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FactFind: Is it cheaper to have a mortgage than rent in Ireland?

We’ve all heard it in the pub, but is it actually true?

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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.*

PastedImage-9109 To buy or to rent? graphic from the Q4 2017 Daft.ie report Source: Daft.ie

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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.

kildare Source: The commuter counties: Daft.ie Q4 2017 Rental Report

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.

PastedImage-52080 Source: The cities: Daft.ie Q4 2017 Rental Report

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.

PastedImage-68658 Snapshot of yields across the country during the first quarter of 2007 - the peak of the Celtic Tiger housing bubble Source: Daft.ie Q1 2007 Rent Report

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So, if we skip those crazy years and have a look at 2014, yields were running at between 4.5% and 8%.

PastedImage-48189 Source: Daft.ie Q1 2014 Rent Report

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And here’s what we found happening in our three areas in terms of rents and mortgage payments.

North Dublin City – Q4 2014

  • Average monthly repayments on a mortgage for a one-bed were €634
  • Average monthly rent payments were €922
  • A difference of 45%

Commuter counties, including Kildare – Q4 2014

  • Average monthly repayments on a mortgage for a two-bed were €555
  • Average monthly rent payments were €733
  • A difference of 32%

Cork City – Q4 2014

  • Average monthly repayments on a mortgage for a three-bed were €790
  • Average monthly rent payments were €914
  • A difference of 16%

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

  • 2007: 3.4%
  • 2014: 7.2%
  • 2017: 8.6%

Commuter Counties, including Kildare, Yields on a Two-Bed House

  • 2007: 3.5%
  • 2014: 7.5%
  • 2017: 9%

Cork City Yields on a Three Bed House

  • 2007: 3.6%
  • 2014: 6.3%
  • 2017: 6.2%

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. 

Journal Media Ltd has shareholders in common with Daft.ie publisher Distilled Media Group. 

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