For many people, buying a property will be their biggest ever purchase. Buying a home challenges our rational actions and behavior. Irish people tend to have a highly emotional attitude to property, related to our history of land ownership. However, a long-term decision like buying property should be the opposite of emotional. It should be made with great caution. Gather all the facts, not just the opinions of others, assess those facts and weigh up the pros and cons.
Mortgage interest rates are likely to increase because the banks are starved of cash and many of the loans on their balance sheets are non-performing. Standard Variable Rate (SVR) mortgages look like a guaranteed way to raise money for a cash-starved bank. SVR can be raised at the banks’ discretion, such increases potentially putting enormous pressure on your household finances. If you are going to struggle to repay a mortgage debt at today’s interest rate, then you should run a mile from buying unless you’re getting a massive promotion or an inheritance.
If you buy, expose yourself to as little debt as you can. Rather than rushing in because you think the market has bottomed out, you are better off taking time to put a plan in place; increase your savings and put a buffer zone between you and your mortgage debt. What’s another 12 months when we are talking about a 30-year debt commitment?
The purchase price of the property is just the beginning. Although house prices may be less than half what they were during the boom, don’t forget about additional expenses that come with home ownership. You will pay Legal fees and Stamp Duty when buying.
Your on-going costs will be the mortgage repayment; mortgage life cover policy; Property Tax; Building and contents insurance and Water charges. The cost of decorating, furnishing and maintenance need to be factored in also.
Before making any decision, take tailored financial advice on long-term investments such as property, or how to build that rainy day (and deposit) fund.