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Is it cheaper to have a mortgage than rent in Ireland?
IT'S A QUESTION that's being asked in rental properties across the country today.
Daft.ie's quarterly rent report showed on Tuesday that in the last three months of 2017, landlords asked for higher monthly sums from tenants than ever before - and not just in Dublin.
In Cork and Galway cities, rents are 17% and 30% above levels recorded a decade ago. Average rent in Leitrim is €542 per month - and that's the lowest out there.
So, we've started to hear people say, 'Sure it's cheaper to get a mortgage than rent?'
Is that just pub chat though? Or is it really true? And, has it actually always been that way?
Here, TheJournal.ie will examine the options available if you were to either rent a property or obtain a mortgage today.
Let's look at the headline figures in a select number of areas based on a 3.75% variable mortgage, for a term of 30 years, with a 85% loan-to-value ratio.*
Click here for a larger image.
In Dublin 7, where there is a mix of housing options, the average monthly repayments on a mortgage for a one-bed are €782. However, to rent a similar property, tenants are paying €1,432 - an 83% difference.
Moving further out to the commuting belt, a similar situation is found.
A two-bed home in Kildare will have mortgage repayments of €534 a month attached to it, while rent prices are 90% higher at €1,015 for the same type of property.
And, the scenarios outside of the Pale tell the same story.
Average monthly repayments on a mortgage for a three-bed house in Cork City are €914 with corresponding rents running 32% higher at €1,203.
By that, across the board, mortgage repayments by the month are cheaper than rental payments per month.
Are there exceptions?
Yes, but only if you're looking at bigger, four to five bedroom homes where potential owner occupiers will mostly outbid potential investors.
And is this any different to how it's always been?
A simple way to look at it, according to economist Ronan Lyons, is that it is generally more expensive to rent property than to rent money. It has always been thus, except for during the years of the property boom/bubble.
If we look at the yields on houses i.e. the amount paid in rent as a percentage of its value during the housing bubble, there was an anomaly then. To signal a healthy market, those yields should be about 5 to 7% but back in 2007, they were all the way down at 2% to 4%. That switched the maths a little bit and the smart people were renting - and not buying.
Click here for a larger image.
So, if we skip those crazy years and have a look at 2014, yields were running at between 4.5% and 8%.
Click here for a larger image.
And here's what we found happening in our three areas in terms of rents and mortgage payments.
North Dublin City - Q4 2014
Commuter counties, including Kildare - Q4 2014
Cork City - Q4 2014
What does this mean?
Outside of the housing bubble of the noughties, renting was always the more expensive per-month option. So when that bubble burst, a certain amount of correction was seen. And now, as house prices rise again, so do their rent prices.
However, what we now know is that the gap between mortgage payments and rent asks is widening in areas where demand is high and supply is low.
Today, the amount paid in rent as a percentage of its value hasn't really budged when you look at three+ bedroom houses or in low-demand areas. But it's a different story for one- and two-bed properties, showing us that there is more pressure at the 'smaller household' end of the market servicing working single people and couples without dependents and places where smaller houses are more useful - like city centres. Census 2016 showed that the average household size in Ireland is now 2.75 persons (it was 3.1 in 1996).
Let's set out those yields then four our three areas.
Dublin North City Yields on a One-Bed Apartment
Commuter Counties, including Kildare, Yields on a Two-Bed House
Cork City Yields on a Three Bed House
Finally and, perhaps obviously, monthly repayments aren't the full story when looking at the price of a mortgage.
With a mortgage comes the necessity of putting together a deposit, as well as the fees associated with purchasing such a large asset. It also ties a person to a house and area and burdens them with maintenance responsibilities, on top of paying mandatory life insurance, home insurance and property tax. You also have to find someone willing to lend you money - which is often harder than finding someone willing to lend you property (at a price).
And, in turn, the cheapest option might not be the best one. Ronan Lyons advises that people should look at what suits them better, and what they have access to: renting money or renting property.
"If you rent long-term, then you need to also save or invest so that you have a nest egg when you retire. The choices are not necessarily should I rent or buy. It is buy versus rent-and-save."
Conclusion: No matter where you are in the country, it is cheaper to have a mortgage than to rent a property on today's average house and rent prices when looking at one, two or three bedroom properties. However, it may not always be the most suitable option - and it may not always be possible. That situation is how it has always been - except for the years of the property boom - but the difference in price in the 'smaller household' sector of the market is now much more stark, up to 90% in high-demand areas.
