Should you rent or buy before tax relief ends?

The impending deadline for mortage interest relief poses the question of whether to buy or rent in the current market. Finance Minister Michael Noonan has ruled out the prospect of extending the mortgage interest tax relief deadline for buyers into next year, therefore first time buyers and home owners looking to trade up look set to lose out on tax relief if they do not buy in the next few months.

Indeed it is the combination of property taxes as well as other factors which may serve to shunt some future home seekers out of the buyers market. Yet another factor next year could be the trends in both prices and rents.

At present the signs are that property prices and rents are stabilising but some observers such as the ESRI predict price rises in certain areas where employment will increase, while others forecast that prices will continue to fall in areas and especially for apartments in unemplpyment blackspots.

Should the new property tax be calculated on the basis of site values, than remote dwellings may well have a much lower property tax than houses in sought after urban areas.

Karl Deeter of Irish Mortgage Brokers has developed a calculator that compares the financial costs of buying with that of renting. It shows that someone who has the option of buying a house for 310,000 Euro or less or alternatively renting the same house for 1,200 Euro should buy that house. Another example is for someone who has the option of renting a house for 900 Euro per month or buying it for less that 230,000 Euro, for them it makes sense to buy.

Of course, finance is not the only factor influencing the choice between renting or buying. Lifestyle and employment are other factors that can favour renting. Traditionally, single people like to rent in areas where they enjoy local leisure facilities or in areas within walking distance of their work.
Renting also makes sense for those who plan to move jobs between cities or countries and during periods of economic uncertainty.

On the other hand, couples with children are happier to live near schools and other child-related facilities, which can mean settling in an area long term.

For them, it can make sense to buy and take on the long-term commitment of a mortgage. The longer the stay in the property, the more likely it is to appreciate in value at some stage during that term.

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