There is very much a hard-wired Irish mindset that owning a property is better than renting – rent is dead money, right? We have a high % of home ownership and a very high proportion of all wealth in this country is held in property ~85%. So it’s fair to say we are obsessed with it. I won’t go back to the famine or Into the West – but there are reasons.
So ill try and lay out the numbers and the pros and cons to both.
Ill start with the easy ones – if I buy ill be paying down a mortgage so ill be getting equity in the house, renting is just dead money. This is true, but consider with a 30 year mortgage after 5 years you’ll have typically paid off just over 10% of the debt. If the house price goes down 6% -7% over the 5 years you are effective down money when you add in the costs of buying (legals, stamp duty). Also, if you go to buy again after 5 years and the house price hasn’t gone up – where are you going to get the 20% deposit you now require as a second time buyer?
Flexibility – if you rent you typically can live closer to work, you can move much easier from place to place and you don’t have to worry about maintaining the house or the price of it. You will also have more capital (not paying a deposit) and can use that to invest in assets that might make you richer, like starting a new business or buying shares.
Ownership, of course, means that at the end of the 30 year mortgage you will own the property outright, with no monthly costs, renters could face serious problems in retirement as their income falls. So there is long term security in owning a property. You don’t also have to live year to year on rental leases and be at the mercy of landlords.
Now if a property had the same rental costs as mortgage costs we could have a great debate about the benefits of Buying Vs Renting. But the key fact is that the gap today is massive. Especially at the lower end of the market. If I look at a very large area such as Tallaght, I will see two bedroom apartments for sale at around the €200k mark – but the same property is for rent at €1,500 a month.
The maths on that is – and I’m going to assume you borrow the full €200k (to account for a value on your deposit). It would cost you €770 a month – the rent is virtually double! That’s over €8,760 cash a year in your pocket. You could buy another €200k property in cash with the savings within the life time of your mortgage ! The gap is simply too big too ignore. If you are renting, and the mortgage on the property is more than 30% lower, you should be buying. Even accounting for house price falls and the lack of flexibility, its still much more attractive to buy.