As house prices continue to rise, and affordability takes a correlating knock, aspiring homebuyers are looking at all options for acquiring their own place.
For some, this will mean a one-bed apartment, which, while tight on space, will still cost less in monthly repayments than rent on a similar property. According to figures from Daft.ie, a one-bed apartment in Dublin 2 will cost about €1,600 in monthly mortgage repayments – or €2,000 in rent. In Cork city, the mortgage on that type of property will be about €699 a month, just half of the almost €1,400 you can expect to pay in rent.
However, while more affordable than larger properties, acquiring a one-bed home has its own challenges.
A colleague, Conor Pope, shone a light on the issue in a recent story, which told the tale of a would-be first-time buyer who came a cropper due to some banks’ loan-to-value (LTV) rules on one-bed apartments. Despite earning €100,000 a year, our wannabe apartment buyer couldn’t purchase an apartment for €330,000 because he didn’t have a deposit of 20 per cent, or €66,000, required by his lender Haven.
He had earlier been cleared for a 90 per cent mortgage on a two-bed apartment by the same lender.
So why are there different rules for one-bed apartments? And do all lenders think the same way? Here we take a look at the specific challenges involved in buying a one-bed home in Ireland today.
Stricter rules
While one-beds may have been a less favoured option compared to two or more beds for some time now, demographics suggest the dial should be turning.
After all, families are smaller, while a greater number of long-term single people would point to greater demand for smaller properties, not to mind soaring property prices putting larger homes out of the reach of many.
However, many lenders continue to treat one-beds more strictly than other types of property. One of the biggest issues lenders see with one-beds is that they offer no flexibility should a borrower get into financial trouble – there is, after all, no extra bedroom to rent out.
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One-beds are also seen as having poorer resale value as the potential resale market is smaller. They are also expected to drop in value faster in the event of a housing crash.
This different approach makes it trickier for people to acquire one-beds. And what is likely to grate with potential buyers is that these lending policies are not due to Central Bank rules.
According to the Central Bank, its lending limits “are not differentiated by property type or by geographic area”. So, it is the banks themselves that are taking this additional cautionary step.
AIB is one of the lenders with a standard policy for one-bed properties across its operations, which encompass EBS and its broker arm, Haven.
A spokeswoman says it will lend to a maximum of 80 per cent LTV on one-bed properties, citing “market conditions and resale values”, although exceptions can be considered “on a case-by-case basis”.
Other lenders have a more flexible approach, but in practice they are likely to restrict a 90 per cent LTV to well-located city centre apartments.
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Bank of Ireland says it will lend up to 90 per cent for owner-occupier apartments, both in Dublin and elsewhere. But it’s not quite as simple as that. A spokesman adds that the 90 per cent LTV for owner-occupier one-beds depends on “value”, and when it comes to outside Dublin it also depends on “location”.
He says the 90 per cent LTV option should be possible for a one-bed apartment in Limerick city valued at €250,000, as well as a one-bed apartment in Dublin 2 valued at €400,000, for example.
PTSB also has a different standard for apartments. While it can lend up to 90 per cent on a one-bed apartment, it does indicate a range of between 75 per cent and 90 per cent for apartments, even though it allows up to 90 per cent for houses.
Avant Money will lend up to 90 per cent on both one-bed apartments and on houses in Dublin. Outside Dublin, however, it says it will “assess the property itself and its location on a case-by-case basis”. Depending on that, it “may” lend up to 90 per cent on such a property.
Start-up Nua Mortgages says it lends up to 90 per cent LTV for one-bed apartments. However, it does require apartments outside of Dublin to be located in towns with populations of 5,000 or more.
Affordability
While buying with a bigger down payment can shrink your mortgage term and thus save you money, and also offer greater protection in the event of falling house prices, being able to borrow less does have a big impact on affordability.
A one-bed apartment is typically at the lower end of prices – as our table shows, you can get a one-bed in Portmarnock for €295,000. Based on a 90 per cent loan, this implies an income (joint or otherwise) of €66,375.
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But having to cough up a 20 per cent deposit can push buying such a property out of reach. As our table shows, if you can borrow 90 per cent, you’ll need a deposit of just €29,500 to secure a property on the market for €295,000. But if 20 per cent is required, €59,000 will be needed as a down payment. That’s a challenging amount to accumulate for someone on an income of just a little bit more.
The Help to Buy scheme can help assuage the pain when buying a new apartment, as you can get the lesser of €30,000 or 10 per cent of the purchase price back on properties valued at up to €500,000 – assuming you have paid that amount in tax in the previous four years – leaving you with as little as 10 per cent to fund yourself, depending on your lender.
Another downside of opting for a one-bed apartment, even if you can secure a mortgage at 90 per cent LTV, is that if you are looking for a more competitive rate, you may find it tricky to switch unless your LTV has fallen below 80 per cent.
It can be even trickier to buy an apartment if it has no bedroom – despite a sharp increase in the number of studio apartments being built for the rental market.
At Niche Living on the Rathmines Road for example, you can rent a studio from €1,990 a month. For €1,950 a month you can rent a studio in Hali’s Cherrywood development, and for €2,050 a month at Greystar’s Griffith Wood development in Drumcondra.
But there could be problems if their institutional owners ever wanted to sell these on to the homeowner market. Haven, for example, will lend up to 80 per cent LTV for a studio apartment valued at €275,000 or above. But, it says it won’t lend at all for studio apartments valued under €275,000.
Supply issues
Unsurprisingly then, it can be hard to find a one-bed to buy, particularly if it’s a new property. According to myhome.ie, there is just one new one-bed on the market – at Woodbrook, Shankill, Co Dublin. And it’s for sale at €425,000, so you’d need a hefty deposit of €85,000 to buy if you can only borrow 80 per cent.
Sarah Murray, director of new homes with Savills, says there has not been a significant number of one-bed apartments – or even any new apartments – built to sell in recent years.
So, while she says she does see demand for one-beds, “it’s a little bit like the chicken and the egg” in that if they don’t have the product for sale, it’s difficult to gauge true demand.
That is likely to change over the coming months, however, with a number of new one-bed apartments coming to the market in schemes like Glencairn Gate in Leopardstown, south Dublin, and The View in Douglas, Cork.
Demand for one-beds tends to come from single buyers, Murray says, noting that buyers “will choose a two-bed if they can afford it”.
“A lot depends on the pricing differential between ones and twos,” she says.
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This is increasingly the case for couples, who may have been happy with a one-bed previously. If they are now working from home at least some of the time, they need that bit more space. Downsizers also tend to prefer the greater space offered by a two-bed, she adds.
“One of the biggest issues in relation to one-beds is parking,” says Murray. “It’s no longer the norm that you’ll get a space with an apartment.”
And when it comes to divvying up the spaces that are available, a developer is likely to offer these to buyers of more expensive two-beds.
How much of a deposit will you need for these 1-bed properties?
12 Millfield, The Links, Portmarnock, Dublin; €295,000
80% LTV: €59,000
90% LTV: €29,500
Stone Cottage, 6A Glenalua Road, Killiney, Co Dublin; €495,000
80% LTV: €99,000
90% LTV: €49,500
