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.
Dublin
With an average price of €494,917 according to the CSO, even a well-paid professional will find it difficult to buy in the capital, particularly if they’re after a house in good condition.
Options at the lower end of their budget would include a two-bed apartment in Knocklyon (€395,000); or a two-bed apartment in Rathmines (€395,000). Upping the budget to €500,000, brings into scope a two-bed apartment along the quays, a four-bed in Laurel Lodge, Castleknock, or a four-bed in Stoneybatter.
Our solicitor also has the potential to buy a new home, but must keep their target property to €500,000 to qualify for the Help-to-Buy scheme – this would mean looking at an apartment in an area such as Castleknock, or going further out of the city to find a house.
Galway
By considering a western location, our solicitor can turn that apartment into a spacious family home – all within a short distance from Galway city.
It’s possible to buy a four-bed detached or semi-detached home in a suburb such as Knocknacarra for less than €500,000, or a hipster-friendly renovated two-bed home in The Claddagh, within a stone’s throw of Shop Street and the sea at Salthill for €450,000.
Longford
In Longford, our solicitor’s budget is sufficient for a high-end property, such as a six-bed period property in Ballymahon for €450,000, or a five-bed detached home for €349,000 in Ballinalee.
Another option could be to buy a plot of land and build on it, subject to planning permission. At Newtowncashel for example, Raymond White auctioneers has a five-acre site for sale for €150,000.
Tech worker
Salary: €175,000
Monthly after-tax salary: €8,160
With a hefty salary of €175,000, our tech worker will likely be able to borrow at least €612,500 for a purchase price of €680,555, or €875,000 if they can secure an exemption to borrow 4.5 times their income.
But what will this buy them?
Dublin
Well, despite the six-figure salary, buying options may not be quite as plentiful as one might expect in the capital. Even a budget of €680,555 for example, still does not meet the average house price in certain areas of Dublin including Dublin 6 and Dublin 4, as well as areas close to the sea in Monkstown and Sandycove.
While our buyer won’t benefit from Help to Buy, as their budget will be in excess of the €500,000 cap, they could consider a new home such as a two-bed apartment in a new development in Foxrock, One Springfield Park (from €590,000), or a townhouse in Chapelizod (€685,000).
At the upper end of the budget, our tech worker could secure a family home in suburbs close to the city centre, such as this four-bed renovated home in Churchtown, south Dublin, on the market for €850,000.
Galway
Remote working opens up a wealth of possibilities for tech workers blessed with significant housing budgets. In Galway, a five-bed, six-bathroom detached home with views over Galway Bay, but close to Galway city, is on the market for €660,000, while the upper end of our tech worker’s budget opens up even larger houses close to the amenities of the city but on substantial plots.
Longford
Moving out of Dublin with such a budget means in most cases you’ll have money to spare after buying. In Longford, for example, the most expensive property on the market is St Brendan’s, a four-bed detached home in Longford town, asking €545,000 – plenty left then for any renovations required.
