Buying a house is a challenge for young people, and these days, it’s more difficult than ever. However, some basic rules remain unchanged for aspiring homeowners.
When I started working, the £12,000 market rate for a terraced house in the north of England seemed unobtainable for a junior reporter earning less than half that sum. Today, the chance to buy a property costing just over twice your salary would seem like a bargain.
Ireland’s Central Bank loosened its mortgage lending rules last year to allow first-time buyers to borrow up to four times their combined income. However, in Dublin, this still doesn’t put most people within reach of a new home.
Irish property prices are now almost 10 per cent higher than their Celtic Tiger peak, with rents in Ireland also at record levels. The latest report from Daft.ie showed that the average rent in Dublin hit €2,395 a month in the first quarter of this year, up 2.5 per cent from the same period in 2023. In other cities, rents have also risen significantly: Cork (8 per cent to €1,870), Limerick (17.5 per cent to €1,933), Galway (5 per cent to €1,861), and Waterford (7 per cent to €1,495). Across the State, monthly rents increased on average by 6.8 per cent to €1,467.
Saving for a home deposit while managing day-to-day expenses is harder than ever. However, the basic rules remain the same, and planning your savings is crucial.
First-time buyers generally need to save 10 per cent of the home’s price. For the median-priced home of €335,000 in the State over the past year, that means saving at least €33,500. In Dublin, with a median price of €448,750, the required deposit is €44,875.
Investigate the Market and Plan Your Savings
To get mortgage ready, start by investigating the market. Determine where you want to live and whether you can afford it. Look at estate agents’ listings and talk to them to understand asking prices and actual sale prices. Check the Property Price Register, although there may be a lag between sales and when details appear online.
Assume prices will rise by mid to high single-digit percentages annually. Set realistic property goals to avoid disappointment and adjust your focus if necessary.
Assess what you can realistically afford. This can be complex for those with irregular income, recent job changes, or income from bonuses. Consult a mortgage broker to understand how banks assess your earnings and what evidence is required.
Simultaneously, start saving. Some people naturally set aside part of their income for long-term goals, like a mortgage deposit, while others need more discipline. A senior colleague once advised me to save any pay increases immediately before getting used to spending them. While I didn’t always follow this advice, it was smart.
If saving isn’t your strong suit, create a weekly or monthly budget. Review your expenses to identify essential and discretionary spending. In the age of tap-and-go payments, it’s easy to spend without thinking. You’ll need to break this habit.
Optimize Your Savings
Investigate where you can cut costs. Switch utility providers, choose generic products over brand names, limit entertainment spending, and opt for modest vacations. If you’ve minimized spending but still struggle, consider additional or alternative work to boost your savings.
Make your savings work for you by choosing the right savings account. Avoid leaving money in low-interest accounts. Explore options offering better interest rates and consider how long you can lock up your funds.
Take Advantage of Financial Assistance Programs
Explore government programs like Help-to-Buy, which allows you to claim back income tax and DIRT paid over the past four years, up to €30,000 or 10 per cent of the property value. The First Home Scheme can provide up to 30 per cent of the price of a new home, with the State taking an equity share you can buy back over time. Other options include local authority loans, the affordable purchase scheme, and the vacant property refurbishment grant.
For those with financially capable parents, the “bank of mum and dad” can help bridge the gap between borrowing capacity and property price, either as a loan or a gift.
Shop Around for Mortgages
Finally, shop around for mortgages. Consider options from mainstream lenders and non-bank lenders like Avant, Finance Ireland, and Dilosk’s ICS Mortgages. Look at green rates for energy-efficient homes, various fixed rates, and variable interest rates. A fixed rate offers security but can be costly, so weigh all options carefully. For those uncertain about the process or with irregular income, using a mortgage broker’s expertise can be beneficial.
By following these steps, you can get mortgage ready and navigate the challenging property market more effectively.