The bottom line is that rising rents will increase the argument for buying, says Jack Fagan

WITH THE homebuilding industry in limbo and many developers still trimming back prices to clear unsold stock, there has probably never been a better time to get on the property ladder. No one knows for certain when the market will finally bottom out but, if you are to believe some of the most experienced selling agents, we are almost there.

Last week’s findings that rents are rising again in the more mature areas is being advanced as one of the first positive signs for more than two years. Irrespective of whether or not this is a turning point for the property industry, there is increasing evidence that it is now cheaper to buy than rent a home on many new estates.

Irish Mortgage Corporation is citing the example of new three-bed semis in Knocklyon and Lucan where the gross mortgage repayments exceed the average rents now being charged. In Knocklyon, a 92 per cent mortgage on a €350,000 house works out at €322,000 and, based on a 30-year mortgage (the current interest rate is 2.35 per cent), that will involve a gross mortgage repayment of €1,247 per month. But with mortgage interest relief the repayments fall to €935 per month. Similar three-bed semis are renting in Knocklyon for €1,100 a month.

The savings on three-bed semis for €220,000 in Lucan are even more notable. The net mortgage repayments on the same basis as in Knocklyon work out at €686, a considerable saving on the standard rent of around €950 per month.

The bottom line is that rising rents will increase the argument for buying. Affordability has clearly improved quite significantly for buyers (a recent DKM/EBS survey found that it now takes just 13.4 per cent of a couple’s combined income to meet a mortgage payment, down from 26 per cent at the end of 2006) but the uncertainty over job security and the straightjacket of mortgage availability has meant that relatively few are managing to collect the promised cheques from the lenders. Even bank officials borrowing from their employers are having their mortgages trimmed back at the last moment.

The Professional Insurance Brokers Association, representing 900 firms, claimed last week that 60-80 per cent of mortgage applications are being turned down. This is at variance with the impression given by banks which are managing to stay in business with the help of taxpayers’ money. People who do not have full-time working contracts are no longer entertained by the lenders while others with even minor blemishes on personal credit reports are also finding it particularly difficult to get mortgage approval.

Frank Conway, director of Irish Mortgage Corporation, is advising anyone concerned about their personal credit rating to check with the Irish Credit Bureau before applying for a mortgage. For a small fee, they can check their credit record and, should there be a genuine mistake on the report, it can be corrected before approaching mortgage companies. For those able to manoeuvre their way through the mortgage maze, they will still have to factor in the likelihood of higher repayments in the future. Conway says that each quarter-point interest rate increase results in a 3-4 per cent rise in actual mortgage repayments.

Irish Life Permanent recently increased rates by a full 1 per cent. Others will follow suit because of the extra cost of borrowing abroad.

“Prospective buyers,” says Conway, “should not just look at what they can afford today, they must factor in a 20 to 30 per cent rise in mortgage repayments regardless of whether they take out a fixed or a variable interest rate.”