When my parents bought their first house in the early 1960s – just around the corner from Bono’s parents as it happens – it cost them what must have seemed like a massive £2,000 (€2,540).
That amounted to twice their household income – in reality, because of the ludicrous marriage bar there was only the one income coming into the house.
They didn’t know it then but they had it lucky, at least when it came to house prices.
If property prices in Ireland had only increased in line with the general rate of inflation over the period since then, that house on Cedarwood Avenue would cost around €50,000 today.
Of course, property has only had a tangential relationship with inflation over the past 30 years which is why, if that house came on the market today, it would actually cost closer to €500,000.
It is a reflection of how insane the Irish property market has been for many years, and how difficult it is for people to buy their first home.
And despite what those who own their own homes might say about how tough things were in their day, too, and how they had sufficient fiscal responsibility to live within their means, which is why they are where they are today, the reality is it has never been harder than it is right now.
The luckiest people were those who bought in the early to mid-1990s, just before the last property bubble started to inflate. A typical two up, two down in Stoneybatter in Dublin 7 cost £50,000 in 1994 and £130,000 in 1999.
The buyers who were ready to move in 2002 and 2003 when tracker mortgages were being thrown around like confetti were lucky too. Those who could buy in 2012 and 2013 also did pretty well as property prices were at rock bottom after the 2008 financial crash.
The classes of 2006 and 2007 were completely screwed having bought at the height of the market. The class of 2024 are worse off still.
Property prices are now around 10 per cent higher than they were at the height of the Celtic Tiger-fuelled bubble when we all thought they were daft.
The median price of a home in Ireland currently stands at €335,000, with prices in many urban centres substantially higher.
To buy, first-timers need to have saved around €40,000 while oftentimes paying rent of more than €2,000 a month for a couple and maintaining an impeccable current account that they can show to banks as proof of their fiscal responsibility.
And they have to do all of this with house prices rising by around €20,000 a year in an utterly dysfunctional market where demand far outstrips supply and facing the threat of cash buyers swooping in at any moment to buy the home from under them.
It has never been as important to get all your ducks in a row early to give yourself the best chance to buy the house you can afford – and would be happy to live in for at least a decade – if not necessarily the home of your dreams.
1. Don’t panic
No one ever likes to be told not to panic when panicking is an appropriate response but calmness will be your friend. Do your homework methodically over a period of several months – or even longer – and work out where you would like to move and how much you would like to pay and never allow yourself be bounced into making the wrong decisions.
2. Get everything in order
Make sure all your accounts are operating smoothly for at least six months before starting the application process. Banks want to see a capacity to repay and red flags they will look for are unauthorised overdrafts (they don’t love the authorised ones either but they can be overlooked). Unpaid items or referral fees on your current account are a big no-no and online gambling accounts on bank or credit-card statements are a cause of concern. Erratic savings or spending patterns and cash advances on credit cards never look good.
3. Credit rating
Check your credit rating on the Central Credit Register to make sure there are no black marks against your name. It is free and easy and can be done on centralcreditregister.ie.
4. Formalise everything
Banks want to see a record of rent payments going through your bank account for at least six months as those payments demonstrate you have the capacity to make mortgage repayments at that level. If you are living at home with your parents and making a contribution to the household, set up a standing order to have as proof of regular payments.
5. Save hard
The bigger your deposit the more the banks will like you and the more you protect yourself against any future downturns. Lord knows, property prices can fall as well as rise. Saving doesn’t mean you put away €1,000 a month then take €400 out in the final week. It’s based on how much the account is going up over time. So, if after a year you have €10,000, then you weren’t saving €1,000 a month, it was more like €833. Don’t leave your savings in a current account offering no interest. There are rates of more than 2 per cent available.
6. Do your sums
Work out how much you can borrow using all the Government supports at your disposal. Mortgage calculators are two a penny but there is a good one on the Competition and Consumer Protection Commission website, ccpc.ie. Be wary of inputting payments in addition to your basic income unless you have a steady history of these. If you get overtime, bonus or commission, lenders will take this into consideration but they will want to see two years or three years’ evidence.
