Consumer Corner: Eliminating the stress of buying a first home

Since the start of the year, first-time buyers can generally borrow up to four times their gross annual income: this is up from the previous limit of three-and-a-half times income. However, a minimum of 10% deposit is still also required.

It’s well known that one of the most stressful things in life is buying your first home. Whether you're buying on your own, with someone, or supporting someone buying a home, it brings an array of complexities.

But there are ways to make it work, and plenty of advice you can follow — from cutting back on designer clothes, to moving in with parents, or buying in the commuter belt.

First things first is that since the start of the year, first-time buyers can generally borrow up to four times their gross annual income: this is up from the previous limit of three-and-a-half times income. However, a minimum of 10% deposit is still also required.

Trevor Grant, chairman of AIMA, the Association of Irish Mortgage Advisors, says despite the relaxed rules, not all first-time buyers can borrow up to four times their income.

He points out lenders have rules around gross and net income which must be met first before you get approval on a mortgage. These can vary from lender to lender.

Start saving early

Before even starting to find a first home, however, it is vital you consider the deposit and start saving early. The average deposit used to buy a home in the first six months of last year was €54,000 for first-time buyers, who were borrowing as much as they could to buy a home under the rules at the time, according to the latest figures from the Banking and Payments Federation of Ireland.

“This shows just how much of a deposit you need to have in the wings to have a chance against the other house hunters in the market. So if you want to buy your own home, save as much as you can, and start as early as you can,” said Mr Grant.

Also a word of warning: be aware that first-time buyers may not qualify for as large a mortgage as they may have done last year due to rising interest rates.

“This makes it all the more important to save up as much of a deposit as you can before you apply for a mortgage. With rents still soaring, it could take decades to save up the deposit for a home while renting. For this reason, it may make sense to move back home with your parents if saving for a deposit,” said Mr Grant.

Cut back on luxuries

He advises to boost the amount you can save by cutting back on luxuries and leading a cheaper lifestyle.

It is advised too to do your research on any area you are planning to move into, particularly if you’re not familiar with it. Find out if there’s any history of flooding in the area and ideally have some friends or family living nearby.

Also, save into an account which pays better interest than normal. Some banks offer accounts geared towards first-time buyers and these accounts may pay better interest than others.

“Be careful though to choose a savings account with no strings attached. Avoid getting locked into taking out a mortgage with a bank just because you’ll earn better interest on your savings than you would elsewhere as you could get a cheaper mortgage with another bank.”

A move to the commuter belt, or a neighbouring county, could make it easier for you to afford a home, and get the deposit together for one, Mr Grant added.

Know what you’re getting into before making such a move though, particularly if you will have to commute to work. The commute must be a practical one which you can stick to. 

"It must also make sense financially: be aware how much it will cost you to fill up the tank, particularly given the recent increases in fuel prices.”

Do your research

It is advised too to do your research on any area you are planning to move into, particularly if you’re not familiar with it. Find out if there’s any history of flooding in the area and ideally have some friends or family living nearby.

“Know what your neighbour is like if you’re planning to move to the countryside, particularly if you have only a few neighbours around you,” said Mr Grant.

Another good tip is to tidy up your finances before you apply for a mortgage, ideally six months to a year beforehand: “Should there be any evidence in your current account statements of reckless spending, an inability to make ends meet, bad financial habits, or large credit card debts and overdrafts, you’re likely to get turned down for a mortgage.”

Also, first-time buyers won’t qualify for Help-to-Buy or First Home, which is the State-backed Shared Equity scheme, if buying a second-hand property, as they are only available for new homes.

A first-time buyer buying a new home through the Help-to-Buy or First Home scheme, or indeed both, gets a substantial chunk of the price of their home covered by the State.

The Help-to-Buy (HTB) scheme allows first-time buyers to get a tax rebate of up to €30,000, or 10% of the purchase price, of a newly-built home, whichever is less. With the First Home scheme, the State and participating banks pay up to 30% of the cost of your new home in return for a stake in the property.