House prices at most affordable rate in 25 years

IRISH house prices are at their most affordable in more than 25 years.

Figures detailed in the EBS/DKM economic consultants affordability index, published yesterday, have confirmed house prices today are on average three times higher than they were in the mid-1980s.

However, the research also shows house-owners are using less of their finances to pay their mortgage than at any point over the past 25 years.

According to the index, the average working couple is paying slightly less today than during the lowest points of previous housing booms and busts, such as the second quarter of 1988 and first quarter 1995.

The average, first-time buyer, working couple was spending 12.6% of their disposable income to pay for a home loan in December 2010.

This is less than the 13.4% rate in the second quarter of 1988, the 13.8% rates in the first quarter of 1995 and the massive 26.4% rate at the height of the Celtic Tiger boom in December 2006.

The unusual situation has occurred as, while today’s average house prices are two and three times higher than those in the second quarter of 1988 and the first quarter of 1995, the proportion of net income required to fund a mortgage has reached its lowest point in 25 years.

This significant shift in affordability is particularly evident when the cost of servicing a mortgage is compared with the same cost at the height of the boom.

In December 2006, monthly mortgage repayments for the average first-time buyer couple were €1,323, or 26.4% of their net income. This figure now stands at €639, or 12.6% of a couple’s net income — less than half of the Celtic Tiger level.

Single people buying homes are spending up to 26% of their net income on a mortgage, a figure that while high is down from a 55% average level in December 2006.

It is also far easier to buy a home now than before, with average prices falling to just 4.2 times the gross income of an average single person.

The EBS/DKM figures are calculated by measuring the proportion of after-tax income an average, first-time buyer needs to meet first-year mortgage repayments for an working couple, each with a 90% mortgage.

Budget cuts and changed mortgage rates are also factored into the equation.

EBS director of membership business Dara Deering said the findings give an indication of the property market’s current standing.

“Unsurprisingly, given the tumultuous events throughout 2010, the level of new mortgage lending reached a historical low.

“New lending has been very subdued throughout 2010 with the overall market continuing to decline.

“However, the first time buyer segment is proving to be the most resilient and based on figures released by the IBF for the first nine months of 2010,” he said.

DKM economic consultants director, Annette Hughes, added that Budget 2011 changes such as income tax rises, the removal of the employee PRSI ceiling and the universal social charge “will increase the burden for all income earners” hoping to buy homes.

The latest EBS/DKM affordability index can be found at www.ebs.ie or www.dkm.ie