Buying a house: should we play it safe or go for it?

Couple searching for several years for Dublin home to meet requirements

Asking prices have surged 13 per cent in the past year. Photograph: Tim Ireland/PA Wire

Asking prices have surged 13 per cent in the past year. Photograph: Tim Ireland/PA Wire

 

We have been looking to buy a house in south Dublin for some years now. We have recently found a house in a great location. It’s ideal in terms of affordability, location, orientation and connectivity. It’s just that the house size (104 square meters) is a bit small for our long-term use.

We are a married couple and want to grow the family. We think we might outgrow this house in the next 10 years.

It’s very difficult to even get a viewing/booking opportunity in these times too in the south Dublin area. If we let go of this house, there’s no guarantee that we will be able to get hold of a house in this location even after an increased budget because of the limited supply and increasing house prices.

Considering all the above factors, should we compromise on house size now or should we wait, save more, increase our budget to buy a larger home in this location?

Ms D.S., email

An old saying suggests that “the perfect is the enemy of the good” and I think that is something to consider here.

As your experience shows, buying a first home is very difficult these days for young families. You have already been looking for a home for several years in your preferred area.

Now you have found one that you like and it seems to fit your requirements almost completely. It is the right type of house, in the right place, suitable for your work and other priorities and, importantly, within your budget.

The only quibble, as I understand it, is that you might outgrow it if your plans for a larger family materialise. For now, even in size terms, it fits your needs.

I think part of the issue is that you have spent so long on this property search that you are almost second-guessing what you need at this point in order to commit to the purchase. There are a few things I think you should consider.

Upsizing

First is your timeframe for this, almost ideal, property that you have found after your long search. You fear you might need to move again in around 10 years if your family grows as you plan.

Ten years is quite a stretch. Many people move on from their first home in that time, or shortly afterwards. Few people have the luxury of moving into their “forever homes” at the first time of asking.

At that time, you will be 10 years down the line, 10 years further in your careers with, hopefully, improved salaries. And, given that you are already aware of the possibility of needing to move to a larger home, you will have 10 years to work on building up savings alongside any hoped for capital growth in this property should you go ahead with the purchase.

And, on that subject, location is key. The very thing that has made your search so tough this time around will become an advantage if you find yourselves in a position of selling on this home to upsize 10 years or whatever down the line. Given what you say about its location, this home should be very easy to sell at that time.

On the flip side, if you turn down this home, there is no guarantee that you will find a larger property that meets all your other requirements on location, connectivity and affordability in the near future. As you note, you’ve already been searching for a number of years and that other “perfect” property has yet to materialise.

Additional costs

The second thing to consider is costs. Buying or selling homes cost money over and above the purchase price and, when people are already stretching to get the most from your housebuying budget, the last thing they want to do is to incur unnecessary costs.

But how insurmountable are these add-ons? The key costs involved in buying a home are legal fees, valuation and survey reports and stamp duty.

Legal fees are probably the single biggest expense you are likely to incur but it is important to get it right. Your solicitor is responsible for working through all the legal steps in ensuring there are no nasty surprises down the line in terms of clean ownership of the property and the proper transfer of the title to the property to you. This is called the conveyancing process.

There is no set price for this work. It will depend on the price of the property and the complexity involved. It will also depend on which solicitor you pick.

On this point, remember price isn’t everything. You need to be able to work with your solicitor. Getting that relationship right can be worth the few extra euro.

AIB Bank has a easily digestible compilation of what it calls the “hidden costs of buying a home”. It reckons that people need to budget between €1,500 and €3,000 for legal fees. To avoid nasty surprises, AIB notes that you should insist that all quotes are inclusive of VAT.

Your mortgage lender will certainly look for a valuer’s report. This is to give the lender the reassurance that the home is worth the money they are lending you to pay for it. No-one will say so but the bottom line is that banks want to know that should things go very wrong and they have to chase you to repossess the home, its eventual sale will cover the bank’s loan exposure.

The mortgage lender will normally have a pool of valuers that it uses to compile such reports, so you will have no choice in who does it. You will, however, have to pay the bill and, according to the AIB guide, you can expect to pay from €150 upwards, again depending on the size and value of the home.

As the valuer’s report is only to cover the loan exposure of the bank, you would be well advised also to pay for a surveyor’s report of the property. You get to choose the surveyor and it is worth canvassing friends and colleagues for recommendations.

They will examine the physical condition of the property and provide a written report to you. It will warn of any “red line” issues such as subsidence, structural or dampness that could fundamentally affect your decision to buy – or the price you are prepared to pay, given you will likely face significant costs.

As you are paying with one eye on possibly selling in 10 years or so, it might be as well to steer clear of properties where major issues arise even if they can be put right. A subsequent survey for the next buyer will likely highlight that work has been done and this could have a chilling effect on your ability to sell.

Alongside the red line issues, my experience of surveyors’ reports is that they are very useful in highlighting smaller maintenance and upgrade issues that you can work on over the next few years.

However, they will also come with caveats. You don’t want the surveyor tearing the house apart to see what’s under floorboards or behind walls, including electrics, and they will state in their report that they cannot offer an opinion on such areas.

In terms of cost, AIB says you should budget from €300 upwards – again depending on size.

Stamp duty

Additionally, there is stamp duty. Where a surveyor’s report is optional, if strongly advised, there’s no sidestepping stamp duty. The Government will charge 1 per cent stamp duty on any home valued at less than €1 million and 2 per cent on more expensive properties.

So, if we take a €300,000 90 per cent mortgage on a €330,000 property, you would be looking at stamp duty of €3,300.

So, all told the costs involved in buying now would be in the region of €7,000. If you were to buy again in 10 years, those costs would be duplicated and somewhat higher as you would be moving to a bigger home and prices generally would, you expect, have risen over the decade.

Selling this home at that time would cost you about 2-2.5 per cent in selling agent fees with additional advertising and legal costs, and possibly some costs freshening up the home before it was sold.

In the context of the cost of property, those are not very high costs, so there is little reason to worry about the ancillary costs of buying now only to buy again down the line.

Property prices

Finally, there is the all-important issue of prices.

You note yourself how crazy the property market is right now, despite the pandemic. It is indeed very difficult to get a viewing of a home. Estate agent Savills recently demanded not just evidence that potential buyers had sufficient mortgage approval to afford the asking price of a new development in Dublin but the full extent of their mortgage approval – a detail that would allow Savills advise the sellers of just how much higher they could push the price. The Data Protection Commission did subsequently rule that there was no justification for seeking such data but it does show where the balance of power is in the property market right now – and that is clearly with the seller.

Data from both The Irish Times-owned MyHome.ie and Daft.ie on Monday noted that asking prices have surged 13 per cent in the past year. While the scale of increase is lower in Dublin, it is still double-digit, according to MyHome.

And this is being exacerbated by diminished supply. Much comment in the past year has focused on lower levels of housebuilding, but fewer secondhand properties are also coming to market.

While Daft.ie said it had more properties listed in June than in May, the figure is still one-third lower than a year ago.

So if you do pass on this property that in almost all respects meets your requirements, there is indeed no guarantee that the perfect property will emerge for you.

Considering all the issues – especially how close this house is to fitting your specifications other than long-term size issues – if I were advising a friend, I’d tell them to go for it. But only you can determine what is right for your family.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into

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