5 important questions to ask if you want to buy or rent your home

With rents at an all time high, property prices not far behind them and the scarcity of these properties, these are important times to assess your next move when it comes to where you live or want to live. If you in a position to purchase your own home, there are certain decisions you must weigh up, just as there are considerations to be made if you are looking to rent. If those choices feel a bit further off, due to financial constraints or otherwise, it's no harm to think about these questions in the mean time. John Lowe of MoneyDoctors.ie looks at the five important questions to consider when it comes to buying or renting your home: 1. Currently renting? While many of us have little choice but to rent amid the current housing crisis, there are some who have the means to convert their monthly rent into a mortgage repayment. It very well may pay you to take out a mortgage now rather than pay rent, if funds allow. With rents at an all time high, it is becoming more and more sensible to start thinking about buying. Interest rates are currently low (under 3% fixed for five years being the lowest on the market) which might make it a better time for people who are looking to buy and can afford to at the moment. 2. Comparing costs? Rent normally includes building and contents insurance, Local Property Tax, maintenance, repairs, gardening (if there is one) and most furnishings. When buying your own place, apart from the mortgage repayment itself, you have all these costs to consider. These should be factored in to the comparison, plus other costs such as bin charges, property management charges, housing association expenses etc. 3. Lifestyle changing? Are you at a stage in life where planning your financial life needs to start sooner than later? What is your top financial priority now? Do you want the responsibility and all that goes with that of owning a home now, or does it make more sense in the short term to continue renting? Does your work keep you in one place where it again might make sense to buy your own place? The risk of course is that the property you buy may not be worth what you paid for it when you come to sell it. The last few years is proof of that. All investment is based on the return being made, but when it comes to your home, in some respects that return is irrelevant. 4. Does your income qualify you for the loan that you want? All lending is based on the ability to repay. As an extreme example, you might wish to buy a property worth €500,000 and borrow just €100,000 (imagining that your parents can supplying their maximum inheritance to you up front of €400,000) but if you do not have the income to repay that loan, the lender will not approve. The last thing the lender wants to do is repossess the property because you cannot make the repayments. Under the current Central Bank guidelines, applicants can only borrow up to 3½ times annual gross income or 4 times if a first time borrower, whether single or joint application. There are exceptions and the lenders have 15% to 20% discretion on loan to values and incomes requirements of their total loan books. Other considerations are overtime, bonuses and dividends. Employment has to be permanent – so you must have passed the probation period. You will also need to have a good credit history. One missed loan repayment stays on the Central Credit Register for five years – and will lead to a decline for any credit request. 5. Do you have savings? When buying your home, you will need 10% of the purchase price of your new home (if you qualify for the Help to Buy Scheme - new homes or self-build only - where your last four years' income tax paid may determine a 5% grant up to a maximum purchase price of €500,000, so effectively you could receive €30,000 and therefore requiring no further deposit if the new price was €300,000). You will also need money for all the ancillary costs such as valuation, stamp duty (1%), legal fees plus outlay, plus VAT (all in less than 1%) and moving in costs. On top of that, you will also be required to have a saving ethic established so the new monthly mortgage repayment doesn’t come as a complete shock. Generally between your existing rent and savings record, most applicants qualify. The views expressed here are those of the author and do not represent or reflect the views of RTÉ. For more information, click on John Lowe's profile above or on his website.

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