The First Time Buyer Syndrome.

AlekSmart

One of the issues which I find a bit queer in the current climate is the apparent decision by the banking sector to restart the old well worn "Get on the Property Ladder" marketing stuff.

I notice the main Building Societies and some Banks now doing window displays which lean heavily on the "Dont waste money Renting" advice....

I`m going Hmmmmmm here as I now have a belief that the pushing of this Home Ownership at all costs mantra is one of the main contributory factors to the current malaise in Ireland.

Why did it become almost a legal requirement for an individual on reaching puberty to buy property ?
It`s not as if a 3 bed semi-d in Dublin,Cork,Limerick or their commuter belt represents some amazingly solid individualistic purchase ?

From what I can divine,the Financial Sector is intent upon resuming "normal" mortgage business in so far as locking young folks into 30-40 year mortgages is concerned.

I wonder to what extent this policy only serves to remove the grà for self advancement or the enjoyment of OTHER goals in a life ?

The entire Irish system appears uniquely skewed towards making the Long-Term Property Rental option as Unattractive as possible.

Landlords,even the very term is made to sound oppressive and unfair,are made out to be cruel and uncaring types ever keen to do their tenants down.

Simple and concise tenancy agreements are made virtually impossible by rafts of leglislation which owes far more to Revenue Commissioners policy than any great Socially beneficial modal shift in living styles.

Why should this be ?
Is it to prove that the rest of Continental Europe has been wrong for several hundred years now in its considered utilization of well ordered and monitored Private Rental arrangements for huge swathes of its population ?

With vast amounts of unfinished,unsold and rapidly deteriorating resedential property now languishing across the country perhaps a new assessment is required.

Why for example could the Financial Sector not be nudged into getting directly involved in the setting up of Private Rental "communes" on a basically European style,based around Landlords being guaranteed a REASONABLE return on their long-term investment coincidentally with Tenants having a guarantee of well managed and affordable housing.

I am not advocating any of this "Social and Affordable" stuff,as I believe this to be merely an ill-judged attempt at plugging the social gulf which unbridled pursuit of the "Starter Home" dream led us all to.

who_am_I?

The banks make money by lending, They are trying to convert bad loans to developers who will default on payment into Better loans to homeowners.

When interest reates return to normal levels ~5% the interest paymnets on a mortage taken out today will far exceed the rent on a similar property.
Interest payments are also dead money.

I sold my house last year. I will buy again when an average person can afford an average house in an average area, and the banks have returned to prudent lending.

ixoy

who_am_I? wrote: »

When interest reates return to normal levels ~5% the interest paymnets on a mortage taken out today will far exceed the rent on a similar property.

I think that's an important point that's being missed by the "There's never been a better time to buy!" crowd. Interest rates in the Eurozone are at an historic low and, while there may be small further drop in the near future, are only going to rise long term once the recession begins to end (even if Ireland itself is still stuck in one).

The bargains of today, based on these rates, may once again become milestones around the people who took them out. I'd certainly hope they're being means-tested against this inevitable rise.

francish

ixoy wrote: »

I think that's an important point that's being missed by the "There's never been a better time to buy!" crowd. Interest rates in the Eurozone are at an historic low and, while there may be small further drop in the near future, are only going to rise long term once the recession begins to end (even if Ireland itself is still stuck in one).

The bargains of today, based on these rates, may once again become milestones around the people who took them out. I'd certainly hope they're being means-tested against this inevitable rise.

Agree, it annoys me to see advertisements saying buying is cheaper than renting. The rest of the eurozone will emerge from the recession much earlier than Ireland. In the boom years our interest rates were too low, we are now going to have the opposite, Eurozone interest rates will be high.

Scofflaw

It's not a rational position, certainly. A family member, who had the fortune to sell out in March 2007 (she's always been like that), rented until very recently. People kept telling her that "rent is dead money" - when she pointed out that her rent for the whole year was something like €12,000, while the properties she was interested in buying had fallen in price by €40-50,000 over the same year, they'd look uncomfortable and go quiet, only to say it again when they next met her.

Nowt so queer as folk.

cordially,
Scofflaw

mikemac

I do agree OP that Ireland needs better legislation regarding renters.

On boards I've read about tenants with a lease having their landlord selling the house and then the tenants have to put up with an estate agent and prospective buyers traipse around their home!

