Trying to buy property on an ordinary income is beyond tough in the current market. For those trying to do it solo, it is nigh on impossible, unless you happen to have a significant injection of cash from parents or another source.
But there may be a real-life version of the Australian hit TV show Five Bedrooms, currently screening on the RTÉ Player.
The premise of the show will be familiar to anyone who has ever gone stag to a wedding. It opens with a gang of people relegated to the singles’ table. They don’t know each other, but as the festivities warm up they start lorrying back the drinks and get talking. The conversation turns to the property market and how being single has clipped their purchasing power.
The photogenic five are all renters, and as the pinot kicks in, they make the rash decision to pool their resources and buy together. It helps that one of them works in real estate.
The script spends zero time detailing their financials but, this being fiction, they manage to purchase a charming detached house with five bedrooms for the substantial price of 2.5 million Australian dollars (about €1.6 million).
By banding together with friends to buy as a group, you increase your purchasing power, but would the same premise work in Ireland in real life?
The Central Bank doesn’t have an issue with the idea. “The regulatory framework does not expressly prohibit a mortgage credit agreement having more than one borrower who will be liable for repayment of the mortgage,” a spokesperson explains.
But few lenders will deal with multiple parties. “Pre-recession there were many incidences of friends purchasing together but the banks will have since experienced issues where one person moved on, couldn’t pay and [there was a] general change in circumstances. This can lead to issues for the bank if they need to enforce their security,” explains Martina Hennessy of progressive mortgage broker and switcher Doddl.
‘Four is doable’
Lending to five co-owners isn’t available in Ireland but four is doable, says Ray McMahon, chief commercial officer at specialist lender ICS Mortgages, which funds itself by borrowing from capital markets. He says the owner-occupier market is one it is keen to expand into.
Permanent TSB can also facilitate a mortgage credit agreement for up to four borrowers, explains Leontia Fannin, its head of corporate affairs and communications. “All applications are assessed on a case-by-case basis, subject to suitability of the product, and would be dependent on the specific circumstances of the borrowers.”
'If one or more of the group, as per the TV show, is not a first-time buyer, then the entire group will be required to put up 20 per cent of a deposit'
But there are caveats, McMahon counsels. “If one or more of the group, as per the TV show, is not a first-time buyer, then the entire group will be required to put up 20 per cent of a deposit. If all four are first-time buyers, the group would be eligible to borrow up to 90 per cent. The other typical lending criteria apply, including being able to borrow a maximum of three and a half times your income, and the self-employed will have to show earnings for the past three years.” His firm won’t lend less than €100,000 per mortgage.
For his organisation, the most appealing kind of buying group would be those doing it for the first time. “Where this would work is four young professionals that are first-time buyers. The sweet spot in terms of ages would be those up to the age of 35 years, so that they could apply for a mortgage term of up to 35 years.” The loan will have to mature before the eldest of the group turns 70. So the idea won’t work for anyone dreaming of emulating another TV show, the sitcom The Golden Girls, where a gaggle of independent elder women set up home together in sunny Florida.
We have a housing crisis so it makes absolute sense to club together to buy, says Trevor Grant, director of Affinity Advisors and chairman of the Association of Irish Mortgage Advisors. But there are key considerations, he says.
“The borrower needs to think about the fact that he or she may be liable for all of the money. Would-be buyers purchase on a joint and several basis, meaning any one buyer can be liable for the full debt, not individually liable for the amount they invested. Any default goes against your credit history. You may be putting your future financial history on the line.”
'You will need to work in sectors not adversely affected by Covid, professionals in full-time jobs in areas such as accountancy, pharmacy and tech, for example'
To get approval, he says you will need a particularly strong application. “Covid has made lenders more cautious. A question being asked is: ‘Will such persons be able to find alternative work?’ Good qualifications are key. You will need to work in sectors not adversely affected by Covid, professionals in full-time jobs in areas such as accountancy, pharmacy and tech, for example.”
You will also need very strong bank accounts demonstrating rental repayment capacity, in excess of the mortgage repayments, and/or regular savings. “You should be able to demonstrate repayment of a loan and ideally have cleared the loan before making a mortgage application. If you’re not paying rent or saving, you have no understanding what it means to have a fixed financial commitment,” he says.
Type of property
The type of property you want to purchase is another factor. A new-build will present less of a problem than a fixer-upper, says McMahon. A second-hand property that needs anything more than cosmetic work will be liable to scrutiny, and formal costings on headed paper from contractors to be provided to the lender.
If the works are structural, it’s unlikely the loan will be green-lit. But a group already working in the construction industry and paying rent might have more latitude on this front if they’re able to do the works themselves and also have those works signed off. In the TV show, for example, actor Stephen Peacock plays Ben Chigwell, who is in construction and handy to have around the house. If every member of the group is a first-time-buyer and paying tax then they might also qualify for the Help-to-Buy scheme, which allows for more than two people owning a home together, says McMahon.
You will also need to get certain agreements in advance. A solicitor, the one doing the conveyancing, should draw up an agreement between the parties that covers several points, including the division of interest. Each party doesn’t have to have an equal share, says McMahon. The person who’s going to sleep in the box room won’t have the same kind of space as the person who gets the main bedroom with en suite bathroom, for example. How do you value each?
But before you even get to that point, he says the idea will live or die based on how financially open the group are with each other. He recommends showing the group your bank statements to see if there are any potential red flags. Questions he counsels considering include: is someone living beyond his or her means, using a credit card to play catch-up, any gambling that is more than the odd flutter, a designer label habit that he or she can’t afford, or behind on rent payments an/or utility bill payments? It will save time and effort, because these will show up in the underwriting process anyway, he says.
