Thursday, March 5, 2009
Figures, figures, figures
As I am preparing my presentation for the first-time buyer seminar tonight, news is coming in of a further reduction in interest rates by the ECB today.
A full half-percent to bring the base rate to 1.5%, never before seen in Ireland... or too many other places either for that matter!
Of course it makes the figures I am using for comparing mortgage repayments with rent payments redundant, but at least it makes them better, not worse.
At a base rate of 2%, you could buy a house costing €175k (€235k in 2006) for just €612 per month, compared with a current rental value for the same house of €800 per month, saving just under €200 per month.
If the new rate is passed on, then the saving will be over €200 per month! Buying a house for yourself instead of buying one for your landlord.
Given this sum, to most people, purchasing a home instead of renting would be the logical thing to do.
But there is a problem.
Maximum Loan-to-value is currently 92%. So to buy a house, even priced at €175k, you need a minimum of €14,000. Add on solicitor and some furniture and you are really looking at €16-18,000.
Therein lies the problem. Very few young first-time-buyers have access to this much savings.
In the boom, there were 100% (and in many cases 115%) mortgages, with figures being "massaged" at all stages.
As an agent for almost 25 years, I could not see how someone who could not raise €5,000 for a deposit could borrow up to €300,000.
But this happened... all too regularly.
When 100% mortgages became unavailable in May 2008, many parents helped out their children by providing them with "loans".
In the current economic climate, with no one's job secure, this is not happening as much.
An average couple renting at present could save perhaps €1,000 per month or slightly more. Those that are buying at the moment have been saving for almost 18 months.
Those that started saving when 100% mortgages were abolished last May have approx. 8-10 months left before they can buy a home, however low the market goes.
That said, we are still selling well-located, properly-priced homes to qualifying buyers. They are buying homes at 2003 price levels.
And saving €10,000 a year in rent.