On the other hand, it seems if a tenant stops paying rent it can take months to evict them.

The situation is messed up. Tenants seems to be regarded as second class citizens and better protection is need. The last Act in 2004 didn't deliver this as afaik, all the landlord has to do is claim they need the property for a family member and you are gone.

You can't legislate for everything but something has to change

eamonnm79

who_am_I? wrote: »

The banks make money by lending, They are trying to convert bad loans to developers who will default on payment into Better loans to homeowners.

When interest reates return to normal levels ~5% the interest paymnets on a mortage taken out today will far exceed the rent on a similar property.
Interest payments are also dead money.

I sold my house last year. I will buy again when an average person can afford an average house in an average area, and the banks have returned to prudent lending.

I think you will be waiting a long long time for that to happen.

BroomBurner

I always find it amusing when renters come out with the "look how much money you've lost n your home since blah blah blah" line in response to the "rent is dead money" line.

Let's be honest and upfront here. Rent IS dead money. If someone wants to spend their hard earned money paying for someone else's property, then fine, be happy with your choice in life.

People buy homes for several reasons, not just to "get on the property ladder". Yes, some buy as investments, but the vast majority will seek t buy so that they can simply own their own home. If you have a family and you want your kids to settle in one place, particularly for school, this is much harder to do when renting, as you are at the whim of the property owner.

As for the why the banks are pushing mortgages, it was explained better above by others towards the profits made on repayments. The banks are also doing what they've been told by government, which was to make money available again.

Hasschu

The health of banks and building societies is dependent on the value of their collateral. If housing and other property continues to decline in value it creates problems for the lenders and the government who has to come to their rescue. Ultimately of course it is the taxpayers who will foot the bill. What is going on now is an attempt by banks and government to prop up property values by continuing to lend on easy terms. Better to lose a bit on new loans than a lot on the property loan book as a whole. We have had an unprecedented run of good luck virtually uninterrupted since 1987 (who remembers those dark and dreary times). The previous property boom in Ireland occurred prior to the Napoleonic wars immediately followed by a bust. The mantra on the street for years now is property values have never declined in Ireland. The reason being that Ireland has not had a property boom for centuries prior to the recent lunacy. I will not bother you with what independent economists think of Ireland's prospects except to say that the future does not look bright. The only bright spot is membership in the Monetary Union.

AlekSmart

Let's be honest and upfront here. Rent IS dead money. If someone wants to spend their hard earned money paying for someone else's property, then fine, be happy with your choice in life.

People buy homes for several reasons, not just to "get on the property ladder". Yes, some buy as investments, but the vast majority will seek t buy so that they can simply own their own home. If you have a family and you want your kids to settle in one place, particularly for school, this is much harder to do when renting, as you are at the whim of the property owner.

I take BroomBurners point to a degree,whilst wondering at the truly VAST amounts of "Dead Money" which European citizens have managed to get through,but I am then at a loss as to how,literally hundreds of Millions of Europeans,DID manage to settle,live and die in the one place without actually OWNING that few sq metres

Is it that the "Whims" of the European Property Owner (Landlord) are basically different to those of a native Irish one ? or is it that those whims are subject to a different set of value judgements and regulatory mechanisms than our native free-spirit allows us to contemplate ?

gurramok

BroomBurner wrote: »

I always find it amusing when renters come out with the "look how much money you've lost n your home since blah blah blah" line in response to the "rent is dead money" line.

Let's be honest and upfront here. Rent IS dead money. If someone wants to spend their hard earned money paying for someone else's property, then fine, be happy with your choice in life.

Renting is a service and is most cases, it is cheaper to rent than buy.

Its actually 100% correct for a renter to rent now than buy as they will save alot more by renting because the fall in price will be greater than the rent paid.

Why do most continentals rent for all their lives while we buy for all our lives?

BroomBurner

gurramok wrote: »

Renting is a service and is most cases, it is cheaper to rent than buy.

Its actually 100% correct for a renter to rent now than buy as they will save alot more by renting because the fall in price will be greater than the rent paid.

Why do most continentals rent for all their lives while we buy for all our lives?

First off, do "most continentals" rent for all their lives?

Secondly, in what countries are you looking at?

Thirdly, what is the legislation like in each of those countries regarding the availability of landspace for the building of new homes?

