Rent: Pay more for less

Renting a home is not a sound financial decision. But you know this already: as a rental tenant, you’ll pay more in rent over 30 years, than you would on an equivalent mortgage. You’ll also know that, to put it bluntly, you’re basically paying someone else’s mortgage. And you’ll have no asset to show at the end of it all. 

Furthermore, you’re likely to pay well above the mortgage’s actual worth. And this gap is widening, with current data showing that over the course of a mortgage, you could pay almost €297 000 more in rent than you would pay on a mortgage, in some areas of the country. In others, you’ll still pay around €100 000 more in rental costs over the 30 years. 

The sliver of a silver lining for a tenant though, is that for any major household catastrophe, the landlord is responsible. A burst boiler, a roof replacement, a flood, or any other possible disaster, is not your financial responsibility. But it could be argued that if you’re paying less every month on rent, you’d have a little savings pot to cover such eventualities.

Do not pass ‘go’; do not collect €200

While renting is clearly not financially ideal, it’s a horrible catch-22 situation. Paying the maximum of your budget on accommodation, means you simply haven’t got spare pennies to save for a deposit to buy a home, let’s face it. And this, with inflation on the rise and a general need for additional belt-tightening. 

Anyone who’s tried to rent a home in this country recently, knows that the search is like looking for hens’ teeth. While this is more notorious in and around the Dublin area, the dearth of housing is nationwide. A shortage of supply and an increase in demand, means rental prices have gone up. By 10.3% in the space of a year, to be precise. This is according to the Daft Rental Price Report from Q4 in 2021

“The strong rebound in economic activity, as public health restrictions relax, has translated into a strong demand for rental accommodation,” says Ronan Lyons, Associate Professor of Economics at Trinity College Dublin. “Coming at a time of very weak rental supply, this has pushed rents up further, with inflation at its highest rate nationwide since early 2018.” 

State of play across the country

The biggest gap between rental and mortgage payments is in West County Dublin, with the previously mentioned figure of €297 000. Renters in the prestigious South County Dublin, who pay the highest average rent monthly at €2258, are paying €100 more a month than they would if they were paying off a mortgage on the same property. 

In Leitrim, where you’ll get the cheapest rental deals averaging €779 a month, you’re still paying €230 a month more than if you were paying off a mortgage. (Note: These figures refer to a 30-year fixed-rate mortgage.)

As an aside, the average price of a rental home in Ireland is €1524. At the time of the release of the Daft report, there was a record low of only 1397 rentals across the country, with 712 of those in Dublin. There is speculation that these are high-spec apartments that are standing empty. An example of this is Capital Docks, which has a reputation falling squarely into this claim, however, the development was three quarters full at the beginning of this year, with 142 active leases out of 190 addresses. This applies to two other rental developments with a similar reputation, in Dublin 8 and Cork city, both of which have occupancy rates over 80%.

Munster faces the sharpest increase in rental cost, at €1191, up 11.3% on the previous year. Supply is drastically low too, with just 139 homes available to rent. 

Capitalism at its finest

What this data shows us, is that if you’re well-heeled enough to meet the banks’ lending criteria, you’ll pay less every month for your accommodation and in addition, after 30 years, you’ll have an asset in your name. However, if you’re on a slightly lower pay scale and you don’t cut the mustard, you’ll pay more every month, ensuring you have less to save, and after 30 years, you’ll have nothing. 

This research is raising questions about how the Central Bank’s lending rules are widening the gap between the ‘haves’ and the ‘have-nots’. The answer seems not to be in lowering lending limits, according to both the Economic and Social Research Institute and the Central Bank. Both organisations feel that this would have a negative impact on house prices. 

The answer is never easy

While the solution is perhaps more complex than one single strategy, something has to change as demand is still increasing. 

Regulators are aware of the situation and reviewing lending rules, but nothing is likely to change any time soon. The risk is that a blanket relaxing of rules could end up with high numbers of defaulters, putting people in a far worse financial situation, while also raising house sale prices. 

The Daft report suggests that “a rent control system that applies within tenancies, rather than across them, would make landlords less fearful of cutting rents in the face of weak demand. There is a clear win-win for policymakers, too, as such a system could be linked to an offer of indefinite tenancies, rather than the current cycle of six-year leases, reducing the uncertainty for landlords while bringing stability of tenure and rents to Ireland’s renters.”

We’ll help you buy your house

All of these challenges notwithstanding, we at Which Mortgage witness success stories every day of people securing a mortgage and buying the home of their dreams.

This doesn’t always happen quickly.

But we have worked with individuals, couples and self-employed people to craft a plan that helps them get mortgage-ready.

Our mission is to remove the stress around mortgages for you. And the hundreds of clients that we help every month will attest that we do just that.

Contact us today for a confidential chat about your mortgage needs. We would be delighted to speak with you on a no-obligation call and see how we can help.

Robyn Jacobs

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