First-time buyer couples ‘spend 27% of income servicing mortgages’

THE amount of income spent by first-time buyer couples nationally servicing their mortgages has rocketed from 14.5% in 1996 to 27%.

According to an Affordability Index launched yesterday by EBS Building Society and DKM Economic Consultants, that figure rises to 32% for the Dublin area and compares with figures of 24% nationwide and 29% in the Dublin area this time last year.

With the European Central Bank about to raise interest rates by up to 1% over the next nine months “affordability will become a key issue for borrowers and lenders alike,” warned Dara Deering, head of mortgages, EBS, at the launch of the report in Dublin.

The possibility of the ECB raising rates by 0.5% this Thursday was more than 50:50, she said, adding that rises of 0.25% in September and December could not be ruled out.

Every 0.25% increase in the mortgage rate adds €14 per month or €168 annually to the repayments on every 100,000 borrowed.

Given the change in the interest rate environment Ms Deering said future affordability “should be a key factor in the choice of a mortgage and lenders need to take a responsible approach to affordability and encourage consumers to consider the impact of possible interest rates in the future”.

To some degree modest income rate rises should help offset the increased interest repayments, and the report also points out that most lending is stress-tested at rates that are 2% above existing levels.

Annette Hughes, a director with DKM Consultants, said low interest rates offset the sharp rise in house prices, which have trebled nationally since 1996.

And the move to higher interest rates cannot be ignored by either, builders, lenders or borrowers.

Higher rates will impact on people who have bought into the market in the past 12 to 18 months, she said.

“The combined increases in mortgage rates over the next 18 months could have a significant impact on housing affordability.”

The study, launched yesterday in the current edition of Irish Property Buyer Magazine, shows the average monthly mortgage repayments nationally are about €1,300 and as high as €1,700 for couples in the Dublin market.

Research has also shown that about 70% of first-time buyers are couples or combined interested parties interested in getting into the market.

The study based their figures on a combined salary of €70,000 for couples nationally and €80,000 in the Dublin region.

Ms Hughes of DKM said that “confidence” was a critical factor in the continuing strength of the Irish housing market.

Construction currently employs 250,000 and of that about 70% are tied up in home building.

When that market turns the implications for the economy could be quite serious, but “there was no sign of any slow down just yet,” she said.

As of now the index shows that 81,000 homes were built last year, to be followed by 83,000, this year.

Ireland will need to build an average of 65,000 homes per year over the next five years to meet demand.

Up to 47,000 first-time buyers are likely to buy a home this year, involving borrowings of €8.5 billion and accounting for 24% of the total mortgage market this year.