In news that comes as a shock to absolutely no one, it is still rough out there for first-home buyers.
According to the latest CSO figures, while Dublin prices might be receding outside the capital they’re up 4 per cent. This is not welcome news for buyers already staring down ten consecutive ECB rate hikes.
According to the latest Central Bank figures on retail interest rates, the average rate for new Irish mortgage agreements was 4.3 per cent. In September 2020 it was 2.78 per cent. Now not only are new home buyers facing higher monthly repayments, but they might also see their borrowing power decrease or disappear completely thanks to the rates making it harder to pass mortgage stress tests.
That fits with the CSO figures reporting a 5.7 per cent decrease in properties purchased by first-buyers compared to last year. However, the lack of supply and prices hitting the eye-watering national market average of €1,825 according to Daft.ie means the rental market isn’t a safe harbour until you can afford a place of your own.
By choice or the circumstance of an eviction notice, some first-home buyers find themselves eyeing up any place they can afford to get them out of the rental market as quickly as possible. Is it better to jump on to the property ladder by buying a smaller, more affordable place as fast as you can or do you hold out and try to save a bit more for a place you can see yourself staying in at least for a decade?
The answer has no one-size-fits-all approach. Some buyers are happy to live in a tasteful cottage forever while others have ambitions of spending weekends in their 40s sitting on a ride-on-lawn mower. Some see ‘trading up’ as an important step on the property ladder, others buy a house for life they change with their family’s needs.
While a so-called “starter home” might be a normal concept in other countries, the Celtic Tiger and subsequent crash years may have made it a dirty word for some in Ireland. The pressure to buy something fast before prices rose again coupled with the availability of 100 per cent mortgages and the false confidence of fast equity saw many buy properties that didn’t suit their needs. It didn’t matter because they were going to trade up soon anyway, the house was an investment stepping stone, not a home.
Then came the horror stories of those stuck in places they didn’t want to actually live in, unable to move because they were in negative equity. This led to the rise of reports of “accidental landlords” – the hangover from Celtic Tiger era property ladder chasers who found themselves renting out their properties while they waited for the value to rise to sell.
The Celtic Tiger era remains a cautionary tale ingrained in this generation of first-home buyers, even if they are facing increased pressure to get out of the rental market as soon as they can. Dublin real estate agent and company director Owen Reilly says while clients are still seeking starter homes, they exhibit more caution than the Tiger generation.
“In my experience, most first-time buyers are trying to get a foot on the ladder but they’re thinking longer term unlike previous generations,” he said.
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“For Celtic Tiger first-time buyers, none of them were thinking long term, they were thinking they would trade up in one to three years, they assumed big capital appreciation which is a dangerous assumption. They weren’t thinking ‘if I have to stay here longer will it suit my needs.’”
Reilly says that while he sees “many first-time buyers are just trying to get the first foot [on] the ladder” a few things have changed in the current market.
The first is the increased age of buyers which means properties may have to sync up to the people’s family ambitions a bit sooner than they used to. The Banking and Payments Federation Ireland pegs the median age of first-time buyer mortgages at 35 while the CSO has the median age of home purchasers in Ireland at 39 in 2021.
Reilly, who serves the Dublin market where prices are highest, said the average age of his clients is 41 which is “definitely higher than it was 15 years ago.”
“In my market, forever homes start at 600k so that is going to be very difficult to buy that home based on salary and savings alone so a lot of these buyers have built up equity in their first home.”
Outside of tech workers who might have sold shares in a buyout, Reilly says “you have generally to build up equity in a first home to trade up into a second or forever home.”
“It now takes longer to build equity so that gap to the starter home and forever home can be very wide as Dublin”
Reilly says “it won’t come as a surprise as a real estate agent” that he advocates buying property and exiting the rental market as soon as possible. Even after he says the apartment he bought in 2006 “halved in value.”
“When prices recovered it put me in a position to buy my house in 2015 and without the equity I wouldn’t have been able to do that,” he says.
“It makes sense [to buy] if you qualify for a mortgage and it’s cheaper than rent but think about plan B so if you did have to move away next year for work, could you rent it out and cover the cost?”
Other things to look out for is the location of the property. Is it serviced by public transport? Is it easy to get to and from places where people work? It’s also important to keep an eye on the future says Reilly.
“When you’re young try to buy in a neighbourhood that will physically change during the initial period if you want greater capital appreciation,” he said, citing buying a property in Dundrum before the shopping centre was completed as an example.
Lastly, he advises buying a property where “you can add value” like a place that could do with some Ber rating improving work you could get a grant for or a kitchen with stud walls that could be made open plan.
Senior Lecturer at Technological University Dublin and housing policy expert Lorcan Sirr agrees that despite the past, it still makes sense for first-home buyers to prioritise leaving the rental market over finding a place they might live forever.
“Get out of the rental sector, you are spending money that could be better spent on your own house,” was his blunt advice.
However, like Reilly he is firm that first-home buyers need to think critically instead of desperately jumping on to the first rung of the property ladder.
He cites research that shows prices for new homes have shot up as well as the shift from movers from Dublin to commuter belts which he says is the result of new house prices rising and the stock of “forever homes” shrinking in the city.
“Lands that would have seen housing being developed are now seeing apartments for rent instead and it’s not what people want so you find buyers are moving out” to the commuter belt,” he said.
While some are incentivised by the Help to Buy scheme or just the prospect of a backyard it’s important to think about the additional costs of a commute.
“If there’s two of you and there is no public transport, you might have to put aside €10,000 to €15,000 for each car plus insurance and the other stuff that goes with that.”
A cheaper starter home away from friends and family needs to be examined if having a young family is on the cards in the next few years.
“You need to have a holistic look around in terms of support available, the mammies of Ireland do so much heavy lifting when it comes to child-minding,” he said.
When it comes to choosing between an apartment or a house, Sirr says “buy a house if you have the money.”
“Apartments are not really what people want,” he said. Often they’re seen as a stepping stone, tend to be too small and not suitable for the life cycle so they have the potential to lose more value, he added.
“Houses in the Irish context are seen as much more stable accommodation for yourself.”
Ciarán Mulqueen of Instagram’s Crazy House Prices says that while he’s a “big believer in home ownership just because rent is sometimes twice or triple” what a mortgage is, he has an issue with the phrase “property ladder.”
“I don’t like it being thrown around because since the boom times it insinuates something you have to climb, something you keep moving up like a pyramid scheme.”
“We overestimate how big a house we need, people very often think they need this huge house.”
For Mulqueen when looking for houses he didn’t consider ones that he “couldn’t see myself living in for ten years.”
For him and his partner, their priorities were living close to family for support and childcare and living close to work to cut out commute times.
Both of those things happened to be near Dublin’s city centre which meant size had to be the first compromise for a property in their budget.
He said the first thing to look for is if there’s room to extend and if any neighbours have successfully applied for planning permission to set a precedent.
If you can’t extend, see if you can make the best of a small space with clever storage solutions.
“Our house is small with no room to extend storage but you can build in storage under the stairs, you can squeeze storage in everywhere and you can stack kids high in bunk beds,” he says.
For Mulqueen, this is his forever home as the hours saved on commuting to spend with family instead “mean more than more bedrooms or a big backyard.”
Although he says with a laugh to “check back in 10 to 15 years” when his two children are older.
