction from their monthly installment. So they actually pay €1,274 each month.

On these basic figures, buying is €174 extra per month, but that's not the end of the matter. Let's say that instead of putting down the 53k on the deposit they put it into Northern Rock at 5%, less dirt is 4%, or €2,120 pa or €176 pm. So they are actually €350 better off if they rent (another way of looking at this is that if they got a 100% mortgage, they would pay an extra €202 per month). Let's also look at the hidden costs i.e. repairs furniture which could add €100 extra per month which the renter's landlord would pay, but the purchasors will have to pay themselves. So they are €450 worse off per month or €5,400 per year.

Now, I know you don't want to discuss the ifs and whatnots, but it is generally accepted that rents and house prices will fall over the next two years. Let's say the rent drops in 2009 by €100 to €1,000 p.m. and the house price drops by 5% or €13,250 pa (€1,104 pm). That puts them a massive €1,204 better off if they rent per month, or €1,654 in total. While with these figures for rental and house price drops we can argue the toss, I think the above figures are more than reasonable as I would estimate a ~ 10% drop in both rents and house prices in 2009 alone, nevermind 2010.

Finally, let's look at the human side. With employment rising an unprecedented 57% over the last year with more job losses predicted for 2009, there is a good chance that one or both of this couple could lose their jobs. The stress of being unable to pay the rent is nowhere near the stress of getting into arrears in your mortgage. Selling is very difficult at the moment and will likely remain so for the next few years. Even if they sell for €250k a year later, that's a €15k loss of their own money. But lets not presume the worst, lets say that they are both civil servants and after 5 years they wish to buy a bigger home because prices have come down and they are expecting their first child. They will be lucky to get their deposit back from the sale of this property and they will also now have to pay stamp duty on their new house. Let's say the stamp duty is €10,000, and they have nothing left from the sale of the apartment after the mortgage, estate agents and solicitors are paid off. The couple who rented will be [53k (deposit) + 21k (350 per month for 5 years, note that this could be earning interest which I haven't included) + 4.8k (rental drop from 2009 onwards) + 10k stamp duty =] €88.8k better off than they would be if they buy now in a falling market. If they get some money back from the sale of the property then subtract it from this figure, but even if they get their deposit back they are still €35.8k worse off, or 1 years average industrial wage.

So take your pick. If you assume rents and prices will stay the same for the next 5 years, they will be €21k worse off if they buy over rent. If rents and prices keep dropping, they will be much worse off.

You see, in the boom times it made sense to pay whatever was being asked for a property, because with capital appreciation of 10%, you could live there for free and make a profit from buying a property. Now that it's gone the other way, it is a guaranteed loss.

Im not saying its wise to buy at all. In fact i think people buying right now are mad. And I know, people like DJDC get upset when peoples take on figures differ from his own blind acceptance that property is not affordable to anyone. He just needs to learn to read is all.

What i want to do is point out that we are at a point in time now where it is possible to buy your house instead of renting it. The figures from Daft support it. Its the money in peoples pockets that they care most about.

So why dont we change the figures a little bit. Lets change the term to the more common 30 year term and the LTV to 92%, since its available easily. Now they only have about €230 TRS.
They are only starting on a 30 year term and can always reduce the term in 5 - 10 years or so if their salary situation improves. People have a wide range of options in paying back their mortgages.

Ive provided the calculations from AIB in the attachment - The same one we are both using i think. You can see the variance based on years to repay.

Now it costs them €1233 - €230 = €1003 PM.


In the next few months this figure could well be below €900 PM with the way interest rates are going. The last .5% drop hasnt even been taken into account here.


There are many variables here though.

Do you think, also, that it would be safe assume that the asking price is above the actual sale price by at least 10%.

We dont know what rent will drop in 2009, but 10% is a lot considering Daft say the last 3 months are about 3% or less in Dublin.

Management Company fees vary. €2400 pa is very high for a 2 bed apartment.

Interest rates as always, are a factor.


Basically I am saying, it is easily affordable for a couple currently renting in Dublin to buy the same house they are renting and have the repayments cheaper or close to what they are paying already. Im not trying to hurt anyones stance on the state of the property market, as others have taken this personally in other threads.

