Mortgages of 34 years ‘insanely long’

Mortgages of 34 years ‘insanely long’

By Pádraig Hoare

Almost half of first-time buyers have loans of up to 34 years, according to Central Bank figures — “insanely long” terms costing such homeowners tens of thousands of euro more in interest, a consumer expert has said.

The Central Bank’s report on household lending in 2018 revealed almost 50% of new first-time-buyer loans in the first half of the year had a loan term of between 30 to 34 years.

For second-subsequent-buyers, 50% of loans had terms under 25 years, the watchdog said.

The average loan size for new first-time-buyer lending in Dublin was €273,953 compared to €185,987 outside the capital, while average incomes were €85,334 and €66,728 respectively, according to the report.

Daragh Cassidy of consumer website Bonkers.ie said with house prices getting higher, often the only way for first-time buyers to bring their monthly mortgage payments under control was to push out the term.

“Obviously, this can help in the short-term with budgeting but means a first-time buyer will end up paying tens of thousands of euro more in interest over the lifetime of the loan. 

"The longer the term of the loan, the more interest you pay.

“Also when underwriting a mortgage application, a bank will want to ensure that an applicant’s monthly repayment isn’t more than around 35% — with 40% the absolute max — of their net disposable income. 

"Quite often, one of the only ways to achieve this, other than getting rid of any loans and credit card debt, is to push out the term of the loan.

“A 30/35-year term does seem insanely long but it’s very much a product of a broken housing market and rapid rise in house prices,” Mr Cassidy said.

Mortgage expert and financial advisor Michael Dowling said it was no surprise that half of first-time buyers were on loans up to 34 years.

“I would suggest the main reason is affordability in relation to monthly repayments. Borrowers can make adjustments at any stage to the monthly repayments to reduce the term and with other expenses like childcare, most first time buyers want to keep the mortgage repayments as low as possible in the early years,” he said.

He said it was worth noting that banks only let first-time buyers have a 35-year term, and it was not available to second subsequent buyers.

The percentage of cash transactions for homes stood at 29.5%, down from just over 44% in 2015, according to the Central Bank report.

Cash transactions by investment firms make up around a third of such deals, according to industry bodies.

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