Going to buy a house in Ireland right now - am I nuts?

Freddie_hobbs

Right, I'm a first time buyer, I've read the bubble bursting threads, seen the doom & gloom property crash thing on RTE last week, but I'm still thinking of buying.

The property is a 4 bed semi-detached house in a nice area of Limerick costing in the region of €280k. Rental is decent but not spectacular in the area but there is a constant demand. Plan is to live there and rent other 3 rooms meaning it would be effectively be costing me approx €500 per month to pay the mortgage which would be fixed for the next 5 years. Plan is to hold onto the house for 5 years at least, probably 10 but who knows!

I know a lot of people are opting to "wait and see" for the next few months. My reasons for buying at the moment are:
I can finally get a mortgage to afford a decent rentable house - a few more interest rate hikes in the future and that could change.
Its a buyers market at the moment, sellers are panicking and taking offers lower than the reserve. If I do wait for a year will I be in a better situation? Will property prices have dropped? And if they have will this be because interest rates will have gone up and monthy repayments will be the same as this year even if you buy a property at a cheaper price?

So is it a crazy move?

If there is a predicted crash whats the worst case scenario i.e. the lowest value the house could drop to if there isn't a "soft landing"? €200k?

Am I as much at risk as someone buying the same property in the pale and paying over €400k for it?

massplanck

Freddie_hobbs wrote:

Right, I'm a first time buyer, I've read the bubble bursting threads, seen the doom & gloom property crash thing on RTE last week, but I'm still thinking of buying.

yes you are nuts.

patrickolee

I'm guessing by your name and the fact that this is your first post, that you either messing or making another tv program about how silly Irish people are in relation to property!

Presuming you're serious... the worst predictions were a 50% fall, so that'd 140K after the crash if you believed the dooms dayers. If you believe the other side, then now is a good time to buy as there aren't many others buyers against you and you'll get good value. You won't be paying any stamp duty anyway, so no need to wait for reform. If you're definitely going to buy in the next couple of years, then now would be a good time, imho... but it is a little gamble.

You'll no doubt get many replies and most of those will be like massplanck.

Good luck anyway.

Victor

If you can afford it and can afford any potential rises and you are going to live there (assuming you have to live somewhere) and like the place, then why not?

Pa ElGrande

Freddie_hobbs wrote:

The property is a 4 bed semi-detached house in a nice area of Limerick costing in the region of €280k. Rental is decent but not spectacular in the area but there is a constant demand. Plan is to live there and rent other 3 rooms meaning it would be effectively be costing me approx €500 per month to pay the mortgage which would be fixed for the next 5 years. Plan is to hold onto the house for 5 years at least, probably 10 but who knows!

Why are you planning to hold the house for just 5 years? Do you plan to exit with a profit? If so how does the projected rental yield compare with what the banks are offering (and any other investment options).
Assuming best case scenario that house prices stay static (soft landing) in nominal terms over the next 5 years, will that be sufficient reward to allow you to exit?
Why does the area have constant rental demand? and can that change when a major employer in the area cuts its workforce (Dell in Raheen) or downturn in construction employment in the locality.?
What about maintenence ( 4 people in the house = wear and tear) and taxation/reliefs?
How many more interest rate hikes can you take?
How much property is currently available for sale in the area? i.e. have other investors bought property for rental in the area? This will have a bearing on how much you can charge for rent.

Freddie_hobbs

patrickolee wrote:

I'm guessing by your name and the fact that this is your first post, that you either messing or making another tv program about how silly Irish people are in relation to property!

Presuming you're serious... the worst predictions were a 50% fall, so that'd 140K after the crash if you believed the dooms dayers. If you believe the other side, then now is a good time to buy as there aren't many others buyers against you and you'll get good value. You won't be paying any stamp duty anyway, so no need to wait for reform. If you're definitely going to buy in the next couple of years, then now would be a good time, imho... but it is a little gamble.

No, I'm not messing. Now that you mention it though I might make a tv program if it makes money to fund the house
There are interesting theories going around regarding figures that properties could drop by - one guy was interviewed on the last word last week and he mentioned that after studying similar property fuelled booms which did crash, that on average properties fell by 70% of what they appreciated during the boom i.e. house is €200k pre-boom, €300k peak-boom, drops to €230k post-crash.

