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29 Jun 2022

Making Cents: Can you buy a house on your own?

Making Cents: Can you buy a house on your own?

reland house prices grew 14.8% year-on-year in January 2022

BUYING a property for the first time is a big deal, buying a property on your own for the first time is an even bigger deal.
And it’s a very gratifying thing to buy on your own, and there’s a great sense of achievement when you do, but it’s certainly not without its challenges.
You have no one to fall back on if things go wrong with the property, it’s just you negotiating price, it’s just you dealing with your mortgage, and it’s just you when it comes to making repayments. You have no second income to fall back on if anything happened to yours.
And because of all of these things, maybe you need to build in more safety nets than you’d have had to, if you were buying with someone else.
The other difficulties people face in instances like this, is that they are limited to the amount they can borrow. It’s the same 3.5 times your annual gross income banks use as they do with a two-income application. And it’s the same 10% you have to save and use as a deposit, but obviously much harder to do, than a couple with two incomes.
All of these things make it more difficult for a single person buying on their own. It can limit them to the type of property they buy and how quickly they’ll save the minimum 10% deposit required.
But they are what they are, and nothing much you can do unless banks were to introduce low deposit mortgages for single applicants, something they do in other countries, where a 5% deposit will suffice, regardless of whether the property is a new one or not.
Assuming that’s not going to happen, over the next couple of weeks, I want to look at what a single first-time buyer should consider before they take that leap and purchase on their own. There was just too much to tell you and I didn’t want to leave anything out, hence my reason for splitting this topic over two weeks.
And what I’m going to tell you is for suggestion only and are pointers from single owners who’ve been down this road before and if they could go back in time, these are the things they’ve told me they might have done differently. So, I’m sharing with you what others have learned and sometimes learned the very hard way and I’d take heed of what they have to say
And the trigger for writing this article, was inspired by a reader who reached out to me looking for advice at the beginning of the year. She was feeling the pressure of viewing houses, making mortgage applications etc. and whilst she had great family support, she did feel somewhat alone, nonetheless.
So, I’ll tell you what I told her and what I’d advise others like her if they were in a similar situation.

Have a 20% deposit
Now I know saving 10% is a big enough ask and I’m suggesting you should have double that. For some saving 10% is a big stretch, so what I’m proposing is a very big ask, I get it, but bear with me for a moment and let me explain my reasons, and I have three.
The first is to protect yourself from property values decreasing in value.
Asking prices right now appear to be inflated and if there was a contraction in values over the next year or two, that could impact your ability to move property for some time, whereas having a 20% deposit lessens the impact somewhat.
You see, if you move property, the minimum deposit required for your next purchase becomes 20% and that’s an important number to be aware of.
Let me explain.
Let’s assume you buy a property for €300,000 and you borrow 90% i.e. €270,000 over 30 years.
If that property were to decrease in value by 10% shortly after you bought it, or by smaller amounts which totaled 10%, it would take you 8 years before your mortgage would have reduced sufficiently in value by, to build back up that 20% equity you need for your next purchase.
If you had a 20% deposit, you have an out after just 4 years.
If the property you are buying is going to be your forever home, then ignore what I just said and put the minimum 10% down, because then the value of the property is irrelevant. But, if you’re unsure and you don’t want to feel hostage to having to live in a property with no escape route, then having that higher deposit protects you somewhat from property values decreasing and allows you to move faster.
As an aside, if you think you’re not going to live in a property for a minimum of five years, you’re better off continuing to rent or live at home. It’s always better to buy, when you have one eye on the long term and the longer you stay in it, the better chance you’ll recover what you paid with the initial deposit and all those mortgage repayments you made as well.
The second reason for having a higher deposit means you’re a lower risk to a bank and they will reward this with a lower rate, and a lower rate means a lower monthly repayment.
The third reason is to create a buffer just in case your income dropped, and I’ll deal with that in more detail in next week’s follow up article.

Have 6 months of mortgage repayments set aside in the event of an emergency
And an emergency is a redundancy, an illness, a sudden drop in income etc.
I’m adding more money on to the amount you need to save but what you don’t want to happen is after purchasing the property, you have zero left in your savings account. Because if something like redundancy did happen, your income could go from say €3,500 to €901 (max job seekers benefit payment) per month.
What you’re getting from the state wouldn’t even cover your mortgage and you’d have to interact with your lender who I’m sure would be very sympathetic and offer moratoriums or interest only facilities and as good as these solutions are in the very short term, if you can avoid them at all, you should.
And you can avoid them by ring-fencing an amount that covers 6 months’ of mortgage repayments, that are lodged into a dedicated, break glass in the event of emergency mortgage account. And if 6 months is a stretch, aim for 3. And you’ll be glad you did because it something did happen, it will buy you some time to find that new job and will put you under less stress. You don’t want to be dealing with a bank in the morning and asking them for permission not to pay your mortgage next month, and in the afternoon be interviewing for a new job.
It's just another thing single borrowers may have to do, that joint borrowers may not have to. Joint borrowers may be able to absorb a loss of one income where the job seekers benefit can be used towards their mortgage payment only and nothing else because they can live off the other persons income, but when you have no other income, you need a safety net, and you can do this by having 6 months of mortgage repayments set aside in a separate account.
LIAM’S HOUSE BUYING CONTINUES NEXT WEEK IN L2

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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