*Editor's note: If mortgage rates rise by two percentage points on the 3.75% variable rate used in the examples here, we still have a situation where renting is the more expensive option right across the country for one, two and three beds. However, you can find exceptions in two-beds in expensive areas of the capital - Dublin 2, 4, 6 and 6w and for three-beds in most areas of Dublin.
TheJournal.ie’s FactCheck is a signatory to the International Fact-Checking Network’s Code of Principles. You can read it here. For information on how FactCheck works, what the verdicts mean, and how you can take part, check out our Reader’s Guide here. You can read about the team of editors and reporters who work on the factchecks here.
Journal Media Ltd has shareholders in common with Daft.ie publisher Distilled Media Group.
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I can’t understand why, if someone is paying 1500+ per month rent and doesn’t default, the banks don’t take this into account?
@Barbara Edwards: because they could be sub renting rooms, however if it a one bedroom and this could not be possible. Then they should. I often wonder to and that is what I was told
They do take rental history into consideration
@Kerrie Roche: Consideration is not the same.
@: you can rent rooms in your house and it contributes to your income for mortgage calculation
@Me_a_monkey: it’s not guaranteed income though
@Barbara Edwards: daughter is paying 1900 pm house in drumcondra. Still can’t get a mortgage. No defaults in 15 months never defaulted on her rent in 10 years. Unable to save due to it What can you do.
@Kerrie Roche: paying high rent prohibits savings. Mortgages are not 100% they are set at 90% getting a decent house in a good area averages 400k plus where does the 40k + balance come from.? Catch 22.
@Matt Humphries: It’s 10% of first 200k and 20% of the rest so @ 400k you need €60,000 deposit + stamp duty + various service fees
Without even reading the article, in most instances YES. Our housing market is shattered, to the benefit of the 1% to the detriment and sometimes lifetime suffering of the 99%.
@The Risen: Its almost like the 1% set it up like this on purpose
@Leitrim303: ‘Never waste a good crisis’. The eternal mantra of the sociopath with a few bob in their pocket….
@The Risen: Your comment typifies the mindset of the loony left. “I’ve been presented with a set of researched data, resulting in an outcome. However I am going to ignore these facts and base my opinion purely on what I think is true”
Good lad, off to work with you now.
@Cheeky Bums: And yours is the typical FGer reaction. Off with yiu now and see can you evict someone
@Father Hody Commody: I wouldn’t evict anyone who pays their rent like a good little sheep. Also, I’ve no strong political affiliations, thanks.
@The Risen: the usual nonsense – do you even know who “the 1%” are?
My dad is a retired dairy farmer living off the pension – he’s one of your 1% I would imagine. So is the widow in D4 in the big house.
1% of adults in Ireland is 35,000 people – don’t assume they’re all Denis O Brien.
@Paddy Downey: If you look at it at a global level, anyone on an average wage in Ireland is the 1%.
@Paddy Downey: he or she is just rabbitting on with the usual tin foil hat stuff.
A mysterious elite that has their foot on all our necks.
Spouting nonsense as usual
We think of ourselves as a world class premier country but in reality we are a joke.
Sinead did a decent job here, factual, statistics based, etc. Great article!
@Ben Coughlan: but only giving mortgage repayments over 30 years was disappointing, I would prefer to see a 20 year comparison. When did 30 become the norm? 20 in my day.
@David Dickson: have a 20 year myself, but 30 is the norm now. We were offered 40 year as an option, not sure the banks still offer 20 in all cases either
i have no pity for young people trying to gather up a decent deposit for their first home, when they are off spending their spare cash on things that they do not need..stay away from the shops, on-line shopping and car sales forecourts and then you might have a deposit after 5 – 10 years…..i.e.: saving as soon as you start working.
@Mark Johnson:
Toooooooool
@Mark Johnson: yes very true but it also depends on wages, so even tho some earn little at current sale value with a deposit still would not get a mortgage. Which why you see them spending else we all want some form of reward for our hard work.
@Mark Johnson: should we scrap the old age pension then? Save the state a few bob and surely you with your wise savings strategy will have enough put away to cover your non working years?
@Mark Johnson: mark people are entitled to have a life . Life isn’t all about paying bills .
@Mark Johnson: So finish college at 24 and do nothing for 10 years except save? People are entitled to a life.
@Ciara Ni Mhurchu: yes have a good deposit at 34, have a life too
@Mark Johnson: Are you having a laugh. I was on a decent wage in Dublin in 2016 and renting a place at 700 a month. I barely splurged because my money was allocated to first paying rent and then trying to get some savings together. I decided then to emigrate
@Mark Johnson: shops? You think people at the beginning of a career (and the lower wage that entails) aren’t saving €40-60k because they’re buying too many penny sweets?
