First-time buyers have lower mortgage default rate
In research carried out by the Central Bank, it found that the default rate among first-time buyers was 10.3% compared with 14.9% for mortgage holders who have moved on to at least their second home.
Final submissions were made to the Central Bank last Monday about the proposed new mortgage rules that would require banks to cap mortgages at an 80% loan-to-value for 85% of lending in any year and loan-to-income at 3.5 times’ salary.
There has been a considerable backlash against the 20% deposit rule.
In its submission, the Irish Banking Federation said that an 80% loan-to-value would have a number of adverse unintended consequences, including making it much harder for first-time buyers to get on the property ladder.
It could also force people to take out other more expensive forms of credit to make up the deposit.
Moreover, the new rule had the potential to suppress the supply of new housing when there is already an acute shortage, said the IBF.
It is believed that Bank of Ireland, AIB and Ulster Bank raised concerns that the 20% would discriminate against first-time buyers, although most stakeholders who made submissions agreed in principle with the proposed loan-to-income rule.
The new Central Bank research could support the argument that first-time buyers should be treated differently in the application criteria for mortgages.
It attributed the lower default rates among first-time buyers to a number of inter-related factors, including that this cohort has a relatively short credit history and consequently, banks tend to do a much more comprehensive assessment of affordability and credit risk.
Moreover, first time buyers generally wish to move in the future, which makes them more concerned about the risk of default.
The research also highlighted countries that take different approaches to first-time buyers.
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