Break out of ‘rent jail’: app shows tenants what they could buy

Fed up with rising rents but not sure whether or not you can afford making the leap to owning your new home? A new calculator might help with your sums.

The calculator, by Mortgage Brain Ireland, aims to assist first-time buyers in determining how much of a home loan their rent payments would support. The calculator is contained in the free app Irish Mortgages and is available on both Android and IoS devices.

"Many potential first-time buyers are in 'rent jail' in Ireland and are constantly wondering how much of a mortgage their rent might fund," said Michael Quinn, managing director of Mortgage Brain Ireland.

The app asks putative home buyers to input just three things: their current rent, an interest rate and the term of the mortgage. It then gives them an answer in terms of how much of a mortgage this rent roll would fund, highlights the deposit amount they would need and then stress-tests the interest rate to 5 per cent to indicate the monthly repayment capacity they will need to prove to their lender.

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“This is often where the renter gets stuck. The lender needs to ensure that should rates rise, the consumer can cover the additional monthly amounts in their disposable income,” Mr Quinn said.

Income vs rent

Typically mortgage calculators are based on a person’s income, but this calculator uses how much a person is already spending on rent to work out how much they might be able to afford.

For example, somebody paying rent of €500 a month could fund a home worth about €144,000 if they had savings of €14,437 for a deposit, based on Ulster Bank's market-leading mortgage rate of 2.3 per cent over 30 years. They would also need to show repayment capacity of €697 a month, given banks' requirement to stress-test applicants based on an interest rate of 5 per cent.

Somebody paying rent of €1,200 on the other hand – not unheard of in the Dublin market – could buy a house worth about €280,000 based on an interest rate of 3 per cent, while a family paying rent of €2,500 could buy a home worth more than €650,000, based on a 90 per cent mortgage of €590,000, provided they could save a deposit of some €65,000.

The app also allows users to find a mortgage broker nearby who might be able to guide them through the process.