@Mark Johnson: How does someone at the start of their career (say 22k) save 60k in 5years while paying their own way (rent, food, utilities, income taxes, transport). Please show your workings. I think you you really lack sympathy for is people from different circumstances to some of us here
Both options would be cheaper if we had a better gov.
You also have to consider that by purchasing a property, you have an asset which will appreciate in value with time. Also in time, you will eventually be mortage-free while rent is continuous..
@John Carey: well, that’s quite simplistic. Many thousands of people took out mortgages during the boom years on properties which have since substantially depreciated in value, instead of appreciating. They could be lucky if those houses are ever again worth the price they paid for them.
@John Carey: @Jumperoo:you also have to factor in buy for 400K pay 400K in interest. 800K rent money to play with there. That’s not including tax, maintenance etc etc etc etc
The idea of owing it but never actually being able to use that asset as Irish children are greedy also must be considered.
It’s not clear cut by any means and if there were better rental terms here the idea of owing wouldn’t be so alluring.
It is also worth mentioning that biting a house should not be speculation or an investment.
They have become confused in Ireland – people thinking that they will buy property for a “pension”
Taking supply out of the system and charging huge rents to break even – this is a bad housing policy for the country.
These little one property landlords are a disaster – they haven’t thought it through themselves, and the knock on consequences for society and the economy are huge !!!
Where is our government – whose responsibility is to manage these things for the common good, and the best interests of citizens – not just narrow self centred lobby groups – who view people as cash cows
I hope they didn’t spend too long on this fact check. A blind man on a galloping horse could see this was true.
@Andrew Eager: Read the conclusion. It’s far from true in the sense you’d like it to be
@Cathal: If you take into account that at the end of a 30year period, the mortgage holder now owns the house, then it’s is absolutely true that’s it’s cheaper.
@Father Hody Commody: And is responsible for maintaining it. That’s pricey too. Especially if it was a substandard build initially. While the developers go into receivership and go off laughing. FF weakened the building regulations, so there was no escrow fund. Remember that.
There are so many factors as to why the housing situation is what it is. But one thing is certain…it is all being carefully manipulated. And part of the plan is the gentrification of Dublin.
@Patty Cullinane:
Very true – the market is being manipulated.
For benefit of NAMA – of the national debt – banks and developers.
The only people ignored – and viewed as simply serfs or cash cows for speculators / tax collectors. Are the citizens of the country.
The government has things backwards – and are working against the interests of the citizens they are charged with protecting.
Don’t forget the ongoing maintenance costs of a house that mortgage holder has, insurance, mortgage protection, cost of furniture and white goods etc. Also the cost of the deposit to get the mortgage in the first place.
@Sandra Turner: it wasn’t forgotten, it’s mentioned in the article
@Sandra Turner:
Yes those are the costs of buying property – it isn’t a surprise to anyone.
If small one property landlords cannot make money without charging unaffordable rents and perverting the entire housing system causing a crisis.
Then perhaps we shouldnt allow one property landlords – or people should not be stupid enough to become one – perhaps think it through in advance.
Large companies can rent properties without the personal tax rate levels – with only 12% to pay – this clearly is how the market should work.
The problem is badly educated – and poorly thought out purchases by individuals – who think they should be able to buy a property – get someone else to pay for it – and also make massive profits both on rent and the value of the property.
You cannot have your cake and eat it too
Both options would be cheaper if we had a better gov.
I have no trust in Daft.ie and its published factually-capable disproofs of its mostly self-serving false media publications anymore than I have in any Electrician claiming to be a member of RECI which is also an organisation self-serving its dubitous founders. (yeah – we in the know, know RECI is false).
Daft.ie’s statistics are in no way representive of real life, anymore than any self-serving estate agency’s statistics are.
There needs to be a law against fake statistics, fake news etc., where property sales are concerned to get rid of this kind of rubbish.
Stick with CSO statistics.
Both options would be cheaper if we had a better gov.
It’s all because no-one for last few years bothered to build houses. They sead that the crisis was due to too many houses. When the problem was too many houses in wrong places. Irish population in the same time grew significantly even with people leaving the country. Just now they start to build new units and this is still mainly stock on old unfinished developments. Now I would love to change the job but it would need to be in the other town or in Dublin and it is absolutely out of the question, as even on the better wages I would be much worse off due to requested rents, and even considering smaller accomodation than this I am in right now.
