Drop in house prices set to hit 40%

THE affordability index for first-time buyers continues to improve dramatically despite recent cuts in incomes.

The latest EBS/DKM affordability index stands at 14.2% nationally – a level last recorded in the mid-1990s.

It peaked in December 2006 when payments were equivalent to 26.4% of a couple’s income.

The EBS/DKM Housing Affordability Index measures the amount of after-tax income required to meet first year mortgage repayments.

It tracks repayments of first-time buyer working couples on average earnings – with a 90% mortgage.

The index shows net monthly mortgage repayments currently at €749 compared with €1,203 last July, which is a fall of €454 or almost 38%.

First time house prices have continued to fall and could be down by almost 40% from their peak by the end of this year according to DKM director Annette Hughes.

If the that tend continues prices in the category “could be down by 50% by the end of next year”, she said.

Dara Deering, director of membership Business, EBS, said interest in the market from first-time buyers has increased, with that category accounting for 26% of total mortgage lending in the first quarter compared with 17% previously.

She stressed “confidence” was a big factor affecting the decision to buy.

Unemployment and the poor economic environment remain key issues even if the latest consumer index was positive, she said.

People worry about being able to get a mortgage and have bigger concerns “about being able to meet their repayments once they have made the commitment”.

Uncertainty about house prices and where they have hit bottom or not was also a big issue and buyers will stay wary in the year ahead, she said.

Another point worth bearing in mind is that in 2006 the peak housing year mortgage lending totalled €40bn against €2bn in the first quarter of 2009, she said.

Expected house completions this year are estimated at 17,000 followed by 12,000 in 2010.

Apart from the lack of confidence, an oversupply of up to 80,000 homesfor the first time buyer are in the mix for this year with 40,000 homes built and another 40,0000 on the way to completion.

Since July 2008 the average standard variable mortgage rate has fallen from 5.86% to 3%, but the trend is upward, Mr Deering warned.

In the current climate and despite the improvement in affordability, banks are slow to make loans available and that was true especially of foreign banks who seem to have forsaken the Irish market, she said.