Should they save or rent?

highly

Registered User
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Hi

I'm posting on behalf of my sister in law and apologies if this is a daft question. I haven't taken out a mortgage since 2005 and I know things have obviously changed a lot since then.

My sister in law and her boyfriend are both 25 and are thinking about the future. They both have full time permanent jobs. He is on quite good money - circa €33k and she is on quite a low wage - she was working a retailers since coming back from Australia after finishing her degree but is now working as a financial assistant for a large company. She earns €20k.

At the moment they are both living at home, rent free and are saving hard.

The issue is that neither have any credit history and they don't know if this will affect them negatively in a few years time.

I think that they would like to buy by year end 2015 (if possible) and would be looking to borrow about €230000.

The conundrum is a) should they keep saving hard or b) would the bank view it more favourably if they were paying rent and had some sort of credit history or a rent history or c) save the 10% deposit which they think they would need and once that is saved rent for a year.

What would you recommend?

Thanks in advance.
 
When you say they have no credit history, you mean neither has borrowed before? There is no disadvantage in that. Banks are interested in two things - a good savings record, with evidence of good regular savings and; ability to pay any mortgage they get, which would take job security/prospects into account.
 
Renting to prove yourself, when the alternative of living rent free and saving more is available, wouldn't make much sense to me.
 
Thanks for the reply. Yes, neither has borrowed before. Your answer is what I thought - there's lots of other factors in the renting v saving situation - at this stage they're both eager to move out but they have a long term goal of buying so the end might have to justify the means.
 
I think they will struggle to borrow €230k when their combined income is €53k. More importantly, I think they could end up struggling to repay borrowings at that level.
As to the credit history, demonstrating savings and demonstrating paying rent should suffice but if they want to get something on the ICB, take out a small loan for a year and repay it.
 
25 is way too young for a couple to buy a place. I only have to look around at the people in their 30s that I know and the misery it has caused them.

Both of them are not far into their careers and are on low incomes. Renting will give them moblity and mobility is essential at that age for all kinds of reasons. I had an opportunity to leave for a job paying 160K a year. My colleagues could have done the same but felt they were tied down here with their mortgages.
 
Along with rent theyd have food, heat, etc. However saying that id def recommend couples live together before they marry or buy a house together. We lived in a mobile home for 18 months before/during house building, lived rent free as sold it for almost what we bought it for.
 
Along with rent theyd have food, heat, etc. However saying that id def recommend couples live together before they marry or buy a house together. We lived in a mobile home for 18 months before/during house building, lived rent free as sold it for almost what we bought it for.

I completely agree - I was looking for a pure financial perspective - but I think they'd be mad not to live together before buying so I agree with you 100% in that regard.

In relation to the point that they may be too young to buy - we bought our apartment in 2004 and although it has restricted us to a certain extent, not so much that we would regret buying. We were in negative equity for a little while but not for long and we're well out of it now - I think it all depends on what you buy/quality of location etc. I think that maturity levels play a huge factor - we also lived together for a while before buying and knew exactly what we were getting into - unfortunately I don't know if I can say the same for this couple. However, I appreciate your comments.
 
On the credit history part, having a credit card will give them a history and the banks will look at this. If they haven't got one, they should apply and start here. They get more difficult to get as you get older, even when you have lots of savings.
 
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