You need to be able to answer each of these questions, then compare it to Ireland, before you can have an answer to why people here are more concerned with buying than renting.

as for the "100% correct for a renter to rent now", that is quite a ridiculous comment to make. I could just throw out the statement "it's 100% correct for homeowners to own a home now"

AARRRGH

BroomBurner wrote: »

Rent IS dead money.

No it's not.

Do you also think buying vegetables is dead money? Using your logic it is, because you'd be 'better off' buying the farm and growing the vegetables yourself. Currently you are just paying for the farmers service.

The sentence "rent is dead money" makes no sense. You could replace "rent" with nearly any other word.

"Rent is dead money" is just a phrase homeowners use to feel good about their lives.

Saruman

Rent is dead money in the sense that for the same price as your rent and possibly cheaper, you can be paying into your own home. Until it is a case that it is much cheaper to rent than buy, most people will continue to see it that way.

I noticed a sign at Houston south quarter that rent is NOT dead money if you rent there as they will offset what you pay in rent against the price of the property if you buy in three years. It is a good idea both for the consumer and im sure for the property developer.

Macha

Saruman wrote: »

Rent is dead money in the sense that for the same price as your rent and possibly cheaper, you can be paying into your own home. Until it is a case that it is much cheaper to rent than buy, most people will continue to see it that way.

And what if the price of the property you have bought drops and you're in negative equity? How is buying better? And what about the other places you could be investing your money? Also, you do know you don't pay the market value for your house - unless you have large amounts of cash, you pay interest, which can add up to quite a lot of money over 30 years.

What about the reduced mobility of buying? If you want to move you either have to sell or become an impromptu landlord. By buying, you're also effectively investing the vast majority of your capital in one market, ie the property market thus taking a big risk. Add in the fact that you can't exactly sell off 20% of your house if you need the capital and the financial benefits of house ownership are far from certain.

mrgaa1

I feel you are missing the point.
If you write down all your outgoings there are some that can't be avoided, some that can be cut back on and some that can be removed completely.
Items like train tickets, bus tickets - you get no return on them but you need them to get to and from places of work, social etc...
Food items - we need food to survive.
Socialising money - we can cut that back as its not a necessity
A roof over our heads - necessity.
The list can go on.
Therefore if we list all our outgoings and see what can be improved on we see that items such as rent, car insurance, house insurance etc... are undoubtedly at the top. We need the insurances so they can't be stopped but we can shop around for the best suitable quote. However the car will depreciate in value over the years and will NEVER gain value.
However lets take the renting model. We pay rent, utility bills etc... monthly for x number of years. The bills - we get a return on them as they supply us with water, electric, heating etc... a means to living.
With the rent money we get the chance to live somewhere.
However, although there is a return on it (a place to live), as an alternative you could buy. You still have to pay x amount a month for living so in return you can purchase a suitable property which WILL make a return over the longterm. You can rent a room out, sell the property but you have the knowledge that you own your own place and that your hard earned monies is still giving you a place to live. Your money is working for you - long term.
Also in the continent the view on renting does differ because its a mentality. A lot like to move from one area to another - even different parts of the same city. Also in certain countries mortgages can be passed onto family members, lengthening the period of payback.
If people are happy renting then that is their choice - no-one should be made to do something they don't want to do. Personally I'm lucky in that I don't have a mortgage and I own my own place and I hope to get 40 years plus out of the house before the white coats come.
I do know a lot of people renting who want to buy - they don't like wasting money and want to set down roots. They have no issue with a mortgage - its the deposit thats stopping them. They have removed the mud from their glass's and do realise that house prices may go down further but LONG TERM they will go up and that the monies they are paying on rent could be used to buy their home.
One question I have - do those in their 20/30's plan to keep renting till they are in their 60/70's? Curiosity question really.

ionix5891

wait till interest rates go back thru the roof and they will

then we will see who is paying dead money :rolleyes:

seamus

For all intents and purposes, the concept of rent being dead money, is a fallacy, but it does have an underlying sentiment with a solid foundation.

The basic concept being that Joe Bloggs spends €700/month on rent, which means that he spends ~€250k over 30 years of renting. (Simple figures here). John Doe spends €1300/month on a mortgage of €250k, which is ~€470k over 30 years. However, after 30 years, John Doe owns his own property and has an asset (theoretically) worth €250k + inflation, whereas Joe Bloggs has nothing. The argument being that even though John Doe spent more per month, he came out wealthier at the end, therefore Joe Bloggs's money spent as rent is "dead".

