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Is it cheaper to have a mortgage than rent in Ireland?
IT'S A QUESTION that's being asked in rental properties across the country today.
Daft.ie's quarterly rent report showed on Tuesday that in the last three months of 2017, landlords asked for higher monthly sums from tenants than ever before - and not just in Dublin.
In Cork and Galway cities, rents are 17% and 30% above levels recorded a decade ago. Average rent in Leitrim is €542 per month - and that's the lowest out there.
So, we've started to hear people say, 'Sure it's cheaper to get a mortgage than rent?'
Is that just pub chat though? Or is it really true? And, has it actually always been that way?
Here, TheJournal.ie will examine the options available if you were to either rent a property or obtain a mortgage today.
Let's look at the headline figures in a select number of areas based on a 3.75% variable mortgage, for a term of 30 years, with a 85% loan-to-value ratio.*
Click here for a larger image.
In Dublin 7, where there is a mix of housing options, the average monthly repayments on a mortgage for a one-bed are €782. However, to rent a similar property, tenants are paying €1,432 - an 83% difference.
Moving further out to the commuting belt, a similar situation is found.
A two-bed home in Kildare will have mortgage repayments of €534 a month attached to it, while rent prices are 90% higher at €1,015 for the same type of property.
And, the scenarios outside of the Pale tell the same story.
Average monthly repayments on a mortgage for a three-bed house in Cork City are €914 with corresponding rents running 32% higher at €1,203.
By that, across the board, mortgage repayments by the month are cheaper than rental payments per month.
Are there exceptions?
Yes, but only if you're looking at bigger, four to five bedroom homes where potential owner occupiers will mostly outbid potential investors.
And is this any different to how it's always been?
A simple way to look at it, according to economist Ronan Lyons, is that it is generally more expensive to rent property than to rent money. It has always been thus, except for during the years of the property boom/bubble.
If we look at the yields on houses i.e. the amount paid in rent as a percentage of its value during the housing bubble, there was an anomaly then. To signal a healthy market, those yields should be about 5 to 7% but back in 2007, they were all the way down at 2% to 4%. That switched the maths a little bit and the smart people were renting - and not buying.
Click here for a larger image.
So, if we skip those crazy years and have a look at 2014, yields were running at between 4.5% and 8%.
Click here for a larger image.
And here's what we found happening in our three areas in terms of rents and mortgage payments.
North Dublin City - Q4 2014
Commuter counties, including Kildare - Q4 2014
Cork City - Q4 2014
What does this mean?
Outside of the housing bubble of the noughties, renting was always the more expensive per-month option. So when that bubble burst, a certain amount of correction was seen. And now, as house prices rise again, so do their rent prices.
However, what we now know is that the gap between mortgage payments and rent asks is widening in areas where demand is high and supply is low.
Today, the amount paid in rent as a percentage of its value hasn't really budged when you look at three+ bedroom houses or in low-demand areas. But it's a different story for one- and two-bed properties, showing us that there is more pressure at the 'smaller household' end of the market servicing working single people and couples without dependents and places where smaller houses are more useful - like city centres. Census 2016 showed that the average household size in Ireland is now 2.75 persons (it was 3.1 in 1996).
Let's set out those yields then four our three areas.
Dublin North City Yields on a One-Bed Apartment
Commuter Counties, including Kildare, Yields on a Two-Bed House
Cork City Yields on a Three Bed House
Finally and, perhaps obviously, monthly repayments aren't the full story when looking at the price of a mortgage.
With a mortgage comes the necessity of putting together a deposit, as well as the fees associated with purchasing such a large asset. It also ties a person to a house and area and burdens them with maintenance responsibilities, on top of paying mandatory life insurance, home insurance and property tax. You also have to find someone willing to lend you money - which is often harder than finding someone willing to lend you property (at a price).
And, in turn, the cheapest option might not be the best one. Ronan Lyons advises that people should look at what suits them better, and what they have access to: renting money or renting property.
"If you rent long-term, then you need to also save or invest so that you have a nest egg when you retire. The choices are not necessarily should I rent or buy. It is buy versus rent-and-save."