Now whether buying is something people should do or not, is not up to me to say. Personally I wont even think about buying til things straighten out in Ireland - if they ever do.

professore

jetski wrote: »

Previous crashes are irrelivant to ours.

Just like the way other property bubbles was irelevant to Ireland and we were going to have a "soft landing". With respect complete nonsense.

professore

Is it reasonable to assume that interest rates are going to continue to be very low? How are the banks going to make any return and build up their battered balance sheets if they are effectively going to be lending money for almost free? I predict a much bigger spread in the coming years between the ECB base rate and the actual mortgage rate especially with vulture venture capitalists running our banks and squeezing the consumer for every last cent.

johnnyskeleton

KhanTheMan wrote: »

Im not saying its wise to buy at all. In fact i think people buying right now are mad. And I know, people like DJDC get upset when peoples take on figures differ from his own blind acceptance that property is not affordable to anyone. He just needs to learn to read is all.

What i want to do is point out that we are at a point in time now where it is possible to buy your house instead of renting it. The figures from Daft support it. Its the money in peoples pockets that they care most about.

Well by my calculations that city west apartment (which to be honest is not a bad price to buy and the rent is fairly high for so far out of the city) is still cheaper to rent than to buy, so for many people who are finding it tight to pay the rent, buying is still not an option, as assuming no price or rent falls, it is still €350 pm more expensive to buy than to rent. Also, they will have to save up a massive deposit.

An interesting question is who would have 53k on deposit ready to buy. Those that don't won't be able to buy, and of those that do have it, the ones who got it by hard work, savings, and sacrifice would not buy at the moment and there are very few people who will get 53k from their parents etc these days.

KhanTheMan wrote: »

So why dont we change the figures a little bit. Lets change the term to the more common 30 year term and the LTV to 92%, since its available easily. Now they only have about €230 TRS.
They are only starting on a 30 year term and can always reduce the term in 5 - 10 years or so if their salary situation improves. People have a wide range of options in paying back their mortgages.

A lot of lenders are only giving 80% on apartments, so 92% would have to be for a house. I also think the idea of having a 30 year mortgage on an apartment is ludicrous as there is every possibility that in 30 years time the apartments built now will be unsellable due to poor state of repairs.

Ive provided the calculations from AIB in the attachment - The same one we are both using i think. You can see the variance based on years to repay.

Now it costs them €1233 - €230 = €1003 PM.

To be honest, TRS just about covers service charges in most apartments. Houses have similar expenses. It's best to leave TRS and service charges out of the equation. Also, TRS only lasts for 6 years out of 30, which is not that great.

In the next few months this figure could well be below €900 PM with the way interest rates are going. The last .5% drop hasnt even been taken into account here.

To be honest, we don't know how interest rates are going to go. If there is world inflation led by the USA, the ECB will increase their rates. In any event, the banks are struggling, and the more relevant interest rate for them is the libor rate. Don't forget that banks are not obliged to pass on ECB cuts to their variable customers, and tracker mortgages are no longer available. So the last drop may never be taken into account - variable rates may even go up if there are big mergers of banks.

Basically I am saying, it is easily affordable for a couple currently renting in Dublin to buy the same house they are renting and have the repayments cheaper or close to what they are paying already. Im not trying to hurt anyones stance on the state of the property market, as others have taken this personally in other threads.

However, it is only affordable when you use things such as 30 year terms, forget about deposits and ignore the elephant in the corner that is capital depreciation. I know you want to ignore this part of it, but I think it is a very dangerous point you are making if you ignore the likely movements of the market as it might lead to a false perception of how the market is. Another point to consider is that if we see wage deflation here (i.e. people being paid less for the same productivity) the burden of the mortgage will increase. Buying a home is a difficult personal and financial decision, and while in the boom times the idea that the mortgage was less than the rent was a very attractive idea, now it is the opposite.

KhanTheMan

johnnyskeleton wrote: »

Well by my calculations that city west apartment (which to be honest is not a bad price to buy and the rent is fairly high for so far out of the city) is still cheaper to rent than to buy, so for many people who are finding it tight to pay the rent, buying is still not an option, as assuming no price or rent falls, it is still €350 pm more expensive to buy than to rent. Also, they will have to save up a massive deposit.