You can point out the logical fallacy in this by showing that Joe Bloggs's rent and John Doe's interest paid are roughly equivalent, and Joe Bloggs never had the additional costs and hassles associated with being tied to a home. In addition to this, Joe Bloggs could easily have put that extra €600/month into a savings account and would come out with a big chunk at the end, equivalent to John's house.

This is where the experience kicks in - by and large, Joe Bloggs won't have saved that extra €600/month and will have spent the bulk of it as he needed to. There are very few people with the self-discipline to save money in these kinds of quantities over a very long time. Even if he can bring himself to put that money into an account every month, he has access to it and will use it to buy a new car, get married, go on holiday, etc etc etc.*

Therefore, if you take your average person, then for them renting is much more likely to be "dead" money than paying a mortgage. However, horses for courses. There's a fair argument that the renter is going to spend those 30 years living in more affluent surroundings and having more freedom.

*Which is half of our problem now. When banks start handing people virtual money which you've paid off into your home and telling you to go nuts and buy a new car or extend the house, the people are going to take it and spend it

AARRRGH

seamus wrote: »

John Doe spends €1300/month on a mortgage of €250k, which is ~€470k over 30 years.

I think the 470k is a bit optimistic. Isn't it more likely to be something like 700k?

Macha

seamus wrote: »

This is where the experience kicks in - by and large, Joe Bloggs won't have saved that extra €600/month and will have spent the bulk of it as he needed to. There are very few people with the self-discipline to save money in these kinds of quantities over a very long time. Even if he can bring himself to put that money into an account every month, he has access to it and will use it to buy a new car, get married, go on holiday, etc etc etc.*

Good post and I agree with everything you said. Just to put forward the opposing view on this, very often people see houses as assets to borrow against (taking out the equity, 2nd mortgages etc) and therefore there is a trend that increased home ownership actually leads to more borrowing, rather than the saving it is theoretically supposed to encourage.

Having worked in the loans dept of a large bank, we were constantly flooded with requests for 2nd mortgages and releases of equity and the purpose? new cars, getting married, holidays, extensions.

seamus

AARRRGH wrote: »

I think the 470k is a bit optimistic. Isn't it more likely to be something like 700k?

That's assuming a flat rate over 30 years, it'll work out at roughly €470k. As I said, simple figures. In reality rates will fluctuate and €1300 would be at the lower end of the scale, so €700k wouldn't be unreasonable. But €700/month rent is also at the very low end of the scale.

BroomBurner

mrgaa1 wrote: »

One question I have - do those in their 20/30's plan to keep renting till they are in their 60/70's? Curiosity question really.

Excellent question, does anyone want to answer?

I don't care what choices people make in their life with regards buying or renting. However, personally, renting will always be dead money. My parents rented and they still rent. I rented for a while after moving out and then realised that I would get nothing out of it long-term, so I bought. The choice was either pay rent, or pay the same amount of money for a property that I can then own.

I find those that are the strongest against buying are usually the ones who couldn't afford to buy, even with 100% mortgages and now like to sit on their perceived ivory towers. You can throw that back at me by saying that I'm sitting on my very own ivory tower, but as I said above, I don't care what choices people make in their life. Logic dictates that rent is dead money. You own nothing at the end of it. Nada. Zilch. Wow, freedom to move around, yeah, that's worth investing in (use sacrcastic tones for that last sentence).

Macha

BroomBurner wrote: »

The choice was either pay rent, or pay the same amount of money for a property that I can then own.

This is where you're making the mistake. In a propertly functioning housing market, renting should not cost the same as buying. You can't look at the Irish market and assume that it was the norm.

BroomBurner wrote: »

I find those that are the strongest against buying are usually the ones who couldn't afford to buy, even with 100% mortgages and now like to sit on their perceived ivory towers. You can throw that back at me by saying that I'm sitting on my very own ivory tower, but as I said above, I don't care what choices people make in their life. Logic dictates that rent is dead money. You own nothing at the end of it. Nada. Zilch. Wow, freedom to move around, yeah, that's worth investing in (use sacrcastic tones for that last sentence).

