‘Start saving early’ is best path to a house

The most crucial advice that should be given to young people embarking on their careers is to save – every time they get paid.

“They need to start saving the minute they start earning – but it’s hard to persuade them to do that,” says Michael Farrelly, of Sherry FitzGerald Davitt and Davitt’s Kinnegad office.

Having savings is largely what makes it possible to change from being a renter to a home owner – but saving while renting is difficult, which is why Michael stresses that young workers should waste no time in developing a savings habit.

“No matter how small it is, save. Get the habit. Getting a savings habit is the biggest obstacle to get across – but once they get across the saving habit and they get into it and they see the money accumulating – because they do need to save – it’s absolutely extraordinary. “

First-time buyers need to have 10 per cent of the price of the house they want to buy: for a €250,000 house, that means they need to come up with €25,000 themselves; for a €300,000 house, they need savings of €30,000.

It frustrates Michael that the state won’t let banks consider buyers’ track records of paying rent when it comes to seeking finance to buy.

“I’ve come across people coming here to us in Kinnegad who are paying €2,000 to €2,500 for a month’s rent. They need to save between €25,000 and €35,000 to have 10% of the purchase price, but it’s very, very difficult to save that sort of money when you’re paying, you know, €1,500, €1,800, €2,000 or €2,500 in rent.

“I’ve made the point to a number of politicians that if somebody can show a record that they have paid rent consistently for, we’ll say, 12 months or two years without a miss, that should be taken into account. “But I’m told that the central bank don’t accept that and that [buyers] must actually have the money.”

It all winds up costing the buyer more, as the constant rise in house prices means by the time they have saved their target, houses have become dearer.

“They sit down and say: ‘right: we want to try and buy a house. We need to save, say, €20,000’.

“When that €20,000 has been saved – because property prices are going up – they then realise ‘oh, we now need to have €25,000’.

“When they have €25,000, they then realise “now we need to have €30,000’. It’s a constant battle for them to try and get ahead of the figures.”

In many cases, once a couple do manage to secure a mortgage and buy a property, their mortgage payments are likely to be lower than their rent.

“I could give you several individual examples of couples that I’ve come across. One I came across actually earlier this year. They paid €320,000 for their house. They had €32,000 saved – no mean feat because they did that while they were paying €2000 a month for a rental property in Dublin. And they were a lovely young couple with a baby – a new baby.

“And I said: ‘Guys, you know, you’re absolutely wonderful to have achieved that.

“And they said: ‘Michael, our mortgage repayments are going to be significantly less than our rent’.”