Conclusion: No matter where you are in the country, it is cheaper to have a mortgage than to rent a property on today's average house and rent prices when looking at one, two or three bedroom properties. However, it may not always be the most suitable option - and it may not always be possible. That situation is how it has always been - except for the years of the property boom - but the difference in price in the 'smaller household' sector of the market is now much more stark, up to 90% in high-demand areas.
*Editor's note: If mortgage rates rise by two percentage points on the 3.75% variable rate used in the examples here, we still have a situation where renting is the more expensive option right across the country for one, two and three beds. However, you can find exceptions in two-beds in expensive areas of the capital - Dublin 2, 4, 6 and 6w and for three-beds in most areas of Dublin.
TheJournal.ie’s FactCheck is a signatory to the International Fact-Checking Network’s Code of Principles. You can read it here. For information on how FactCheck works, what the verdicts mean, and how you can take part, check out our Reader’s Guide here. You can read about the team of editors and reporters who work on the factchecks here.
Journal Media Ltd has shareholders in common with Daft.ie publisher Distilled Media Group.
Can’t get Staff?? Paying them with their own Tips. Pure Greed.
Slight error. Legislation is to be passed, to try ensure tips given to staff, actually get to them.
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This is 100% welcomed by many and rightly so. Credit due here where it’s due.
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The bad news is that the government has chickened out of doing away with “Service charges” that are stuck on the purchase of tickets.
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Additional Service Charge add ons, have been banned by other European countries – mainly because (a) actual staff don’t get the money sent and, (b) A lot of the time it’s computerised ticket processing, little or no staff actually involved.
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In other words, the sellers get to profit twice for the same one sold item. #RipOffIreland allowed to continue. General public left exploited. Ticketmaster, etc, wins.
@Jeff Rudd: was in a Spanish restaurant last night. They added a service charge to the meal of about 10%. Happens everywhere.
@Dave Connolly: In that case, you were robbed. In some EU countries they have been already outlawed. As regards Spain, google a news report by Paula De Biase, Jan 28th 2022. These charges do not apply everywhere.
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This was seen (and mentioned by media) in contrast, regarding the selling of recent Bruce Springsteen tickets. It was pointed out that Italy and other EU states had done away with their ticket service charges – while In Ireland they were still allowed to be applied.
@Dave Connolly: Service charge tips are indeed, still allowed to be added to meals – as long as the staff get them. A “Service charge” on a ticket is not legislated for in Ireland even though the companies make out this is because of staff work done – whereas it’s software automated most of the time. In other words, an extra slap-on charge for the companies to even more profit.
Tipping good service in a gastro pub or restaurant, is an important part of the service industry. Without tipping, there is no incentive for staff in providing an excellent experience. Otherwise you will get basic service as if you are in a diner or your work canteen. Nobody wants this on a night out. Service in restaurants in the better restaurants is top class, because of the tipping culture. Tipping should not be automatic or mandatory. It should only be the customers choice.
@John Costello: but if the mission was to incentivise staff would you not tip them before your meal instead of after it? After all they don’t know if you are going to leave a tip at all. That doesn’t offer much incentive.
Can anybody explain to me why restaurants apply a service charge to tables of 6 or more? The argument that this is due to the extra work involved with a large party does not make any sense as the same 6 people seated as 3 tables of 2 would be less efficient (i.e. greater service required) and yet would not attract the group service charge.
@Kevin Collins: That’s a good point! I often wondered about that myself.
@Kevin Collins: turn around of tables
Small table pax stay on less
Larger groups stay longer
@Mark Walsh: hmmm I suppose that explains it alright. I’d still think larger groups spend proportionally more – if you calculated it on a per minute, per square metre basis that is.
@Kevin Collins: if there was 3 tables of 2 all with a €60 bill then normally they would leave a €10 tip each bringing it to €30 tip –
But one table of six with a €180 bill and no SC would round bill to €200 leaving only a €20 tip.
Why do people tip, i never do, their getting payed for the work they do if they want to work for slave wages that’s their problem
@Noel Donohue: I hate this tipping “culture”. But it’s an excuse to underpay staff. I really hate it in the states where they tell you how much you are tipping them.
@Noel Donohue: You’re a real prince.
@Noel Donohue: I didn’t know it was Christmas already…..You complete and utter GRINCH
Hello Mr. Pink
@Noel Donohue: When you are out do people realise they are in the presence of greatness themselves or do you tell them?