Let's not make this ad hominem. I could equally argue that those advocating buying now are those that have actually bought and are feeling sick about how much negative equity they're in and want others to hop onboard to get the market moving again. But I won't.

BTW - you're not using logic to support your argument.

CiaranC

BroomBurner wrote: »

Wow, freedom to move around, yeah, that's worth investing in (use sacrcastic tones for that last sentence).

Its a fairly big thing for lots of people. Those owning property bought at the top of the boom are now tied to that property for the rest of their lives.

To me, thats a horrible thought. Some pebbledashed grave, with a workaday job, 2.4 snotty children, a couple of weeks holiday a year, year after year after year for the rest of their empty, pointless lives :P

No thanks, you can keep your mortgage, ill pay for the service of accomodation just like i pay for other services.

AARRRGH

BroomBurner wrote: »

I find those that are the strongest against buying are usually the ones who couldn't afford to buy

My experience would tell me otherwise.

I could buy now, no bother, but I do not think it makes financial sense. Maybe in a few years I will consider buying.

There are pros/cons on both sides of the argument (e.g. owning is certainly nicer than renting, but renting lets you live in a nicer area for less money) and I don't think anyone is going to say they wouldn't like to own a home, but renting does make sense, and has certainly made financial sense for the past few years.

BroomBurner wrote:

Wow, freedom to move around, yeah, that's worth investing in

I'd rather have the freedom to emigrate than be trapped in negative equity. This is a major plus for renting.

Saruman

taconnol wrote: »

This is where you're making the mistake. In a propertly functioning housing market, renting should not cost the same as buying. You can't look at the Irish market and assume that it was the norm.

That is what I was getting at myself. If it is the same price or even cheaper to buy than to rent then it makes no sense to rent if you have the ability to buy.
When I bought my house in 2005 I rented a house in D20 and paid €1200 per month, we were paying more but threatened to leave and they dropped the price to €1200. I could have got a mortgage for less than that per month, might not have been as nice a house though I am not sure, I did not look at the prices of the immediate area.
I bought a house, sure its in westmeath but there is nothing better than knowing you own your own home and I was only paying €768 per month at the time and when my fixed rate ends this month I will be paying less than €700 per month

Long term, or even short term (market depending) as long as your house increases in value you are better off renting. At the very least it is something you will own before you reach retirement age and can chose to sell up and move to a retirement village etc or live in your own home etc. If you rent all our life you have nothing except your pension.

If the cost of renting was significantly less than the cost of buying then there would be some sense to it. If a house costs €1000 a month for a mortgage but the house next door is up for rent for €600 then renting might be a more attractive scenario.

BroomBurner

Are you so sure that everyone who is still paying a mortgage is in negative equity?

And what about when you finish travelling? Will you continue to rent until your old age, or will you buy? What will the economic trends be then?

Yes, I am using logic in my argument, it just might not sit with your cosy notion of how great it is to be free (to move around) while paying rent. You're never free while paying rent, ever. You still pay the same money, you don't own anything at the end. You're also not that free to move around, you still live by the same rules that buyers live by, in a sense that you only rent where you can afford.

Someone else made the point that renters would be in more affluent areas - I actually laughed at that one. Affluent areas will hold higher rents, as they will hold higher mortgage values. Also, I'll presume for this thread we're talking about private renters, and not council renters.

Macha

Saruman wrote: »

That is what I was getting at myself. If it is the same price or even cheaper to buy than to rent then it makes no sense to rent if you have the ability to buy.

I'm afraid it isn't as simple as that. As I and others have pointed out there are other issues to be considered including:
-ability to repay loan over 30+ years
-reduced mobility
-interest rates
-direction of property market
-direction of other potential investment markets.
and many more. Obviiously, the cost of renting v buying is important but to simplify it down to just that simple equation would be a mistake.

Saruman wrote: »

I bought a house, sure its in westmeath but there is nothing better than knowing you own your own home and I was only paying €768 per month at the time and when my fixed rate ends this month I will be paying less than €700 per month

Look, I appreciate that owing your own home is nice but I wouldn't go as far as saying there's "nothing better". You say "sure it's in westmeath", well for me there are major issues like time spent commuting, cost of commuting, cost of car ownership. I used to live in Newcastle, Wicklow as a teenager and was dependent on a crappy bus service. It caused a considerable amount of aggro in our house due to my near total dependence on my parents for transportation.

