Attention to financial detail pays in the end

The nature of the Irish property market has led to some odd and not entirely likeable traditions over the years. Among these are punishing levels of stamp duty, properties with asking prices well below their potential selling price and, as a consequence, the practice of repeated bids, counter-bids and counter-counter bids.

This last tradition, which has become more prevalent than ever since the boom in the late 1990s, is a compelling one. It means that only the financially fittest (or those with most financial folly) will be left standing at the end of the house-buying race. Anybody who has been through this bidding game, whether by auction or private treaty, will however testify to its many dangers.

First, we have human nature, which tends to be competitive. This means that the desire to win can end up dominating bidding decisions in place of true affection for the property. Second, we have the "end of our tether syndrome" which arises when the house hunt has lasted a long time and is driving the would-be buyer demented. The very real threat at this stage is that bids will be made on anything and everything, in the hope that something will stick. And often, these desperate bids will be substantially higher than the original budget.

Finally, the most dangerous driver of them all - the bidder is so crazy in love with the property that they will bid as much as it requires without paying any heed to how well they can afford it. The salient point here is that buying a house should always be a planned process, with attention to financial detail coming not only after the property has been found but also before the hunt has even begun.

One of the most useful ways of doing this - and arguably the best way to avoid getting carried away by the madness of the bidding process - is to consider just exactly how much the mortgage you think you will need will actually cost over the longer term.

This does not mean taking a look at monthly repayments; it means adding up all the interest that the mortgage will carry over its 25 or 30-year lifetime. It is a hard sum but, luckily, there are some handy tools around to help with the maths.

One such facility can be found on the website of mortgage broker Simply Mortgages at www.simplymortgages.ie.

By using the broker's mortgage calculator, a buyer can establish roughly how much their theoretical homeloan will cost them before it is redeemed decades down the road. The results will make interesting reading.

Take, for example a loan of €285,000, or about 92 per cent of the purchase price of a typical first-time buyer property located close to Dublin's city centre.

Over 30 years at an interest rate of 3 per cent, this loan will cost a total of €432,565 when interest charges are included. Given that interest rates will not remain steady for such a long time (and most mortgages are redeemed early), the calculation is indeed a rough one, but it will be of some use in a bidding war.

Consider how adding another €1,000 to the bid (and thus to the mortgage) will affect the overall cost. It will rise to €434,083, some €1,500 above the earlier sum.

And so it goes on. Adding €5,000 to a bid will increase the lifetime cost of this particular loan by almost €8,000. Ouch.

The lesson here of course is that higher bids should always be made with extreme care and with an eye to the long term, rather than short-term, consequences.