Rainy Day

Thinking of saving for a house? Here's what to expect*

*Hint: It’s not going to be easy.

THE DAYS OF 110% mortgages may now seem like a long time ago, and indeed perhaps complete folly, but the Central Bank’s new lending restrictions have caused much debate nonetheless.

The rules seek to make it the norm for homebuyers to have a deposit of at least 20% and a minimum income as a ratio to their mortgage.

While controls on lending are welcomed by most, some argue that the 20% rule is too onerous and will hinder otherwise financially secure first-time buyers from entering the market.

There have been indications that the Government are to seeking to devise a way to circumvent the proposals but regardless of how they work in practice, saving is likely to be the mantra for many people over the next decade.

So how will the rules affect you?

Firstly, the climate is not good for saving right now. “It’s poor because interest rates are at a five year low, they’ve been falling all this year as well,” says Simon Moynihan of price comparison site

“If you’ve got a lump sum you’re saving and you’re earning interest on it at just 2%, you’re losing 43% on DIRT. Even when tax credits on DIRT kick in next year it won’t mean much for savers.”

Savings rates are linked to the ECB’s interest rates which are at historically low levels and don’t look like moving any time soon.

What makes things even more difficult for buyers right now is that they are saving in a climate where house prices are increasing. People looking to buy their first home are saving towards a moving target.

This costs them money twice over explain the advice team at Irish Mortgage Brokers (IMB). For example, people aiming for a 10% deposit who now have to double their goal are being delayed, costing them in terms of increased purchase prices and rental prices along the way.

IMBs have devised a calculator they say allows savers to input their own position to judge whether they will be hit financially by the new rules.

calc 2 Irish Mortgage Brokers Irish Mortgage Brokers

“Even if you’re saving you’ll still get crushed,” says IMB’s Karl Deeter who feels the new rules are irresponsible and misrepresents the current situation.

“Credit is not out of control, it’s creating a storm in a tea cup. It’s super irresponsible and they’re doing it to try and create some perceived good.”

Deeter says overseas examples of similar proposals have led to people seeking loans from alternative sources, something far from desirable. ”What’s worse is that when prices cool next year because of the changes to capital gains tax, they’re going to claim that this plan has worked.”

Where to look?

For those who are saving, shopping for a savings account depends very much on what you’re looking for explains Moynihan.

“People are going to have to save towards a specific goal,” he says accepting that people are facing a challenge if they want a specific property.

“It’s important to have a look around to have the knowledge of the kind of account you’re looking for. We offer a facility whereby it tells you what kind of access you’ll have to your money.”

Moynihan says that for savers starting off,  an account with Nationwide UK Ireland provides a healthy return of about 4% up to €1,000 a month for 15 months.

Other options thereafter depend greatly and he namecheks Rabobank as one which has a good balance between a decent return and acces to your money should you require it.

Read: Fianna Fáil thinks the Central Bank’s tough new lending rules are ‘simply unfair’ >

Read: Aaron McKenna: The Central Bank mortgage restrictions make great sense – here’s why >

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