Pa ElGrande wrote:

Why are you planning to hold the house for just 5 years?

As my first post says it would be at least 5 years, most likely 10 years or beyond. I would have no reason to sell unless I had to relocate i.e. I'm not just buying so I can keep trading up until I get some big country estate! I would be content with this size house for as long as I can forsee.

Pa ElGrande wrote:

Why does the area have constant rental demand? and can that change when a major employer in the area cuts its workforce (Dell in Raheen) or downturn in construction employment in the locality.?

Yes, the area I'm looking at isn't one that relies solely on Dell workers or construction workers for rental. There would be some but there would also be rental demand from hospital workers and other (non-Dell, non-constuction spin off) businesses in the area.

Pa ElGrande wrote:

How many more interest rate hikes can you take?
How much property is currently available for sale in the area? i.e. have other investors bought property for rental in the area? This will have a bearing on how much you can charge for rent.

Plan is to get mortgage fixed for first 5 years. As for rental, there is a reasonable amount of rented properties in the area. Also the rental rates are consistent in the area, so I've a good idea of what I can charge. I'm in a rented house nearby and we've had to get people in the house from time to time and we were never waiting too long, so demand is good.

Pa ElGrande

Well you're happy you have found value and are comfortable living in the area, so why not buy?

ctc_celtic

its sounds like your in a good position to buy now, and the price isn't massive for a 4 bed in a nice area.
but seen as its only you buying the house, would you be comfortable (maybe not ideal but) paying the full mortgage for a long period? just your wages, with no rental income?
its something to consider, it might not happen, but you should be prepared for it.

also if interest rate do rise, your rental income wont and if there is going to be a market bust, then average rental prices will drop also.

godtabh

Victor wrote:

If you can afford it and can afford any potential rises and you are going to live there (assuming you have to live somewhere) and like the place, then why not?

I've said it before if you intend on living in the property and its going to be your home and you can afford it then your not buts. If you are buying it as an investment then I would think very strongly about it.

The_Conductor

First of all- to qualify as a first time buyer:

1) The property purchased must be occupied by the purchaser or a person as his/her only or principal place of residence and
2) No rent must be derived from the property for five years after completion of the current purchase.

If you rent out the whole house you pay 4% stamp duty (rate up to 280k for non-first time buyers/investors).

If you plan on living in the house and letting a number of rooms to housemates (who by definition are not tenants- they are living in your house under licence and without many of the rights attributable to tenants) you can derive a maximum of Euro 7,620 gross income from this activity per annum. Note: this is gross income, inclusive of all bill shares- electricity/water/tv licence/ntl-sky/food/heating/management charges etc etc. If you exceed this sum, the entire income- irrespective of any costs associated with the letting of the rooms, is considered taxable income at the higher rate.

Your "tenants" are entitled to claim rent-relief from the Revenue Commissioners and you are obliged to furnish proof of gross sums paid by them to you for this purpose.

If you do not live in the house- you can deduct all costs from the rental income prior to calculating your taxable income and making an income tax declaration.

Will an income of E7620, inclusive of all bills, really reduce your monthly mortgage to around 500 per month? Allowing that 20% of this income will be bill shares- this means your net income would be around 500 per month from rent-a-rooms, and at 530 per 100k (which seems reasonable) that means you would be looking at a mortgage repayment of roughly double what you are anticipating.

If you do not declare the rental income to the Revenue Commissioners and are caught (which is extremely likely, as your "tenants" will be claiming rent-relief) you will face massive fines, loose the favourable tax status you claimed as a First Time Buyer, gain a criminal record and could potentially be jailed.

You are looking at renting a number of rooms and the gross income you could potentially claim from it. You are not looking at the full picture. There are also liabilities associated with this income......

Do the sums again on the basis of only getting 500 a month net from the rent-a-room scheme. Do your sums still add up?

Re: Fall in house prices- location, location, location are the three primary things which will determine any falls and the extent to which they will fall. A 4 bed in the Pale may cost 400k as opposed to a similar property in Limerick costing 280k. However which property appeals to a wider audience and is most likely to be rentable in the longer term?

