Should we call off the house hunt and rent?
ON THE MOVE:The figures don’t always add up, even when the indicators suggest you should rent
I was recently discussing with a friend how difficult it has been to find and buy a house. Not a “dream” home – because we can’t afford it – but one that might, in time, and with a bit of work, come close to that ideal. The obvious solution to our search might be that annoying word compromise, but she had another idea.
“Why don’t you rent?” she said. And it made me think. After all, renting is the new buying, or so it seems.
Friends, who overbought during the boom on apartments no longer suitable for the pitter patter of tiny feet, are now letting out their properties and renting a more family-friendly house. Other friends are embracing the flexibility that renting offers, as well as the knowledge that if the heating breaks it’s not their problem.
So should we call off the house search and switch to the lettings pages instead?
Well it’s certainly something to think about. If we did, we could get a property in our target area close to schools. We could leave it with a month’s notice if another location turned out to be more convenient, if the neighbours were too noisy or if we just got fed up with the wallpaper. Property tax, bin charges and home insurance wouldn’t be a burden and the fear of negative equity wouldn’t keep us awake at night.
It’s not cheap to rent and demand for rental properties is high. But with interest rates rapidly approaching 5 per cent, nor is it particularly cheap to buy. And as I’ve said on previous occasions, supply is also constrained in the sales market.
But what is the best financial decision to make?
Well economists often come up with a figure called a “rent ratio”, which is the sale price of a house divided by the annual cost of renting an equivalent house. The higher the ratio, the more financial sense it makes to rent, rather than buy. A ratio of below 15 usually indicates that it’s a good time to buy.
So what does this statistic tell us about today’s market? We’ll look at apartments first. In Hanover Wharf, Dublin 2, near the Bord Gáis theatre, a two-bed duplex apartment sold for €280,000 in November last. Today, you can rent a two-bed apartment on nearby Hanover Dock for the princely sum of €2,000 a month. This points to a rent ratio of less than 12, indicating that provided the advertised rent is the real market rate, it may make financial sense to buy an apartment in this area. Servicing a €252,000 mortgage will cost about €1,300 a month (based on 30 years at a rate of 4.6 per cent) and even with the added costs of property tax, home insurance etc, the buy versus rent argument holds up. If you can get a mortgage of course! And provided that property prices don’t continue falling.