The good news is that this year mortgages will consist of just 15% of disposable incomes.
“This is the best since late 1996 and compares to almost 30% of net income at the height of the housing boom in Q4 2006,” said AIB in its latest affordability index for First-Time Buyers (FTB).
In the current depressed economy, set to fall by at least 7% this year, AIB expects the improvement to be reflected throughout its 2009 first-time buyer index.
In its latest analysis the bank says “the impact of another expected 0.25% fall in mortgage interest rates, and a continued downward adjustment in house prices, should more than compensate for the impact of increased income taxes”.
The big improvement in affordability conditions reflects the sharp reduction in ECB rates. Since October its official rate has fallen from 4.25% to 1.25%.
First-time buyers will also benefit this year from the increase in the rate of mortgage interest relief in the first two years of a mortgage to 25% from 20%, making the situation even healthier for the first-time buyer while house prices continue to fall.
According to Permanent TSB/ESRI data, FTB house prices have declined by 23% from their peak, bringing them back to mid-2004 levels.
Evidence on the ground suggests buyers will continue to see prices fall, said the bank. Overall price cuts of 30% to 40% are being seen on many new developments and in the second-hand market, said AIB.
Taking into account the lagging nature of the index, it anticipates Permanent TSB/ESRI FTB house prices will continue to decline through 2009 and into 2010.
In the current climate one further 0.25% cut in official interest rates to 1% by the ECB, as it attempts to boost the flagging eurozone economy, will improve matters further.
Affordability conditions are expected to show a further improvement.
The latest index suggests by end 2009, FTB mortgage repayments could account for 15% of disposable income.