Renting now dearer than many mortgages

FIRST-TIME buyers can save hundreds of euro a month by buying a property instead of renting, according to a comparison index compiled by wealth management firm Financial Engineering.
The index reveals that monthly repayments on many mortgages are half what they were two years ago and in some locations almost €200 cheaper than rental costs.

With interest rates and house prices both falling sharply over the last year, monthly repayments on a 90% mortgage for a three-bed semi in Cork city is down from €2,006 to €1,029 today. The cost of renting the same property would be €1,000, according to the affordability index.

The purchase price of this property, meanwhile, has fallen from €420,000 in 2007 to €280,000 today, according to the index.

In North Dublin, monthly repayments on the same property and mortgage are just over €1,100, compared with €1,300 to rent.

In Oranmore in Galway the same property would cost €290,000 today from €400,000 in 2007, while the salary required for this property, which costs €750 to rent, is €40,000 down from €75,000 in 2007.

Associate director at Financial Engineering James Maguire said now is a good time for investors to consider entering the market.

"People should not be fooled by the price of properties — if two properties are priced similarly this does not automatically mean that they will both generate the same rental income.

"Choosing the right location for your investment can make a huge difference to the potential earning of that property."

Prices at the Parkview development at Stepaside, South Dublin, have dropped by up to €180,000 on apartments and by over €200,000 on penthouses, according to Mr Maguire.

A property at Parkview, costing €260,000, would have repayments of €728 a month on an 80% investor mortgage. Rental income on the same property is €1,150 a month.

"This would potentially provide the would-be investor with a positive cash return to allow for the lean months of no rent," said Mr Maguire.

Director of the Irish Mortgage Corporation Frank Conway said many lenders, however, have not been passing on recent European Central Bank cuts to investor mortgage holders.

"Lenders too have taken a negative view on extending interest-only periods for existing mortgage holders," he said.

"That aside, for serious investors with good deposits, the availability of bargains has increased significantly. There are bargains to be had, a keystone in the reasons for investing."

Mr Conway also said 40-year mortgages have past their sell-by date.

"The original purpose of 40-year mortgages, which provided lower monthly repayments and increase the possibility of qualifying for a mortgage, has now exceeded its ‘sell-by’ date.

"Today, first-time buyers enjoy sharply falling property prices and record low interest rates which have resulted in a significant improvement to buyer affordability," he said.