I was listening to the radio the other day, and they were discussing about the issue of banks giving mortgages equal to five times families' income, which will be unsustainable in the long term. I agree that five times the income is way too high, but, at the same time, it seems that the calculations don't add up. I'm just trying to understand what options are available to an average family.
For example, the average income in Ireland, if I'm not mistaken, is 35000/year (gross), i.e. 70000 per family (supposing that two people work). A more manageable mortgage, if I understood correctly, would be 2.5-3 times the income, which is 175000/210000 Euro.
Keeping this in mind, my wife and I had a look at the houses that we, as a family with children, would consider buying. The decent ones, just meeting what we consider the minimum standards of location, size and quality for a family house, are priced 450000 and over. Basic math tells that there is a gap of 240000 Euro to cover the price, and I doubt that many families with children have such an amount in savings.
Thinking of another scenario, where the family's gross income is 100000, the situation doesn't seem to get much better. They can indeed access a higher mortgage, but they are still at least 150000 Euro short. Also, on average, people on a high salary are unlikely to be very young and will probably get a 20-25 years mortgage, which translates in an unsustainable (in my opinion) repayment of at least 1600 Euro/month, when it doesn't increase.
We ended up wondering how do get average families manage to buy a house (if they do buy one). So far, I have a few hypotheses:
- The don't buy a house, and keep renting. However, rents are becoming unsustainable, I don't see a family renting at 1700+/month forever.
- They buy where they can afford it. This seems unreasonable. The location is of paramount importance when buying a house to live in permanently. If one's family, friends and job are in Dublin, it doesn't make sense to move two hours away because it's the only affordable place.
- They buy what they can. It also makes little sense to me. One wouldn't want to live in a shoebox just because decent houses are too expensive. It would be better not buy at all.
- They move to a cheaper country they like. This sounds a bit tragic, as it would effectively mean being priced out of the country, but it looks to me like a rational choice. There are many countries where property prices, as well as rent, are more affordable and mortgage rates are lower.
The issue, luckily, doesn't impact on us (yet) because we are not sure we will stay in Ireland, but I would be really curious to understand how families deal with this situation. Thanks in advance for all opinions.
For example, the average income in Ireland, if I'm not mistaken, is 35000/year (gross), i.e. 70000 per family (supposing that two people work). A more manageable mortgage, if I understood correctly, would be 2.5-3 times the income, which is 175000/210000 Euro.
Keeping this in mind, my wife and I had a look at the houses that we, as a family with children, would consider buying. The decent ones, just meeting what we consider the minimum standards of location, size and quality for a family house, are priced 450000 and over. Basic math tells that there is a gap of 240000 Euro to cover the price, and I doubt that many families with children have such an amount in savings.
Thinking of another scenario, where the family's gross income is 100000, the situation doesn't seem to get much better. They can indeed access a higher mortgage, but they are still at least 150000 Euro short. Also, on average, people on a high salary are unlikely to be very young and will probably get a 20-25 years mortgage, which translates in an unsustainable (in my opinion) repayment of at least 1600 Euro/month, when it doesn't increase.
We ended up wondering how do get average families manage to buy a house (if they do buy one). So far, I have a few hypotheses:
- The don't buy a house, and keep renting. However, rents are becoming unsustainable, I don't see a family renting at 1700+/month forever.
- They buy where they can afford it. This seems unreasonable. The location is of paramount importance when buying a house to live in permanently. If one's family, friends and job are in Dublin, it doesn't make sense to move two hours away because it's the only affordable place.
- They buy what they can. It also makes little sense to me. One wouldn't want to live in a shoebox just because decent houses are too expensive. It would be better not buy at all.
- They move to a cheaper country they like. This sounds a bit tragic, as it would effectively mean being priced out of the country, but it looks to me like a rational choice. There are many countries where property prices, as well as rent, are more affordable and mortgage rates are lower.
The issue, luckily, doesn't impact on us (yet) because we are not sure we will stay in Ireland, but I would be really curious to understand how families deal with this situation. Thanks in advance for all opinions.