Re: a 70% fall in house prices- what you are not looking at is when the cycle started..... The current cycle is about a 14 year cycle. If you go back to 1992-3 -what did the two houses cost? What is 70% of the increase in both cases? Its a lot more than you are looking at with your sums.

I'm not saying that its crazy to purchase property in the current market- just that you need to sit down with all the information and only when you have all the information make an informed decision that you can afford (financially) to live with, come what may.

~Leanne~

No you are not mad, that is a good price for a 4 bed semi.

This whole crash larky has gone all out of proportion!!

Zambia

~Leanne~ wrote:

No you are not mad, that is a good price for a 4 bed semi.

This whole crash larky has gone all out of proportion!!

As long as you know your getting a good deal go ahead, in essence its a gamble.

Answer this question though what is the average price of a 4 bed Semi in Limerick in the area?

DublinWriter

Freddie_hobbs wrote:

Plan is to hold onto the house for 5 years at least, probably 10 but who knows!

In that case, buy for sure.

It would be a very skeptical person who'd say you'd lose money on it in 5 years time.

Basically the current holding-out by buyers is because they think that the day after the election that stamp-duty will be abolished for first-time-buyers. Pure nonscence.

Even if whomever forms the next government does this, it will take between 6 to 12 months to pass through into legislation and implement.

As I said, even the most hard-nosed doom-sayer wouldn't say that it would be worth less than €280,000 in 5 years time.

Victor

Victor wrote:

If you can afford it and can afford any potential rises and you are going to live there (assuming you have to live somewhere) and like the place, then why not?

Pa ElGrande wrote:

Well you're happy you have found value and are comfortable living in the area, so why notbuy?

In answer to both of those comments I would have to say in answer to "Why not" - because you could get it cheaper in 6 months.

The_Conductor

DublinWriter wrote:

Basically the current holding-out by buyers is because they think that the day after the election that stamp-duty will be abolished for first-time-buyers. Pure nonscence.

Even if whomever forms the next government does this, it will take between 6 to 12 months to pass through into legislation and implement.

I disagree. Over 90% of First Time Buyers don't pay any stamp duty whatsoever anyway. Stamp Duty is the largest red herring that is being dangled by the politicians and the industry in the hope of hiding the simple fact that its no longer affordable to buy a house (particularly with interest rate rises biting everyone). Stamp duty, and the reform thereof, is primarily of interest to those hoping to trade up- which is a limited market. The current situation is a lot of people trying to cash out at the top of the market, just when a lot of buyers can no longer get funds as easily as they once could.

Stamp duty is the biggest red herring to have been sold to the gullible public by the industry in a long time.

Borzoi

Deleted User wrote:

In answer to both of those comments I would have to say in answer to "Why not" - because you could get it cheaper in 6 months.

Or you might not.

OP, if you can afford it now, go for it now. Your home is principally that, a home, not an investment. You'll always need one. If you sell, chance are you're buying too. If you property has gone up in values, in general everything else will have too, if yours has gone down, again so will most others.

um7y1h83ge06nx

Where exactly are you buying? I'm a recent buyer and my girlfriend is in the market possibly too.

I bought a place last May in Abbeycourt on Fr. Russell Rd. Officially a 3 bed semi but I converted the dining room into another bedroom. Was built by Custom Construction who also built Glencairin and maybe the Forts among others.

I think if you buy in a decent area in Limerick, and that you buy it as a place to live as opposed an investment where you expect to make huge sums of money you won't be too bad.

Borzoi

Borzoi wrote:

Or you might not.

OP, if you can afford it now, go for it now

The market is stagnant. This can not be disputed. The risks involved in buying at this moment involve negative equity. You are taking an unnecessary risk when you could wait 6 months. Waiting now involves no risk.


"go for it now"
Risky Risky Risky!

DublinWriter

smccarrick wrote:

I disagree. Over 90% of First Time Buyers don't pay any stamp duty whatsoever anyway. Stamp Duty is the largest red herring that is being dangled by the politicians and the industry in the hope of hiding the simple fact that its no longer affordable to buy a house

I agree with your disagrement!

The point I was trying to make was that Stamp Duty is a red-herring. The whole thing is just the perception of its importance in peoples' minds causing a herd-mentality and a slow-down in the market due to people waiting to see what's going to happen after the next general election.

