Irish property market bound for recovery

The_Conductor

MG wrote: »

I'm not sure of the exact relationship between rent and mortgage payment (it's too simplistic to look at it purely as cash flow) but I'm pretty sure that the interest on the mortgage should closer or less than rent.

Why?

Its two totally freestanding propositions (and it should be). There appears to be some sort of a collective thinking- that everyone should aspire to own their own apartment/house (whatever), and when the finances are aligned in favour of buying over renting- that this is the logical course of action. Its not. This is in the main an Irish preoccupation- and is at very least partially what percipitated the property bubble in the first instance.

Rents are solely determined by market forces- supply and demand. Mortgage Interest is determined by a combination of other factors- the ECB base rate (which is at a historic low, and is going to increase to around 4.5% over time), the margins the lending institutions are charging (Irish institutions are charging abnormally low margins for political reasons- this is also going to change- as when the bank guarantees are renewed- its going to cost them a lot more to raise money than at present), and finally- the economic outlook (which is incredibly poor).

As long as the supply of rental properties continues to increase- the only floor on rent is an artificial floor set by the HSE rent allowance (and this is going to fall in December).

Rent and Mortgage interest should not be viewed as somehow having a correlation with one another- they don't.

ZYX

gurramok wrote: »

To further on Spocketys point. I pay rent of 900 quid. To buy the apt, a similar apt next door is on sale for asking 295k. Thats way more in mortgage repayments than rent.

That is not true. First of all gurramok, you would not offer €295k for the property. Lets face it you would expect to get it for €260k or less. If you paid €260k for it and got a 2 year fixed term mortgage from Bank of Ireland at 2.6% that means you would have to pay €6760 a year interest which is €563 a month. That would be a nearly 40% less than you are paying now.

asdasd

him a figure of 27140

Are you missing a zero?

asdasd

Can people link to the mortgage calculators they are using?

gurramok

John_999 wrote: »

Spokety I was responding to Guromoks post where he was saying he was paying 900 a month on rent and that house next to it went for sale for 295. I just gave him a figure of 27140 which is what he can borrow if he was buying the house. You are wrong about the yearly price here its actually more you got your 4 and 5 mixed up its 5482 but if you devide that by 12 you get 456.33 which is still near half the 900 he is paying on rent or so lets weigh it up 900 of dead money and you own nothing or 456.33 and you own a house that should in 35 years go up in value. Hope this clears it up for you.

Am I reading this right?

A 27,140 mortgage?:eek: If so, that leaves about 267 grand cash deposit. Who has that floating around?

Explain what you mean here John.

gurramok

ZYX wrote: »

That is not true. First of all gurramok, you would not offer €295k for the property. Lets face it you would expect to get it for €260k or less. If you paid €260k for it and got a 2 year fixed term mortgage from Bank of Ireland at 2.6% that means you would have to pay €6760 a year interest which is €563 a month. That would be a nearly 40% less than you are paying now.

What about year 3 to 25/35??

John_999

I said you could get a loan of up to 27140 on the property next to you going for 295k.

Why isnt 35yr morgage a fair comparison its on the market and available to everyone. Thats like saying you cant drive that car even do you own it of course its a fair comparison. Also regardless of is its 25years you are still paying 20% on the actual amount. So its the same.

Think about it 27140 @ 20% per month on interest is 5428 then devide by 12 to get the monthly. It doesnt matter how long it takes to pay it back. If you do it over 25 years its better as your paying 10years less interest.

As for the what the money is covering yeah I factored in 100quid a month for management fees. I also didnt factor in the solicitor fees which I did pay myself.

MG

smccarrick wrote: »

Why?

Rent and Mortgage interest should not be viewed as somehow having a correlation with one another- they don't.

I view it as part of the rent or buy decision for a tenant/prospective buyers or as part of the investment decision for an investor.

Should a rational person opt to buy when the interest is cost of capital than the rent?
Should an investor be happy with getting a return which does not cover the cost of capital?