7. Get help
You can deal directly with banks for sure, but mortgage brokers can be your friend as a first-time buyer. A good one will be able to tell you exactly how much you can borrow and what the implications of the loan will be. And they should have a very clear understanding of the financial supports you can avail of. They will also not allow you to make an application to a bank until they are pretty sure your finances are in order so you won’t find yourself being refused at the first fence.
8. Loan approval
Get your loan approval before you even bother to make a bid for a house, never mind arrange a viewing. If you don’t have the approval from a bank, there is little point in even looking on Myhome.ie (a property website owned by The Irish Times) for the houses you might like to live in. That will only scare you and, possibly, create false hope.
9. Don’t overreach
Lenders are much meaner with their money than they once were – that is no bad thing. We certainly would have benefited from such prudence during the Celtic Tiger madness. But even with the new financial rigour they impose, you are still the best placed person to decide how much you can afford to spend on your first home. So do your homework before you go looking for a mortgage, work out your repayment capacity – ideally you shouldn’t be paying more than a third of your net income on a mortgage. If you are part of a couple earning a combined take-home salary of €6,000 a month your mortgage should not be more than €2,000.
10. Stress test yourself
Interest rates are akin to a rollercoaster, they go up and they go down, sometimes with terrifying speed. Right now it would appear that we are on the top of the rollercoaster after 10 successive rate hikes from the ECB in little over a year – and one-quarter of a point cut in more recent times. But always assess how a 2 per cent rate hike would impact your capacity to repay and what impact it would have on your everyday life. To give you a sense of how rate changes can impact a loan, a person with a €200,000 tracker on a typical rate was down by more than €500 a month as a result of the ECB rate hikes of recent years. That is €6,000 a year, which amounts to earnings of close to €12,000 before taxes.
11. Look to the future
How will the house you might buy accommodate children if you have them? How will your repayments look if you have to pay €1,200 a month in childcare costs? Or twice that?
12. Be realistic
We’d all love a light-filled, architect-designed home that smells of lavender scented money but for most first-time buyers – and indeed second- and third-time buyers – the likelihood is the house will be dark and smell of damp carpets. Accept that and embrace the challenge of doing up run-down properties – competition will be a lot less intense for such properties and you’d be amazed by what can be achieved with a coat of paint and a floor sander. But get a survey done before you sign on the dotted line. You pay for the privilege but it could save you a whole lot more in the long run.
Get your paperwork in order – the first steps
Confirmation of your address.
A valid passport or driving licence and a recent utility bill.
Three months payslips
A salary certificate signed by your employer
A P60
A full six months of statements for savings/investments
A full six months of statements for any outstanding loans
If you are self-employed, you will need a minimum of three years’ audited accounts
Remember the Central Bank of Ireland rules
The loan-to-income limit restricts the amount of money you can borrow to a maximum of four times gross income for first-time-buyers, and 3.5 times gross income for second/subsequent buyers.
That means a first-time buying couple with a combined income of €100,000 can borrow up to a maximum of €400,000.
A second and subsequent buyer with the same income can borrow up to a maximum of €350,000.
You must have a minimum deposit before you can get a mortgage. The size of this deposit depends on which category of buyer you are but first-time-buyers and second/subsequent buyers need to have a minimum deposit of 10 per cent while buy-to-let buyers need to have a minimum deposit of 30 per cent.
Banks and other loan providers can lend a certain amount above the limits.
The proportion of lending allowed above the limits applies at the level of the borrower type, and 15 per cent of first-time-buyer and second or subsequent lending can take place above the limits.
If you want an exception, give the lender a reason to want to offer it to you rather than somebody else.
Don’t forget the extras
Valuation: Before you draw down a mortgage, the property will need to be independently valued and you should set aside at least €250.
Legal fees: You will need a solicitor and they will need to be paid. Fees vary and it might depend on the price of the house but it will be north of €1,000.
Stamp Duty: Rates are 1 per cent of the purchase price up to €1,000,000 and 2 per cent of any value over that.
Insurance/assurance: You will also need life cover and home (buildings) insurance which is likely to set you back around €1,000 a year.
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