The desperate battle of the first-time buyers to find somewhere – anywhere – to purchase is getting ever more intense. And those who want to live close to the city centre in Dublin, Cork or the other bigger cities face a particular problem – there are very few affordable starter homes.
This means that the only option for most first-time buyers (FTBs) if they want city centre living is to buy an older second hand property. Few newer second hand homes come on to the market and those that do will be unaffordable to the vast majority of FTBs. So their only option are older properties, many of them “doer-uppers”, requiring significant investment.
But for the cash-strapped buyer this opens new financial challenges – as well as providing serious logistical issues. And the big increase in construction costs and the difficulty of getting the work done are significant issues.
The problems start from the off. Second-hand properties do not qualify for the Help-to-Buy scheme – which offers a tax refund for FTBs of newly built homes. Nor do they currently qualify for the First-Home Scheme, in which the State takes an equity stake in the property, though the Programme for Government promises that the Coalition would work with the banks to extend the scheme to first-time buyers of second-hand properties. This has yet to bear fruit.
RM Block
Mortgage costs for those buying homes with better BER ratings are also often cheaper. AIB quotes a fixed rate of 3.1 per cent for a “green” loan available on homes with BER ratings of at least B while its rate for those with lower ratings is 4.2 per cent. (A lower rate is available on some larger-sized loans). Bank of Ireland also ranks its rates using BER, though cheaper rates for houses with lower ratings are available, for those who qualify, from some of the smaller lenders in the market. And in some cases of buying properties requiring a lot of work, loan qualification can be an issue.
The cost of work needed on the house then needs to be factored in. Chartered Quantity Surveyor Nick Taaffe says that too often new buyers can be so desperate to get the keys that they do not properly consider the additional costs of renovating the property. In many cases the house may be habitable – albeit outdated – and they can spread the cost over some years. In others, immediate work is needed in areas like windows, the kitchen and insulation and the buyers are faced with costs they have simply not budgeted for – and perhaps the need to move out and pay for additional accommodation when the work is being done.
The average cost of a fairly basic upgrade including floors, insulation, PVC windows and a kitchen can run to at least €1,000 per square metre, according to Taaffe, which could cost €90,000 to €100,000 for tackling both floors on a normal three-bed. Many will choose to do this step by step where possible, of course. Upgrading floors and kitchens can quickly add significantly more, he warns, with projects exceeding €2,000 per square metre.
A study undertaken by Taaffe and colleagues in the Society of Chartered Surveyors Ireland (SCSI) in 2023 illustrates how the increase in the value of the home does not always match the amount spent, providing a challenge for young buyers who may well in time want to sell and trade up. The SCSI also has a useful guide to guide to engaging a contractor for those starting out down this road.
Many FTBs are completely unaware of the economics of “doing up” and the need to plan this out before buying. This leaves some struggling after buying, says Taaffe, or having to abandon a project half way through because they ran out of cash.
Cork estate agent TJ Cronin said there is typically huge interest in doer-uppers going on to the market in a market starved for second hand stock. However, he says, there are almost always the slowest to sell. First-time buyers generally head for the door when it is explained to them the professional fees and costs and the likely work programme they face, according to Cronin, including hidden issues like rewiring. The costs and challenge of undertaking mean that many of these properties end up being bought by tradespeople who do them up to rent out or sell on, he said. First-time buyers again end up missing out.
Dublin mortgage broker Michael Dowling says that the financing of renovation can be challenging both in terms of the cost and the cash flow needed, with key State supports generally paying out after the project is completed. This can typically lead to another withdrawal from the “bank of Mam and Dad” to fund the work until grants can be claimed, he said. In terms of financing, much will also depend on the leeway in the mortgage sums and whether the purchasers have already hit the maximum borrowing level in relation to their salary. The terms of conditions of grant schemes can also create difficulties, according to Dowling.
Two grant schemes are typically availed of for renovations. One is the SEAI schemes for energy upgrades. The option of a full home energy upgrade- for which grant support up to around €35,000 is available and which will be fully managed by a “one stop shop” contractor- will be out of the reach of most first-time buyers. The typical grant paid out is lower than the maximum and the homeowner will still face a significant cost.
Grants are also available for individual upgrades, for example €1,300 for attic insulation for a three bed semidetached house and this will be more realistic for most new owners. However this can be slow to improve the BER rating.
There is also a separate SEAI Warmer Homes Scheme which funds the upgrades of home on people on low incomes who leave in properties built before 2006 and which have low ratings.
The other main scheme is the newer Croí Cónaithe towns grants, administered by the local authorities and designed to help people bring vacant properties back into use. The house must have been built before 2008 and have been vacant for at least two years. And the recipient needs to retain the property for at least five years afterwards. The maximum grant under the scheme is €50,000, though in the case of a derelict property a €20,000 top-up can bring this to €70,000.
This is part of State policy to improve town centres and bring more properties back into use. It seems like a no-brainer policy, given the housing shortage and the need to reduce carbon emissions in the years ahead. Yet the evidence is that in an overheated housing market and with construction costs high, the economics of taking on a doer-upper for many first-time buyers remains very challenging.
