Cost of first-time mortgages falls by half

A MORTGAGE today will cost a first-time buyer couple half of what it cost five years ago.

The latest EBS/DKM affordability index also noted that property is now more affordable than at any time in the past 25 years.

Funding a mortgage on a new home will cost the average first-time buyer couple 13% of their joint income today — down from 26.4% in 2006.

The reduction is greater again for a Dublin couple, who would have spent 32.5% of their joint income on a mortgage in 2006 and today will spend 15.8%.

The net income required to fund a mortgage for the average working couple is expected to fall to just 12.9% by September this year and to 15.6% for couples in Dublin. This represents the most affordable house purchase proposition since the mid-1980s.

EBS director of retail business Dara Deering said that in the first half of this year, housing trends have continued to decline in line with the levels of reduction that they saw last year.

House prices have continued to contract — by 12.2% nationally in the 12 months to May — and new mortgage lending remains low.

“Consumer confidence levels and access to finance are factors contributing to the current market.

Confidence levels dropped to below 70 points (on the Consumer Confidence Index) at the end of 2007 and have not risen above this since. In fact, it has now been below 70 points for 42 consecutive months,” said Ms Deering.

According to the Irish Banking Federation (IBF), the number of mortgage loans issued continued to decline across all segments.

Ms Deering said banks are applying more rigorous lending criteria prior to loan approval and this is likely to change in the short term.

“Despite these facts, affordability levels have, over the past three years, seen much improvement. This positive change in affordability has a real influence on the cost of maintaining a mortgage and will provide that strong foundation required for the market when activity recommences in earnest,” said Ms Deering.

Director with DKM Economic Consultants, Annette Hughes, said that while property prices have fallen severely in recent years, it is widely believed that there is some more reduction in store before the floor is reached.

“Macroeconomic factors such as the prospect of rising interest rates, unemployment and ongoing fiscal retrenchment reinforce this view. For the period to September 2011 it is assumed that property prices continue to decline by an average of 1% per month.

“On the other hand, income levels are expected to remain broadly flat and further rises in mortgage rates are anticipated in the coming months. The two 0.25% increases in the ECB base rate announced at the beginning of April and again on the 7 July, have been included in the projections.

“Despite this, affordability continues to improve.”