The Old Fashioned Deposit
Once upon a time in a land not very far away, the natives engaged in a ritual called saving.

Each month they would spend a little (or a lot) less than they earned, and they would set aside the rest. In time their savings grew.

When their savings were big enough, they would offer them as a deposit to the gods of banking, and in return the bank would give them a big enough mortgage to buy their home.

As time went by the gods of banking discovered that some people were cheating. Instead of saving for their deposit, they were borrowing it from parents, or from Credit Unions.

The Gods of banking realised that by getting money from other sources rather than through saving, the natives placed less value on money and could be convinced to borrow more and more from the banks.

This made houses more expensive, which pleased those who already owned houses, and pleased the banks, and didn't bother the new buyers too much, because they didn't understand the value of money.

Then, when house prices became so ridiculously high that people couldn't afford to even borrow deposits, the banks decided to allow them to get 100% mortgages, and in some cases more than that. This made house prices go even higher, which made everybody even happier.

Then the sky caved in.

People had borrowed so much that they were unable to repay their huge mortgages. The Gods of banking got spooked and stop giving out new mortgages, which made it difficult for new buyers to enter the great property pyramid.

And very few people lived happily ever after.

The Moral of the Story
This little story is a bit tongue in cheek, but it conveys an important message about deposits. They exist for a reason, and it's a good reason.

The expediency of doing away with deposits for some borrowers did drive the property market higher, but it was a last gasp dash rather than a sustainable model.

The discipline acquired while saving for a deposit serves the buyer well once they own the house and must make repayments. Without the need to save buyers can find themselves with a home and a mortgage having never proven their capacity to live within a budget.

The deposit also serves as a cushion of equity in the new home. A person with a 20% deposit can survive a 20% drop in the value of their home and still not be in negative equity.

Losing your deposit because of house price falls is not fun, but it's better than owing 20% more on a house than it's worth.

I can't afford to save
Some will argue that it's impossible to save for a deposit. They'll point to the cost of renting, they'll point to the high cost of living, and most importantly they'll point to the ridiculously large deposit needed to have even 10% of the purchase price of a house.

All these arguments made a certain amount of sense during the property bubble. But so what? It wasn't sensible to be buying anything in the bubble.

Without the bubble many of the arguments against deposits go away.

The cost of renting has been falling steadily.
The cost of living has been falling too.
Renting can still work out cheaper than buying an equivalent property, so by definition if you can afford to buy it, then you can afford to save while renting. If you can't save while renting, then you can't afford to buy.

Most importantly the cost of the house you want to buy is falling dramatically, and that means you need to save a lot less in order to have the same percentage deposit.

Much of the high cost of living and the inability to save was caused by the bubble economics that gripped the country. That has all changed now.

The New Reality
In a world where people pay 10 times their salary a 20% deposit is about 2 years salary. In a world where people pay only 3 times their salary for a house, a 20% deposit is a little over half a years salary.

During the years of paying 7 to 10 times salary for a house, people latched on to any shortcut they could find. Parents gifted or loaned money, often by releasing equity (borrowing) agaisnt their own homes.

Buyers got loans from Credit Unions knowing that these would not show up on a credit check performed by their bank.

At the height of the boom, when the wheels began to come off and credit was getting harder to find, developers even began lending money to buyers to take property off their hands.

Those who took shortcuts to buy homes without deposits often found out too late that they couldn't afford the homes at all. Getting a deposit the easy way lulls the buyer into a false sense of security about the entire mortgage.

Many who are now in trouble and claim to have done nothing wrong don't even realise the mistake they made. And how could they? All around them people were doing the same things, and experts gave it the nod of approval.

Do Yourself a Favour
If you are thinking of buying a house, do yourself a favour and try saving. The panic of missing out on a home was always a charade. That has passed now. You have time on your side. Save for a year, see how much you can save.

At the end of the year you'll have a realistic idea of your ability to live within your means, and in all liklihood the house you want will be cheaper.

Also remember, every €1 you put down in a deposit is a €1 you don't have to borrow. As a rule of thumb, you will save double your deposit in mortgage repayments. A deposit of €20,000 will mean €40,000 less in repayments over the life of the mortgage.

It's a no brainer.