Spolit little lad I would imagine.
@Noel Donohue: poor spelling aside, that’s a very dim comment.
@Noel Donohue: I’ve never heard of anyone who wanted to work for slave wages. You know jack**** about their circumstances but still feel the need to put them down on this forum.
@Noel Donohue: Lots of people out there on great salaries having put themselves through college who made ends meet in their student days working in the service industry relying on tips.
@Noel Donohue: because they want to. Nobody is forcing you too give any either.
@Noel Donohue: well Noel’ I hope you kids when they are trying to go through life and maybe end up in the service industry won’t be serving tools like yourself
Lots of genuine decent intelligent people tip
We know where you stand in the above rankings
@Noel Donohue: I hope you inform the staff at the start of your meal that you not believe in tipping
In many nordic countries, service is included in the price you see on the menu. A tip is only encouraged if you were satisfied with the service.
A stark contrast to the United States, where staff live off the tip.
@Finn H. Schoyen: I worked as a waiter many years ago in Boston. My wages were crap but weeks I’d be clearing nearly a $1000 in tips. It was crazy.
@John Barry: you must have been working in Hooters!
@John Costello: research shows tipping does not improve service. I suggest you watch https://youtu.be/q_vivC7c_1k
The industry needs to pay its staff properly.
We wouldn’t expect to tip any other industry to just get good service, instead we just expect good service for the money we pay. Do you go to clothes shops or dentists and tip for good service?
Trade unions are the answer. American workers on pittance wages are fighting back and the same can be done here.
25 years later the government wakes up to realise that it is wrong for employers to dip into their staff tips. There is slow change and then there is standing still until someone pushes you. A complete joke
@Radek Warchola: exactly. 35 years ago it was happening when I worked in hospitality. Its shocking how slow this is
@Dearbhla O Reilly: legislation to protect hospitality workers and nurses specifically should be drafted and presented to the government and the president for signing. The abuse in the sector is shocking. And the goverment does nothing.
Will this cover food delivery apps such as deliveroo? Hopefully it will
@Decky Morgan: Yes, service charge will be changed to delivery charge
@Mick Hyland: but will that delivery charge go 100% to the rider? If not, what percentage do they get?
@Decky Morgan: if you tip a delivery rider in cash that goes to the rider. If you add it on to paying by card It likely doesn’t. Pay in cash.
I cannot believe this is still happening.
I think set service charges should be banned as it should be at the discretion of the customer. I always tip but prefer to give it seperately from my bill
I always ask the staff does the service charge go to them as a tip. If it doesn’t I have it removed and tip them in cash. Alot of places out there where it doesn’t go them so just ask.
I always tip but always ask if staff get tips if not its straight into the hand of staff that attended the table..
Was in a restaurant in Dublin on Monday night and they now have the cheek to just include the gratuity on the bill automatically…
Is this new law not just then ensuring that the employees all get taxed on their tips?
@Sarah Lou: should they not be taxed on income?
I, like a lot of others, get taxed on every red cent I make.
@Caoimhghin Whyte: Oh wow thats amazing, I myself as a self employed individual am tax exempt on all fronts….. m*ppet
While its good for the staff to get the tips directly, it should have always been this way. Now it will actually happen. Good out of the box thinking here for a change
Fairly shocked this happens.I worked in bars and restaurants when I was in school and the staff got the tips
Restaurant staff in general in this country earn decent wages, most kitchen workers do not receive tips as they are generally divided between the floor staff, maybe this is something that restaurant owners should monitor. Some senior chefs come out with less money during the high season than some of the floor staff because of this.
Service charges are a joke and they should not be allowed except when booking a table for more than 8 people and it should only be used as a reserve on a table, at that they could easily be renamed.
Ask Adrian he is on the radio all the time spouting muck about staff shortages. No wonder.
Please note all CC tips, that you think are going to the waiter are not. The government received 21% of it.
Tips received by Electronic payments are classed as revenue & taxed again by way of the employees wages PAYE System . Leo should sort out this also as it might entice experienced staff back. Service charge is a smoke screen.
Tip in cash if feel your server deserves it. They won’t forget your face the next time.
have your say