It is total madness for anyone to be paying rent money that is more than they can afford for mortgage repayments.
It’s money down the hole, out of income pockets, all the way into landlords’ pockets, pain with no gain from it.
I thought the laws of Ireland worked to do away with greedy Landlords having powers of eviction of tenants.
Apparently not, or at least, not enough.
(Aside advice – If you’re a young person, never take out a mortgage longer than 20 yrs. Go figure out why).
@Larry Leary:
> “Renting …. offloads quite a few costs housing related costs to property owner”.
That’s total poppycock! Every outgoing cost of a landlord, including maintenance and Local Property Tax, is passed on to a tenant, or built into the rental fee.
That is why all landlords are obliged to carry out necessary repairs for a tenant – which most miserably fail to do when called upon to do.
> “Taking on a MASSIVE amount of debt so your mortgage payment can be smaller than what you would pay in rent is stupid”.
No, it is not in any way stupid. Monthly repayments on a mortgage loan are mostly lower than rental fees – and at the end of all mortgage payments, the property is finally one’s own private home – forever – not a landlord’s.
My wife and I rented private houses in our early family years but realised we were throwing our family income into a grateful landlord’s bank account. We planned, budgeted for under some sacrifices, and worked to overturn that situation and eventually bought our own home, without any help from our respective parents, with our monthly mortgage payments way less than what we were paying in rent.
> “Renting is the more sane option for most people”.
It is not a bit sane (i.e. sensible) for the majority of people because rental fees from one’s pocket to a landlord’s bank account is a total ‘waste disposal of one’s income’ (except for the benefit of having a home to live in), with no financial gain whatsoever for a tenant – but lots of gains for a landlord.
Nationally, on average, about 20% of people rent their homes (higher %-ages in some in some cities and towns). That is not “most” people”, as you – incredibly! – claim.
*Having answered your spurious comments and claims, I add that I have worked as a qualified professional most of my life in the construction and property fields, well acquainted with – not a bit “naïve” about – much of what goes on in them (including shenanigans).
Most people renting homes do not get tax relief on their monthly rent payments (neither, shamefully, do people paying mortgages).
But private landlords get at least 75% tax relief on their mortgages on properties they rent out, commercial landlords get up to 100% tax relief.
Where is the parity of interest for home renters/home mortgage payers in that??
Everybody needs to get on to their local TDs and demand tax relief parity – and if their TDs don’t do something about it in Dáil Éireann, not just threaten to, but actually, vote them out of their Dáil seats at the next election.
Larry – Your argument about home owners’ maintenance costs and are equally spurious. Most mortgage-paying people and free-of-mortgage home owners, if they are anyway sensible, use household budgets (guided by the State’s free Money Advice and Budgeting Service (MABS https://www.mabs.ie/en/), to plan expenditure of household income and can manage quite well.
Aside from all this, it is recognised by Govt, and society at large, that there will always be people who will never be able to own their own homes – and that the private home/flat rental market and LA housing has to fill their needs.
I reiterate – it is total madness for anyone capable of paying mortgage payments to be wastefully paying rental monies from their pockets into landlords’ bank accounts*.
It’s not taking into account the cost in stress of dealing with crooked agencies.
@Peter McGlynn: on the flip side dealing with crooked banks either
600 new jobs announced for Dublin last few days. This is gov strategy. Gov happy to let all the people who wouldn’t vote for them to move to Dublin to concentrate them in the one area, so that the older generations can be left in the rural areas to vote 90% of these idiot gombeen FF and FG politicians back into gov.
Bizarre comment
@Cathal: Leo and FG are more deceptive with the Irish people than most people can imagine.
The FF/FG cartel don’t want to give the people affordable housing. they are sent out with promises and lies. not solutions.
It’s trivially true that renting must be more expensive, over time, than owning. Otherwise there wouldn’t be anyone making properties available to rent.
Renting makes more sense if you need mobility because of the transaction costs. It also makes more sense when the market gets irrational and collapses yields, like 2004-2006.
In the long term and speaking through experience definitely . You might as well be paying your own mortgage rather than someone else’s over 30 plus years.
Analysis should only be rent vs. Interest on mortgage. Exclude capital repayments.
it’s cheaper if you can afford the deposit for a house
At the end of the term you will own the House or apartment. Rent is dead money, just filling the land lords pocket.
@Declan Carr: Yes you’re right re landlords pocket, but don’t forget the tax-mans pocket too, lorry loads of extra cash going in there with every rent rise !
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