DublinWriter

Deleted User wrote:

You are taking an unnecessary risk when you could wait 6 months. Waiting now involves no risk.

There is the risk that the price may increase. There is the risk that the interest rate may increase.

If you say that there is no risk by waiting for six months, then by inference you are saying with 100% surety that property prices will at least remain the same and that interest rates won't rise by August of this year.

Please share with everyone the name of the shop where you buy your crystal balls.

Crystals Balls? Very smart arent ya

Its calculated risk.
Interest rate increases will only further soften the market by reducing how much people can borrow thus increasing the risks of negative equity were you to buy now and rates were to increase in August.

The_Conductor

Deleted User wrote:

Crystals Balls? Very smart arent ya

Its calculated risk.
Interest rate increases will only further soften the market by reducing how much people can borrow thus increasing the risks of negative equity were you to buy now and rates were to increase in August.

Errr.... surely thats advocating that he wait and see what happens. Any action is risky. Yes, interest rates are due to rise (June and September are the two that are already taken as granted, more are possibly on the horizon).
You said "Waiting now involves no risk."
Increases in interest rates reduce your borrowing capacity- there is the risk that the reduction in a persons borrowing capacity may not be offset by a similar reduction in house prices, meaning houses, while falling in price, actually become even less afordable. Thats a risk of waiting. Its a falacy to make a statement that one course of action (or inaction) over another infers a risk free status on someone. Quite simply, you do not know and cannot know.

Shane

I never said it was risk free - I stated "its a calculated risk"

And your correct about interest rates - it decreases borrowing capacity and is not guaranteed that prices will drops to match. But in calculating your risk you have to decided what will happen to a stalled market when interests rates rise - rates going down can inject life into a market and when the go down it does the opposite.

You have to make the call. Nothing is risk free but I would not like negative equity but risks of negative equity can be offset by waiting - if prices dont rise above inflation - by saving money and putting it against the property in the future when market conditions are more favorable toward buying.

Borzoi

Deleted User wrote:

I never said it was risk free - I stated "its a calculated risk"

So it's a good quality crystal ball then.

Buy the house

HelterSkelter

Victor wrote:

If you can afford it and can afford any potential rises and you are going to live there (assuming you have to live somewhere) and like the place, then why not?

Erm, probably the simple little matter that he might get the house for 20, or 30 or 40K cheaper if he waits. It's not small change you know.

HelterSkelter

Eddie Hobbs is advising first time buyers not to buy...

http://www.unison.ie/irish_independent/stories.php3?ca=45&si=1817107&issue_id=15542

"My advice to first-time buyers is not to buy," he says. "They should rent for the next year or 24 months. There's no doubt that property prices will continue to go down and if they save though an institution like Northern Rock they will have capital in the future when prices are lower."

Hobbs believes some of the younger SSIA savers may be waiting in hope that the next Government will abolish stamp duty. But he reckons they are going to be disappointed.

"It just isn't going to happen," he says. "There may be an easing, but forget about downright abolition because it is too much of a cash-cow for any Government to let go."

DublinWriter

HelterSkelter wrote:

Eddie Hobbs is advising first time buyers not to buy...

Eddie Hobbes...pffh! What does he know?! LOL.

Seriously OP, if you are looking at buying now and keeping for 5-10 years as you said, buy now.

Property is a seriously dodgy short term investment right now, but I'd ate me hat if there was a crash sooooo big that it kept prices at the same levels as they are now in five years time.

Freddie_hobbs

Thanks for all the opinions people. Its good to hear both sides of the argument.

HelterSkelter wrote:

Erm, probably the simple little matter that he might get the house for 20, or 30 or 40K cheaper if he waits. It's not small change you know.

There is an argument for the wait and see policy in the immediate future i.e. 3-6 months. I had been hoping to get in with a fixed mortgage before the predicted interest rate hike in June, however I'm now considering sitting out just until things settle down after the election. I would agree that the risk of interest rate hikes would be less of a risk than a possible price drop (even as little as €10k) - so I would take the hit of one or two interest rate hikes at most if there was more certainty to buying in 3 months time.

