Mortgages seem "unreachable" for the average Joe. Am I missing something?

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.

If you are going to use average wage, use average house price also.

http://www.irishexaminer.com/ireland/average-asking-price-for-houses-rises-by-14-290008.html

Colm McCarthy was spot on when he pointed out that some people seem to forget that there's life outside the M50, and localised property bubbles in Dublin should not dictate policy for the whole country. Almost anywhere outside Dublin, Wicklow and Cork City you'll get a lot of house for €200k.

daigo75 said:

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.

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If the minimum standards you require in a house is going to cost close to half million euro I dread to think what the maximum standards would cost

Great thread!

In all the big cities of the world you will see the gentrification of poor run-down areas into nice middle class coffee shop laden ones. The artists move in first, then the gays, then the middle incomers!

This is how people on middle incomes manage to eventually live in a desirable neighbourhood by taking a chance and transforming a slightly dodgy one.

This does not really happen in Dublin though. There's the traditional good and bad and they stay that way for the most part.

DerKaiser said:

Colm McCarthy was spot on when he pointed out that some people seem to forget that there's life outside the M50, and localised property bubbles in Dublin should not dictate policy for the whole country. Almost anywhere outside Dublin, Wicklow and Cork City you'll get a lot of house for €200k.

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I don't know the Dublin market, but Cork and Galway you get a lot of house for 200K, and even better in Limerick or Waterford. And I'm not talking about out in the sticks. Taking Cork, I'm not talking Douglas, nor Taylors hill in Galway etc. Take somewhere like Galway, Tirellan, a very large estate of well known houses, under 200K for a location close to city, walking distance even and 3 bed semi d's.

Just off the phone from someone in Dublin, person is able to buy a 4 bed semi D in Ashborne, Co. Meath, about 35 minutes commute for 255K, being built. Their broker has already been contacted by the bank due to the new rules and they think they will lose the house.

daigo75 said:

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.

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.

Thanks in advance for all opinions.

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I'd just like to ask you what location you are looking in. And can you also help me to understand what is wrong with a brand new house in Ashborne for less than 300K? It would be helpful to understanding what the problem is in Dublin.

Have you looked at Swords?

I have to apologise, I realised that my original post is missing some critical information that actually holds the answer to my own question. All the areas I was looking at were in the South of Dublin and surrounding counties, as those are the areas I'm most familiar with. This changes the question significantly, as it's no longer comparing apples with apples (or average with average), but average with high-demand locations.

The correct question I should have asked myself should have been "how can an average Joe afford to buy a house in a highly sought-after area?" The answer seems to be simply "he cannot."

moneybox said:

If the minimum standards you require in a house is going to cost close to half million euro I dread to think what the maximum standards would cost

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We don't have particularly high demands, it's just that the areas and properties that match them, in Ireland, are limited and, therefore, higher in price (and overpriced in many cases). The minimum standards we have result in prices below 200k, while the maximum would be around 350k. This in the continent, which is the reason why we are not thinking of buying a property in Ireland.

Bronte said:

I'd just like to ask you what location you are looking in. And can you also help me to understand what is wrong with a brand new house in Ashborne for less than 300K?

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You're right, the location is actually the key. As I mentioned above, I was looking to the South of Dublin, where the prices are higher. There's nothing wrong in a house in Ashbourne, but, if we were looking to buy and had to choose, we would have no connection to that area and we would rather buy elsewhere.

Bronte said:

It would be helpful to understanding what the problem is in Dublin.

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In my opinion, the problem in Ireland, not only in Dublin, is that the distribution of population and services is uneven. Outside of the usual big four (Dublin, Cork, Limerick and Galway), most of the country is a rural area with relatively poor connections. The motorways that are being built are a great improvement, but there's still a long way to go. This causes a high concentration of population in few zones, and drives prices up.

My opinion is that buying a house is a long term commitment and, if one cannot buy one in a place he likes, then he should not buy one at all.

Again, sorry for wasting contributors' time. I made assumptions that skewed my questions completely. I should have been clearer.

daigo75 said:

The correct question I should have asked myself should have been "how can an average Joe afford to buy a house in a highly sought-after area?" The answer seems to be simply "he cannot."

There's nothing wrong in a house in Ashbourne, but, if we were looking to buy and had to choose, we would have no connection to that area and we would rather buy elsewhere.

In my opinion, the problem in Ireland, not only in Dublin, is that the distribution of population and services is uneven. Outside of the usual big four (Dublin, Cork, Limerick and Galway), most of the country is a rural area with relatively poor connections. The motorways that are being built are a great improvement, but there's still a long way to go. This causes a high concentration of population in few zones, and drives prices up.

My opinion is that buying a house is a long term commitment and, if one cannot buy one in a place he likes, then he should not buy one at all.

.

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I'm not sure what you are apologising for, but thanks for coming back.

I find it odd that you would consider most of Ireland rural, do you mean Ashborne?

I know you can drive from Galway to Dublin in 2 hours, and Limerick to Dublin in 3 hours etc, so unless the person who told me Ashbourn is 35 minutes is off the head, I have to accept it as a fact. Surely in this day and age, 35 minutes is nothing.

Why do you need to have connections with Ashbourne? Can you give us your reasonings, you can be general? Most people who move to Dublin have no connection whatsoever with the place. If you live in say Malahide, I'd say it takes a long time to get to say Dalkey.

