It is now 42% cheaper to buy a home than rent in Dublin

The catch-22 facing many would-be property purchasers, particularly in Dublin, is laid clear in a number of new reports today. It is now 42 per cent cheaper to buy a new home in the capital than it is to rent; but the deposit you will need to get that property continues to edge upwards making it less affordable to do so. It could perhaps, be why today’s figures for mortgage approvals show a drop in the number of first-time buyers getting – or seeking – approval.

Yes, according to figures prepared by Cairn Homes – and while it has a vested interest in encouraging people to buy, the figures do make sense – buying a property in the housebuilder’s Parkside development in Dublin 13 is now 42.1 per cent cheaper than renting a similar property. And this gap between renting and buying has widened considerably in recent years, even as property prices have soared, due to the record highs reached in the rental market combined with falling mortgage costs. Indeed back in 2014 for example, it was only 8.3 per cent more expensive to rent rather than buy.

Now homebuyers, paying €349,150 for a new three-bed home at the development, can expect to pay €1,374 in monthly mortgage repayments, based on a mortgage rate of 3.29 per cent. Contrast this with monthly rents for a similar home, of €1,952 – which works out at a hefty €578 more a month. Over a year, buying, rather than renting, could save you €6,936, while over five years, the savings amount to about €35,000, all things being equal.

Getting a deposit

Of course buying a home comes with greater requirements than renting. To get a mortgage these days, you typically need a full-time job with no blemishes on your current account. You also need a hefty deposit – and as property prices continue to rise, so too does the amount you need as a down-payment.

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Yes, figures from the Banking & Payments Federation Ireland (BPFI), also published today, showed that the median deposit for FTBs rose by almost 11 per cent in the second quarter of the year, up to €37,500, although the deposit required by trader-uppers/downers eased to €86,000.

In Dublin however, the figures are considerably higher, at € 54,389 for first-time buyers and € 125,000 for second or subsequent buyers. The latter is no doubt driven by the Central Bank’s lending rules, which require everyone – other than first-time buyers – to have a 20 per cent down-payment when buying a home, unless they can secure an exemption. This would mean a deposit of almost €70,000 for example at the aforementioned Parkside development – a tall order for many families struggling with childcare costs, and little equity in their current homes which would help fund a new purchase.

Affordability crunch?

The BPFI figures also point to affordability getting tighter – no surprise perhaps after years of sometimes double digit property growth.

Looking at median price-to-income ratios, which is the ratio of the property price combined with the income of the borrower, the BPFI found that the median ratio rose by 2.6 per cent year-on-year for first-time buyers, and by 5.2 per cent for mover purchasers in the first quarter of the year, to 3.72 and 3.5, respectively. This means that the ratios are now at the highest levels since the series began in 2012.

Last week, The Economist found that house prices in Dublin are 25 per cent overvalued against income.