Okay there can be other factors involved but I do see a pressure to not get the two out of kilter.

ZYX

gurramok wrote: »

What about year 3 to 25/35??

Purely an example. You can easily get a 5 year mortgage where the interest repayments are less than your rent. What will your rent be in years 3-35?

asdasd

I said you could get a loan of up to 27140

What? That is 27 thousand, one hundred and forty. Are you serious? Do you mean 271,400?

gurramok

John_999 wrote: »

I said you could get a loan of up to 27140 on the property next to you going for 295k.

Why isnt 35yr morgage a fair comparison its on the market and available to everyone. Thats like saying you cant drive that car even do you own it of course its a fair comparison. Also regardless of is its 25years you are still paying 20% on the actual amount. So its the same.

Think about it 27140 @ 20% per month on interest is 5428 then devide by 12 to get the monthly. It doesnt matter how long it takes to pay it back. If you do it over 25 years its better as your paying 10years less interest.

As for the what the money is covering yeah I factored in 100quid a month for management fees. I also didnt factor in the solicitor fees which I did pay myself.

Why 27,140? You're not making sense. Did you leave out a zero at the end of that amount?

Where will I get 267,000 deposit?

35 yrs is a way of unaffordability. Its a classic way by the banks to get more interest out of you. If I was buying tomorrow, 25yrs would be my max.

asdasd

Why isnt 35yr morgage a fair comparison its on the market and available to everyone.

Not as you get past 35. Anyway the costs of that mortgage are far more than the costs of a 25 year mortgage. That has to be factored into the supposed gain from the house. By getting a 35 year mortgage you are increasing the real cost of the house from 350K to 450K - this figures will vary depending on interest rates. That kindof ballpark.

John_999

oops sorry guys I left a zero out baby had me up all night...

gurramok

ZYX wrote: »

Purely an example. You can easily get a 5 year mortgage where the interest repayments are less than your rent. What will your rent be in years 3-35?

My mortgage repayments will most likely double after year 3 or 5 unless the once in a century global credit crunch or a 9/11 occurs again

Rent in yr 3-35 will depend on supply and demand of course, I can hop ship if the landlord decides to hike it. Within the immediate future years, I can safely say that rents will not be going up as hey the economy is screwed.

ZYX

gurramok wrote: »

What about year 3 to 25/35??

Actually Gurramok, just checked with AIB and you can get a 10 year fixed rate mortgage that will cost you 900 a month. I think you can assume your rent will be more than 900 a month in 10 years time

asdasd

Link?

ZYX

asdasd wrote: »

Link?

I am not sure if that is directed at me but if it is then as I said it is AIBs 10 year fixed rate mortgage. 260,000 at 4.21%. You can argue it would be less as you would have a deposit and get TRS (for a while anyway)

Diarmuid

ZYX wrote: »

Purely an example. You can easily get a 5 year mortgage where the interest repayments are less than your rent. What will your rent be in years 3-35?

People working out the mortgage they could afford with 2.6% interest rates is what left Ireland with a housing bubble. I'd suggest you re-run your calculations with realistic interest rates over 30 years. (something in the region of 5%)

John_999

Hi all yeah interest rates would have to go up to just over 4% in order to be better off renting. But in saying that the amount of interest will be coming down all the time as your paying it back

ZYX

Diarmuid wrote: »

People working out the mortgage they could afford with 2.6% interest rates is what left Ireland with a housing bubble. I'd suggest you re-run your calculations with realistic interest rates over 30 years. (something in the region of 5%)

With a fixed rate for 10 years of 4.2% why expect 5%. The mortgage term does not count as we are only talking the interest on the mortgage (which is the cost of the mortgage)

gurramok

ZYX wrote: »

Actually Gurramok, just checked with AIB and you can get a 10 year fixed rate mortgage that will cost you 900 a month. I think you can assume your rent will be more than 900 a month in 10 years time

I wouldn't qualify for a 260k mortgage, what now?