The next challenge is what do you do if someone wants out, McMahon says. “You need to discuss and put into writing how you can terminate the contract and how can you assign your interest in the property.” You could agree a five-year term and then agree to sell. As long as house prices keep rising, selling in five years will not be an issue – but this is not a certainty.
The use of the property and house rules should also be set out in advance, he says. “Are pets allowed, for example? How do the housemates feel about boyfriends or girlfriends staying over? Which parts of the house are considered public spaces and which areas are private? Can one of the parties sublet if, say, he or she gets a great job opportunity elsewhere? What happens when one party wants to sell his or her share early? Should he or she offer it for sale to the group first? And what happens if none of them can afford to take on its purchase?”
You also need rules around maintenance of the property, how collective expenses for ongoing utilities such as bin collection, electricity and gas but also repairs such as gutter cleaning, repainting, garden weeding and mowing of lawns are going to be paid for. For example, should each member pay a sum towards a cleaner so there are no rows about whose turn it is?
'People need to be able to buy homes, but will groups buying together push house prices up even further?'
Buying as a group is not for everyone, but it gives a lot less exposure than buying on your own. It also means you probably have to cook only once a week as you could all take it in turns.
It gives you more purchasing power, but Grant has some concerns. “People need to be able to buy homes, but will groups buying together push house prices up even further? You’re giving more people the capacity to buy. Given the shortage of supply, the increased demand will push up prices.”
Five to buy*
(*excluding stamp duty and conveyancing fees)
€495,000 (from €123,750* each between four co-owners)
Address: 1a Blessington Court, Dublin 1
Agent: O'Connor Shannon
View on myhome.ie
This is a completely modernised and reconstructed terraced house within a few minutes’ walk of O’Connell Street. A-rated and 117sq m (1,260sq ft), it has three en-suite bedrooms upstairs and a smaller room downstairs that could become a fourth bedroom, as there is a bathroom at ground level also. There is no outside space and just one communal living/kitchen/dining room, but the bank will love the fact that all the dirty work is done.
€645,000 (from €161,250* each)
Address: 39 Johnstown Road, Cabinteely, Dublin 18
Agent: Hunters Estate Agents
View on daft.ie
This four-bedroom, 150sq m (1,614sq ft) semi with a BER of F has separate dining, sitting rooms and kitchen. One of the bedrooms is a large single, so the person buying it might pay less. There’s also a garage that you could convert, but if using it as a home office you will need to discuss how the additional utilities used to light and heat a homeworker are paid for.
€675,000 (from €168,750* each)
Address: Collegians House, Islandbridge, Dublin 8
View on myhome.ie
This property feels more like a luxurious apartment than a house and boasts views over the River Liffey and to the Wellington monument in the Phoenix Park. At ground level is the first of its four bedrooms, with an adjacent shower room and a storage room.
On the first floor is the fine, dual-aspect kitchen, living/dining room with timber six-over-six-pane sash windows and shutters and a separate sitting room. The three other bedrooms are on the second floor. Two are doubles, one of which is en suite, and the third is a single room that’s big enough for a double bed, along with the main bathroom. The D2-rated home extends to 160sq m (1,722 sq ft).
€745,000 (from €186,250* each)
Address: 77 Botanic Road, Glasnevin, Dublin 9
Agent: Frank Fleming
View on myhome.ie
A five-bedroom, end-of-terrace period property of 186sq m (2,002sq ft) with an E1 BER that is in need of some TLC, but habitable. All bedrooms are en suite, though these may need upgrading, and there’s income potential too, with an extra room to let under the rent-a-room scheme, allowing you up to €14,000 a year inclusive of all bills, tax free. You could use this money to set up a joint account to pay utilities via direct debit, but ensuring and that all four signatures are needed to withdraw money.
€770,000 or €820,000 (from €192,500* or from €205,000* each)
Address: Beechpark, Cabinteely, Dublin 18
Agent: Sherry FitzGerald
View on myhome.ie
Just beyond Cabinteely village, Beechpark is a new homes scheme where there are two remaining A2-rated, detached four-bedroom homes. Set over two storeys, each has 147sq m (1,582sq ft) and an en suite main bedroom while the fourth bedroom is a single so there may have to be some discussions about which person pays what. One house is asking €770,000 while the other, yet to be constructed, is asking €820,000. Prices vary because of orientation and garden.
Rent a room to pay utilities
An individual can claim rent-a-room relief in respect of the letting of a room or rooms in his or her home for residential purposes and the provision of meals or other services (such as cleaning, laundry, etc.) in connection with the letting. The income from such lettings is exempt from income tax, USC and PRSI where the sums arising do not exceed the annual limit of €14,000.
An individual does not have to own the residence to claim the relief, but it is a requirement that the residence be occupied by the individual receiving the rent as his or her sole or main residence, or home, during the tax year.
The €14,000 limit applies to the gross payments received from renting a room or rooms in the property. If rent-a-room relief is claimed, no deduction can be taken for normal rental expenses such as mortgage interest or insurance.
Where more than one individual is entitled to income in respect of a letting which qualifies for rent-a-room relief, and the total income received in respect of the property does not exceed €14,000 in a tax year, the relief is divided equally between the individuals when calculating their taxable income.
In the example given, where four friends own a house and intend to let out a room or rooms and claim rent-a-room relief, the €14,000 limit is divided equally between the four, so the maximum relief each individual can claim in this circumstance is €3,500.
Each individual claiming the relief is required to submit an annual return of income and to enter the amount of exempt rental income on the return (in the “Exempt Income” section). If the only other source of income for the individual is employment income, he or she can file a PAYE income tax return and include the exempt income on that form. If the individual is a self-assessed taxpayer, he or she is required to complete a Form 11 income tax return. The filing date by which the relevant return should be submitted is October 31st in the year following the tax year.
For more information, see revenue.ie