Saruman wrote: »

Long term, or even short term (market depending) as long as your house increases in value you are better off renting.

Not true. If other investment markets are performing better than it is simple logic that investing in these markets instead will be better for you financially.

Saruman wrote: »

At the very least it is something you will own before you reach retirement age and can chose to sell up and move to a retirement village etc or live in your own home etc. If you rent all our life you have nothing except your pension.

Why do you assume that if you don't buy there are no other possibilities for investing, other than a pension? It really is this mentality that property is a sound and advisible investment that caused the property bubble! You assume that you'll just be able to sell on but try telling that to people trying to sell these days. It is by no means guaranteed and you may not sell at the price that suits you. It's like owning shares - they're only worth the amount you get when you cash them in.

BroomBurner wrote: »

Are you so sure that everyone who is still paying a mortgage is in negative equity?

No, not people who bought, say pre-2003. But property prices are estimated to be heading back to 1997-levels.

BroomBurner wrote: »

And what about when you finish travelling? Will you continue to rent until your old age, or will you buy? What will the economic trends be then?

Well, I will look at the market and decide. Look, I'm not saying buying is bad - it provides security, can be a good investment, etc. BUT it is just not as clear cut as many people would have you believe.

BroomBurner wrote: »

Yes, I am using logic in my argument, it just might not sit with your cosy notion of how great it is to be free (to move around) while paying rent. You're never free while paying rent, ever. You still pay the same money, you don't own anything at the end. You're also not that free to move around, you still live by the same rules that buyers live by, in a sense that you only rent where you can afford.

really, the nastiness in your post does nothing to help your cause. I'm not talking about some wooly concept of "freedom" that can be conceptualised to suit any argument. I'm talking about simple mobility. I've addressed this issue of "owning nothing at the end of the day" above. You don't seem to understand the concept of opportunity cost.

Small Change

Saruman wrote: »

Long term, or even short term (market depending) as long as your house increases in value you are better off renting. .

Sorry, variations of this have been thrown out a couple of times and it is completely incorrect.

Property is not guaranteed to increase in real (inflation adjusted) value even in the long term.
It may increase in nominal value, but that is a different thing.

It it were to increase in real value constantly it would by necessity become unaffordable and reduce in real value again

CiaranC

BroomBurner wrote: »

Yes, I am using logic in my argument, it just might not sit with your cosy notion of how great it is to be free (to move around) while paying rent. You're never free while paying rent, ever. You still pay the same money, you don't own anything at the end. You're also not that free to move around, you still live by the same rules that buyers live by, in a sense that you only rent where you can afford.

What are you talking about? You can simply finish your current rental period and move anywhere you like. Ive just lived in Canada for a year, now Im doing a year in Ireland, next Im going to live in Australia for a year, then maybe France.

That notion is alien to my mates who live in houses in satellite towns of Dublin with a mortgage to be paid each and every month for the next thirty years. They will have to work as a necessity to pay that mortgage, regardless of the economic climate or type of job or quality of life. Are they ever going to be able to sell the houses at anywhere near what they paid for them? I doubt it. Its really terrible, these are the guys that took the hit for the greed in the property market big time.

I dodged that bullet by nothing but circumstance, I wouldnt trade with them for anything.

You cant put a price on that.

BroomBurner

taconnol wrote: »

No, not people who bought, say pre-2003. But property prices are estimated to be heading back to 1997-levels.



Well, I will look at the market and decide. Look, I'm not saying buying is bad - it provides security, can be a good investment, etc. BUT it is just not as clear cut as many people would have you believe.


really, the nastiness in your post does nothing to help your cause. I'm not talking about some wooly concept of "freedom" that can be conceptualised to suit any argument. I'm talking about simple mobility. I've addressed this issue of "owning nothing at the end of the day" above. You don't seem to understand the concept of opportunity cost.

Nothing nasty about my posts, though I will accept that some people can be of a more sensitive nature.

On topic, nobody said anything was clear-cut. I've said already that people make choices based on what is best for them. People will rent or buy depending on what is best for them. What I am arguing is that logic dictates that rent is dead money. Rent money pays for someone else to own the property, no matter what property it is someone happens to be living in at that moment.