As for Eddie Hobbs saying wait for 12-24 months? If there aren't definite signs of price drops then I'm not so sure. In this time there could be several interst rate hikes and house prices might not drop accordingly. Banks could tighten up their lending criteria considerably and even though I might have saved an extra €10-20k in Northern Rock I might only get €150k of a mortgage. A 3/4 bed semi could be even further out of reach.

I'm going to see the house again this week and will make up my mind then. Its a very tough call.

I know a lot of people my age that are looking to buy and are only being deterred from doing so in the short term due to the current uncertainty in the market - they're not going to rent all their lives so they will buy in the near future. Surely these people will cause a renewed demand in the market? And while this might not necessarily cause prices to increase again, it will surely stop them from plummeting? Unless there is a dramatic change in culture and every first time buyer decides they are going to rent for life then I really can't see property prices in the lower end of the market halving in value as the hardcore doom&gloomers would have you think...

iguana

I could be wrong, but I get the impression that you are buying in Raheen. If you are then tbh, that is an area I wouldn't touch with a barge-pole right now for a number of reasons.

My aunt currently rents a 4-bed detached house for 700pm so rents in the area are not very high even now. But when Dell goes, and at some point it will, not only will you lose the biggest pool of potential renters but many of the houses which are currently rented by Dell workers will be empty and rents will become cheaper. Both landlords and owner-occupiers will try to sell up and prices will fall.

You may have staff from the hospital, but Raheen is a huge area and there will be a huge amount of choice for hospital staff to rent out so prices will be low.

gurramok

Freddie_hobbs wrote:

Thanks for all the opinions people. Its good to hear both sides of the argument.

There is an argument for the wait and see policy in the immediate future i.e. 3-6 months. I had been hoping to get in with a fixed mortgage before the predicted interest rate hike in June, however I'm now considering sitting out just until things settle down after the election. I would agree that the risk of interest rate hikes would be less of a risk than a possible price drop (even as little as €10k) - so I would take the hit of one or two interest rate hikes at most if there was more certainty to buying in 3 months time.

As for Eddie Hobbs saying wait for 12-24 months? If there aren't definite signs of price drops then I'm not so sure. In this time there could be several interst rate hikes and house prices might not drop accordingly. Banks could tighten up their lending criteria considerably and even though I might have saved an extra €10-20k in Northern Rock I might only get €150k of a mortgage. A 3/4 bed semi could be even further out of reach.

I'm going to see the house again this week and will make up my mind then. Its a very tough call.

I know a lot of people my age that are looking to buy and are only being deterred from doing so in the short term due to the current uncertainty in the market - they're not going to rent all their lives so they will buy in the near future. Surely these people will cause a renewed demand in the market? And while this might not necessarily cause prices to increase again, it will surely stop them from plummeting? Unless there is a dramatic change in culture and every first time buyer decides they are going to rent for life then I really can't see property prices in the lower end of the market halving in value as the hardcore doom&gloomers would have you think...

Well you've said it yourself there.

If 1 or 2 interest rate hikes have you stretched to the limit, why would everyone else not be in the same position as you say for many your age?
As everyone is affected by these hikes, hardly anyone can buy at the high prices being asked hence prices will have to come down to meet affordability.

Point being, some demand is there, they just can't afford it at present prices hence most FTB's are better off renting for a little bit longer. Any uncertainty about stamp duty does not directly affect you at 280k house price

One thing that was missed in this discussion, as a price comes down, you will own a higher % of that house in proportion throughout the mortgage lifetime.

Can you bare living with 3 strangers for next 5/10 years to service your mortgage and if not through change of personal circumstances, can you afford to service the mortgage with none, 1 or 2 tenants not just now but lets say 4 or even 9 years away?

Don't let emotion get the better off you when engaging in a big financial transaction.

pjbrady1

There is also a significant risk that rates will be risen at the conference in Dublin which I'm pretty sure is in May. Imagine the fallout and headlines across the Metro/Herald AM/Indo/Irish Times if rates go up .25%.
In the current market if you have a decent deposit you could have a sizeable chunk of your house value ready in a few months. With the market stretched at the moment two more rate rises would have a serious effect. Jean Trichet seems to be intent on at least raising it by .5%.
I think you are better off renting one of those 700euro three/four beds and buying when prices finally plateau when we wean ourselves off construction employment eventually.