If I did, I wouldn't fancy facing doubling mortgage repayments in 10yrs time. Its a good 10yr deal alright, but one has to ask is the apt really worth 260k-290k to buy?
I don't think so.

John_999

True so if you can get a 10year at 4.2 it work out at about 10 Euros dearer than renting. Not bad if I was a 1st time buyer I would be seriously looking at this option

ZYX

gurramok wrote: »

I wouldn't qualify for a 260k mortgage, what now?

Hard luck

gurramok wrote: »

If I did, I wouldn't fancy facing doubling mortgage repayments in 10yrs time. Its a good 10yr deal alright, but one has to ask is the apt really worth 260k-290k to buy?
I don't think so.

Whatever. You know the place better than I do. The point is you could buy it for less than you rent it.

John_999

Longer term Gurramok will it be worth more in 20 years or what ever time frame you are looking at. Anyways no one not even the most brilliant ecconomist in the world can predict whats going to happen in 10 years.

Diarmuid

ZYX wrote: »

With a fixed rate for 10 years of 4.2% why expect 5%. The mortgage term does not count as we are only talking the interest on the mortgage (which is the cost of the mortgage)

the mortgage term absolutely does count. (EDIT to prove it to yourself go into AIB and offer to take out a 35 year mortgage at the 10 year rate. )

I swear to God, I knew Irish people didn't know what they were getting into 5 years ago with the irresponsible debts they were taking on, but I'd have thought they would have learned their lesson by now! Clearly not.

John_999

My Point exactly zyx in 10 years time you could be half way to owning a house and paying less on dead money or you can still be renting.??? seems like a no-brainer to me

John_999

Diarmud relax there ...we are talking about monthly figures not what your paying the bank. We know the longer you pay off a loan the more you pay the bank but thats the reason why it gives a person more breeding space.

The logic behind this is how much your waisting a month paying rent or how much your wasting a month paying interest.

It doesnt matter who ye pay be it the landlord or the bank if you buy your are paying less dead money to the bank FACT

Diarmuid

John_999 wrote: »

if you buy your are paying less dead money to the bank FACT

There should be a Godwin law equivalent for this phrase.

I'll refer you to this thread,.

John_999

You cant have it both ways Diumud dont buy as rents are coming down. Dont buy as house prices are coming down. If people dont buy what do they do they rent so there is more demand for rental which will stablize or keep rent prices above interest repayment prices. This is going to go back now to migration and other ****e that has really feck to do with this discussion. At the end of the day there are too many unknowns out there with regard for property speculation. I for one am taking a punt I have bought and let the chips lie where they may. I am no expert but this is the first propety I have bought ..(I have bought 4 in total) in which I felt I wasnt raped by the estate agent. I would advise first time buyers to go for it. As I say in 20 - 35 years do you think your property will have gone up in value thats the only questioh you need answering and I aint one to tell someone to do something that I am not prepared to do. I am taking a risk. Below is a list of pros and cons that have been put forward on this thread all with there own merrits but no one posing on this thread can forsee the future.

In the pros for buying a gaff you have

There is still an influx of foreigners to this country it has slowed but they are still coming in

Lisbon being passed

NAMA

Decreasing property prices

Low interest rates

Cost of living is getting cheaper

Statistics show that the death vs birth rate is higher on the birth side.

Upturn in the worldwide ecconomy

Upturn in US/Uk property market

The Cons for buying a gaff

Your dealing with a bank C.unts

increased migration

uncertainty about future drops in house prices

future drop in rent

ECB interest rate uncertainty

Job losses

Wage cuts

Over saturated house market

Stamp duty

Budget still to come

Sorry if I have missed anything but I think people buying should just know the whole story not a one sided affair which is what is happening

Diarmuid

I think this post a few pages back hit the nail on the head. I'll leave it at that.