What is your reference to the Continent about? I live there. You wouldn't buy a tin box in Paris for 400K. Or London etc.

Why do you need to have connections with Ashbourne? Can you give us your reasonings, you can be general? Most people who move to Dublin have no connection whatsoever with the place. If you live in say Malahide, I'd say it takes a long time to get to say Dalkey.

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Bronte - maybe the OP is like me and has been commutered out at this stage so will only live within 30 minutes of work at rush hour. Or else it's probably what my English teacher used to tell us about some poem by Lambe years ago which was about the Sweet Security of Streets.

Edit: It was an Essay by Lambe called New Years Eve

elcato said:

Bronte - maybe the OP is like me and has been commutered out at this stage so will only live within 30 minutes of work at rush hour. Or else it's probably what my English teacher used to tell us about some poem by Lambe years ago which was about the Sweet Security of Streets.

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Maybe you guys have blinkers about SCD, it's not that great, really it isn't.

For myself I moved house from about 40 minutes into a city, but first I had to do it like a stepping stone, started with the cheapest and eventually had enough money to buy in the very nice location I currently reside in, about 20 minutes commute. But you don't do that when you start out in life. In general.

Neither myself nor my husband are from Dublin but when we moved to Dublin for jobs in 1999 we started looking for a house. We were FTB in our twenties who had to save up a 10% deposit. Obviously we couldn't afford to buy in the parts of south county Dublin that people are so obsessed with. So we bought the nicest house we could afford in the nicest part of Dublin that we could afford.
When we could afford to we moved to what we perceived to be a better house in a "nicer" area. That's a subjective opinion of course.
The truth is that the average joe can't buy his first house in the most expensive part of the capital city. But average joe never could! It's also quite possible to build a happy life outside of South County Dublin or to work your way back to a certain area over the years if that is really what you want to do.

I think that's an excellent way of looking at it Butter. It's madness to try and get into the best area when young, you work your way around it and eventually get to where you want to be.

Bronte said:

I think that's an excellent way of looking at it Butter. It's madness to try and get into the best area when young, you work your way around it and eventually get to where you want to be.

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I wonder is the part of the problem is that most people are marrying older and so are generally buying their first house older than previous generations so have less time to get to where they eventually want to live given they are starting later.

I bought my first house at 27 and my husband was 25. Not many people are doing that now. I bought my second house at 32.

That's a good point fobs. But you know what really struck me during the Celtic Tiger with young people I met, they didn't just want a house, they wanted a new house, fully fitted out, with brand new everything and alognside that they wanted a car and holidays too.

Did you have a car when you bought your first house, we didn't. And lots more didn't either. And we didn't go on a 10 grand honeymoon either, because we couldn't afford it.

I'm just after googling:

[broken link removed]#

There's brand new houses, well finished for 300K in Ashborne, Co. Meath, apparently 10 minutes from the M50. And 20 km from Dublin city center.

Is that a bad location, it looks lovely, golf, rugby, golf and town right on your doorstep. Not far too from the sea I'd wager. Meath is nice.

[broken link removed]#

And that one is only 210K, but it's right beside schools and a creche as well.

fobs said:

I wonder is the part of the problem is that most people are marrying older and so are generally buying their first house older than previous generations so have less time to get to where they eventually want to live given they are starting later.

I bought my first house at 27 and my husband was 25. Not many people are doing that now. I bought my second house at 32.

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That is a valid point & I was 27 when I got married but does that not also mean that people have had longer to save by the time they buy their first house if they marry later? Saving a deposit has never been easy - we didn't find it easy 15 years ago & I have no doubt it's difficult now too. Personally I think a 20% deposit is too high.

As for having the perfect house we moved in with a table & chairs, bedroom furniture for one room & a couch we got from my uncle. But nobody thought that was strange & none of my friends passed a comment on my concrete floors!

We'd actually like to move again after ten years in our second house so it's always possible to trade up later as & when you can afford it.

Apologies if I sound like an auld wan!

Bronte said:

That's a good point fobs. But you know what really struck me during the Celtic Tiger with young people I met, they didn't just want a house, they wanted a new house, fully fitted out, with brand new everything and alognside that they wanted a car and holidays too.

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Well I met young people during the celtic tiger years who didn't just want one new house they also wanted an investment one to let out, crazy years indeed.

One of the problems with obtaining the 20% deposit for FTB is that many are remaining in college into mid /late 20s so getting well paid starter jobs begins at a later point than a generation ago. How many first employments pay e40000 gross? It is a decent pay in this day of suppressed wages.

But paying high rents, paying back student loan and all other living expenses taxes etc would probably mean saving e100 pw at most, taking 5/6 years to reach e30000 which would allow buying a house e150000 but on e40000 would qualify for e120000 house only.

Above based on single income. With a second earner all figures would adjust favorably but as we know there very many disastrous situations presently with joint mortgages when one wants out

Of course when income is south of above figure, and many are mid 20k, there is no hope of saving even a semblance of 20% of any house.

20% is too high. It will favour only the very well paid, and according to VB 50% of workers earn less than 30000

110quests said:

20% is too high. It will favour only the very well paid, and according to VB 50% of workers earn less than 30000

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Well if thats the case, prices will simply have to fall because the demand will not be there.
Thus meaning the deposit needed in a few years time will be a lot less than now!