An interesting question is who would have 53k on deposit ready to buy. Those that don't won't be able to buy, and of those that do have it, the ones who got it by hard work, savings, and sacrifice would not buy at the moment and there are very few people who will get 53k from their parents etc these days.



A lot of lenders are only giving 80% on apartments, so 92% would have to be for a house. I also think the idea of having a 30 year mortgage on an apartment is ludicrous as there is every possibility that in 30 years time the apartments built now will be unsellable due to poor state of repairs.



To be honest, TRS just about covers service charges in most apartments. Houses have similar expenses. It's best to leave TRS and service charges out of the equation. Also, TRS only lasts for 6 years out of 30, which is not that great.



To be honest, we don't know how interest rates are going to go. If there is world inflation led by the USA, the ECB will increase their rates. In any event, the banks are struggling, and the more relevant interest rate for them is the libor rate. Don't forget that banks are not obliged to pass on ECB cuts to their variable customers, and tracker mortgages are no longer available. So the last drop may never be taken into account - variable rates may even go up if there are big mergers of banks.



However, it is only affordable when you use things such as 30 year terms, forget about deposits and ignore the elephant in the corner that is capital depreciation. I know you want to ignore this part of it, but I think it is a very dangerous point you are making if you ignore the likely movements of the market as it might lead to a false perception of how the market is. Another point to consider is that if we see wage deflation here (i.e. people being paid less for the same productivity) the burden of the mortgage will increase. Buying a home is a difficult personal and financial decision, and while in the boom times the idea that the mortgage was less than the rent was a very attractive idea, now it is the opposite.

Just a few points.

You can choose any property up to 300k. Just match it to the rent for same property and my calculations work out.

It doesnt have to be apartments with service charges.

Capital depreciation or appreciation should not be an issue here. This is not an investment. Its a comparison of cost to own Vs rent.

Your sample (AIB) offer 92%, so i think its valid in my calculations. Anyway its easier to come up with 8% than 20%. And, As you said, 53k for a deposit is probably too far to reach for FTBs so 92% is more likely.

The days of the 20 year starter mortgage are over. Though i would imagine that most people wont be going the full term of the mortgage. Many will pay them off quicker. Other eejits will refinance even a 20 year at some stage.

True we dont know which way interest rates will go, But if they go up i think it will be because the credit crunch is improving. We also cant assume a deflation scenario either.

Some banks have already announced that they are passing on the last increase (AIB incl).

ZYX

johnnyskeleton wrote: »

I


To buy €265,000 or €1,340 per month based on an 80% mortgage (53k deposit) over 20 years @ 4.58% from AIB, who I believe have the best interest rate at the moment. I trust you have no difficulty with the 20 year annuity term, as the 30/35/40 year interest only etc loans have played a significant role in inflating the bubble. For the purposes of this example we will say that there was no stamp duty and they have a solicitor friend who will do the conveyance for free. We will also say that they get TRS of €266 per month for the first 6 years and that their managment company fees are €2400, so that's a net €66 deduction from their monthly installment. So they actually pay €1,274 each month.

On these basic figures, buying is €174 extra per month, but that's not the end of the matter. Let's say that instead of putting down the 53k on the deposit they put it into Northern Rock at 5%, less dirt is 4%, or €2,120 pa or €176 pm. So they are actually €350 better off if they rent (another way of looking at this is that if they got a 100% mortgage, they would pay an extra €202 per month). Let's also look at the hidden costs i.e. repairs furniture which could add €100 extra per month which the renter's landlord would pay, but the purchasors will have to pay themselves. So they are €450 worse off per month or €5,400 per year.

.

If they are €5400 a year worse off, that works out at €108,000 after 20 years. However they will own a property worth €265,000 even if property prices stagnate for next 20 years. So, after the 20 years based on your figures they would be much better off buying unless property prices fell 60% over next 20 years and rents failed to increase in next 20 years.

johnnyskeleton

ZYX wrote: »

If they are €5400 a year worse off, that works out at €108,000 after 20 years. However they will own a property worth €265,000 even if property prices stagnate for next 20 years. So, after the 20 years based on your figures they would be much better off buying unless property prices fell 60% over next 20 years and rents failed to increase in next 20 years.

You didn't factor in interest on that €108k which, over 20 years would be fairly significant.

