Teacher, solicitor, tech worker: What kind of home can they buy?

While they may currently be the subject of a review, the Central Bank’s mortgage rules look here to stay at least for the short term.

Typically limiting buyers to borrowing 3.5 times their income to purchase a home, with a further requirement of a 10 per cent down payment, it means that first-time buyers are tied closely to a multiple of their salary when it comes to working out the budget for their first home. Or at least those without substantial parental gifts are – the prevalence of the bank of mum and dad may be one reason why prices have risen so sharply, despite the presence of the mortgage rules.

Here we consider the options for potential buyers in various careers both in Dublin and around the country based on the mortgage rules only.

The examples below are illustrative, and, while based on single buyers, can also be used by couples rounding up salaries.

Teacher

Salary: €46,334 (point 7 of salary scale)

Monthly after-tax salary: €2,945

With a salary of €46,334, our teacher with about eight to 10 years' experience will qualify for a mortgage of €162,169 under the Central Bank rules, or a purchase price of €180,187, based on a 10 per cent deposit. This would mean a monthly mortgage repayment of about €650, based on a loan over 30 years at 2.6 per cent.

If they manage to qualify for an exemption to the rules (which may be difficult as lenders typically favour those on higher salaries), and manage to borrow 4.5 times their income, then they could be looking at a purchase price of €231,670.

Unfortunately, while our putative homebuyer could look to defray the costs of their monthly mortgage repayments, and thus borrow more, by taking in lodgers under rent-a-room scheme, through which you can earn up to €14,000 a year and pay no tax on it, mortgage lenders won’t typically take this into consideration when deciding how much you can borrow.

So what can they hope to buy?

Dublin

It’s no surprise to learn that our teacher will have limited choice in buying a home in Dublin, with a house search potentially disappointing – but it won’t be impossible. Their budget is about five times less than the average house price in pricier parts of the capital such as Dublin 4 and Dublin 6, where average prices are in excess of €800,000; but is closer to Dublin’s cheapest ‘burb, Dublin 10, where prices stood at €251,001 in the year to October 2021.

Based on the 3.5 times rule, our buyer could afford a one-bed apartment in areas like Inchicore, Cabra or Clondalkin, or a two-bed further out in Balbriggan. Getting an exemption will open up the search that little bit more, bringing into scope a property in the city centre, such as a one-bed on Reuben Street, Christchurch or on Parkgate Street in Islandbridge (€225,000) or a two-bed in Donabate (€222,500).

If our applicant has already saved a deposit, and can access Help to Buy, then their budget will increase that bit further, up to about €250,000, as they can put their savings for a deposit towards the purchase price.

The problem however, is that Help to Buy just doesn't cater to homebuyers at this purchase price; there are currently no new homes for sale advertised in this price range. Instead, our first-time buyer could consider a new home in a surrounding county, such as Rathdrum, Co Wicklow, where two-bed new homes are on the market for about €245,000.

Galway

Looking west, our teacher will find cheaper house prices. Not as cheap as they might like however.

With an average price of €310,843 in the year to October 2021, prices are considerable in Galway. While there are options for a teacher in the county – you can buy a three-bed home for €175,000 in Tuam, or Millbrook for example – in the city itself, options will be more limited, and may be limited to one-bed apartments.

With an exemption, and a purchase price of €230,000, a two-bed apartment in Salthill, or a three-bed home on the Headford Road, come into play.

While Help to Buy might help to up the budget, it won’t necessarily help our teacher find a new home; a budget of €250,000 offers slim pickings, with one of the few options currently on the market a one-bed apartment at Knocknacarra, starting at €245,000.

Longford

The prospects for home buying for our single teacher in a more rural county such as Longford look a lot brighter. With a potential purchase price of €180,187, our would-be buyer should easily be able to buy a home in the county, given an average house price, in the year to October 2021, of €140,327.

The county is the cheapest in Leinster to buy a property, and one of the cheapest in Ireland. This means that options are more varied – although as elsewhere, supply may be limited.

Applying the strictest mortgage rules, a three-bed home is within reach for our teacher in this county. At Shannon Park in Edgeworthstown for example, you can buy a three-bed semi-detached home for €155,000, or a four-bed in Drumlish for €185,000.

Unfortunately, first-time buyers hoping to also avail of the Help-to-Buy scheme will struggle in the county, as there are no new homes advertised for sale on either Daft.ie or Myhome.ie.

Solicitor

Salary: €100,000

Monthly after-tax salary: €5,160

With several years of post-qualification experience, our solicitor is well primed to buy a home with a salary of €100,000. However, a red brick in one of the capital’s chi-chi suburbs may still be some way off. Yes, such a salary will only qualify for a mortgage of €350,000 based on the mortgage rules, or a purchase price of about €388,888. If an exemption can be secured to borrow 4.5 times income, then the budget can be upped to €500,000.