It is an exciting time being a first time buyer. It is likely to be the biggest purchase of your life so far and it is great when you get those first set of keys. It all sounds wonderful but there are few obstacles to get around first.
The first step in buying your first home, is saving. Before you even look for a home, building up your savings will greatly ease the entire process. Once you believe you’ve saved sufficiently and you’ve found a home inside your budget, you need to decide on a down payment percentage. The old benchmark used to be 20% of the home’s value. However, especially first time buyers, are putting down payments closer to 10%.
Currently, the average price to buy a home in Dublin just under €400,000. Let’s assume you find a house for this price, and decide to put a moderate down payment of 10%. This would mean you are initially putting in €40,000. That amount of initial capital is not easy to save up. Realistically however, finding a house for €400,000, in South Dublin especially, would not be an easy task.
There is also a large shortage if housing in Ireland. Minimal amount of properties are getting listed which makes it hard to buy a house at any price. Supply is low and demand is high, particularly at the €400,000 price area. These price point houses attract a lot of bidders looking for a bargain so interest will be high and bidding can raise the price even further. There is a greater supply available if you want to look at the €500,000 bracket but now your deposit would be about €50,000. On top of the deposit, you will need to have a 1% stamp duty plus solicitors fees and some other smaller costs. By the time you sign the lease,your cost would be closer to €60,000.
Another issue that first time buyers face is that since 2012, housing prices have risen by 93.8%. It takes a long time to find a new home that is in the right price bracket and all the time you are looking for it, the price is rising and getting out of reach financially. In 2017 we saw a 12% growth in house prices in South Dublin so that deposit needs to get bigger the longer you wait. Also rents are at all-time highs so any couple renting will already be spending the equivalent of a mortgage each month with nothing to show for it.
As mentioned earlier, under Central bank loan to value rules first time buyers only need a 10% deposit for the house. There are also limits on loan to income set at 3.5 times the combined salary. There is a small amount of leeway on this ratio if there is a strong business case but not much. So to go back to the €500,000 house, a couple would need €60,000 saved to reach the loan to value ratio and also need to earn combined about €140,000 to meet the loan to income ratio. That rules out a lot of buyers.
Of course house prices are generally cheaper in North Dublin and outside of Dublin County. Any buyers that are prepared for a longer commute can pick up a house in some commuter counties for a fraction of Dublin prices. It all depends on the lengths that you will go, to get on the ladder.