You also didn't read the next part of my calculation which is the crucial part i.e. that even moderate drops in property prices and rents makes these figures pale in comparison.

blast05

Reading this thread, i was beginning to side with the renters argument. However, ZYX has blown all other arguments out of the water imho ... i'm a buyer now :cool:

astrofool

johnnyskeleton wrote: »

To be honest, TRS just about covers service charges in most apartments. Houses have similar expenses. It's best to leave TRS and service charges out of the equation. Also, TRS only lasts for 6 years out of 30, which is not that great.

While renting has no other charges? Houses have similar expenses? You're getting pretty far reaching if you're going to discount TRS in all future comparisons.

It's also not that difficult to save the 53k deposit (in say 3 years), if that is the person's aim, and they're on a decent enough salary.

SimpleSam06

blast05 wrote: »

Reading this thread, i was beginning to side with the renters argument. However, ZYX has blown all other arguments out of the water imho ... i'm a buyer now :cool:

Tbh he didn't factor in a lot of other issues. I think the main gist of the discussion is that while its a bad idea to be a buyer now, in three or four years time it could be quite a good idea. Everything changes, and the more Irish properties approach what could be called good value, the better an idea it is to buy. In three or four years you might even catch me advocating buying!:P Although you'll need an umbrella for pig droppings before I advocate it as an investment or for financial gain.

Climate Expert

blast05 wrote: »

Reading this thread, i was beginning to side with the renters argument. However, ZYX has blown all other arguments out of the water imho ... i'm a buyer now :cool:

Rubbish. This is the question.

Is it cheaper for a couple to buy than rent now?

And the answer is a resounding no. Loads of areas I'm interested in have places priced for 500K and renting for €1700. In Galway I was looking at 4-5 houses in the country which were renting for €800-1000 and selling for €600K+.

blast05

In three or four years you might even catch me advocating buying!

Nah, i just can't see for example a 5 bed detached house in Foxrock being 20K in 3 or 4 years time and a weeks salary buying a 2 bed apartment in Blanchardstown

In Galway I was looking at 4-5 houses in the country which were renting for €800-1000 and selling for €600K+.

Curiosity ..... are they actually still selling for €600K plus or is that just the asking price from a year ago ? Regardless, it will always be cheaper to rent a 5 bed in the country than buy it.

asdasd

Reading this thread, i was beginning to side with the renters argument. However, ZYX has blown all other arguments out of the water imho ... i'm a buyer now

In general it is better to own than to buy, the question is whether you do it now, or wait. If property prices are to come down another 20% ( which is a low ball) then a house which costs 300K now will cost 240K at trough, saving the investor 60K plus interest ( or alternatively he may buy a much better house for 300K) over a lifetime. Lets say he is into buying the same house, so he saves 60K and interest, conservatively lets say the interest on the house over 20-30 years is 50%, or 30K extra. ( The 30 year loan will have more interest). So he stands to save 90K, and the cost is the cost of a year, or so, rent which could be 1K a month for the same house - so up to 18K to the bottom of the market in a year and a half: to be optimistic again. ( In reality, however, people don't rent what they buy, they can live with friends or at home to save - so the savings could be greater).

That 20% drop may take a year or more, so the question is not whether it is better to own, or buy in general ( in general owning is better since you get equity) but whether you buy or rent now.

It should be obvious that not factoring in price drops is a bit of a sham.

Climate Expert

The cheapest way to lifelong accomadation is to,
1. Rent for a few years, and put the difference between renting and buying into a high interest account.
2. When the bottom the market is reached and you somehow know this go off and buy with a 60% mortgage, 20 year mortgage.

ravendude

professore wrote: »

Just like the way other property bubbles was irelevant to Ireland and we were going to have a "soft landing". With respect complete nonsense.

The classic "This time it's different" and "there is a new model" gets bandied about for practically very boom/bust. The interesting thing, is that every boom/bust cycle is somehow different to those that went before by definition, at least for the countries in which they occur. (eg. Dot-com bust, Ireland unprecedented boom bust, Holland's tulip craze), 1929 crash.

However, the boom bust cycle is relentless, and in economic terms, there's usually little difference to other cycles, except in the severity of the peaks on trough.