FTBs and immigrants big players in market

Rose Martin says the future is looking good for the housing market.

IT is a good indication of the strength of the first-time buyers market that it’s been given its own acronym, FTB.

And it makes up a third of the overall property market and has outstripped all other sectors with a year-to-date growth figure of 12.2%.

And in a year that saw stamp duty reduced on second hand homes, the introduction of 100% mortgages and continuing low interest rates, this probably comes as no surprise. What is significant is that FTB’s paid over 4% more for their property than other sectors of the market.

According to the Permanent TSB/ESRI index, part of the explanation for this is an increasing percentage of FTB’s buying second hand, rather than new homes, and an increasing number buying urban properties, where higher prices increased the average cost.

According to Marian Finnegan, chief economist with Sherry FitzGerald, FTB’s are paying more for their properties than investors and are concentrating their purchases on more expensive house sales than on apartments.

Her counterpart, Marie Hunt, of CB Richard Ellis Gunne, also counts the 100% mortgages made available this year as a factor in the increased costs, and says the advent of SSIA money may also fuel the sector in the coming years.

Figures from the Society of Chartered Surveyors show that the three-bedroomed semi is the most expensive per metre build of all house types, an area where the FTB dominate. The price of this type of house grew by 1.85% in October, according to the TSB/ESRI report, compared to just 0.1% last year, while the year-on-year percentage increase was a whopping 8.3%.

Last year the average, three-bed semi cost €247,742 in October, whereas this year, the same property cost €268,400. And while the percentage of second-hand homes purchased grew because of a waiver of stamp duty below the €317,500 mark, the percentage of apartments purchased by FTB’s is still very low, with the 2004 figure showing a figure of just 5.4% nationwide. A higher level of 16% of apartment purchases was confined to Dublin.

Detached houses are a feature of the rural market where FTB’s manage to build larger properties at lower price levels. Significantly, almost as many FTB’s, purchased detached properties as three-bed semis, with the former at 36.1% and the latter at just under 40%. The majority of houses purchased were three bedroomed units.

The average national price paid by a first-time buyer is now €250,000 on average, with buyers outside of Dublin paying considerably less.

And despite the higher cost base for the sector, 44% of FTB’s surveyed as part of a permanent tsb/ESRI study said their mortgage payments were not putting them under pressure, while 49% said their mortgage were ‘somewhat of a burden’. FTB’s have been shown to have a sensible approach to home ownership in the study, with the majority saving an average of €23,000 over a three to four year period to fund their first home.

Surprisingly, only 20% said they were given support by their parents, with the average ‘gift’ being in the region of €15,000.

An interesting correlation is shown in the educational standard of buyers interviewed. The majority, 85.6% had completed their education to Leaving Cert standard or above, which would correspond to the 80% of 25-34-year-olds who completed second level education as quantified by an OECD report of 2002.

The average age of the first-time buyer is 30 and nearly 84% of these are under 34 years of age, with the vast majority undertaking a mortgage with a partner or spouse.

And mortgages are being taken out for a longer term, with the average loan now at 27 years. One interesting result of the study showed that over 60% of FTB’s used a mortgage broker, the highest proportion of any other category. Most felt that using a broker made the process simpler and also gave them a better deal, while, tellingly, only 25% shopped around for their mortgage. And despite in depth surveys of the market, most lenders were reluctant to give the average mortgage in this category. However, taking the average cost of €250,000 and subtracting a deposit of 10%, then the average mortgage would be in the region of €225,000, countrywide.

This year looks like being another bumper year for developers, and the FTB market has been the key driver of the industry for the last while. However, completions will have to come down if the economy is to have a soft landing, says Marie Hunt. The number of completions has shot up in the last quarter of 2005 and looks set to compare with last year’s figure of 77,000 new homes, but that should come down to 65,000 for next year as demand is falling and the level of production that exists is unsustainable, she says.

A new entrant to the market is the immigrants population who are now buying property, she says, and that will put a slight brake on falling demand in the market over the next number of years.

There has been quite a lot of movement by migrants in the D15 market, says Ms Hunt, where large estates of affordable homes are on offer.

The significance of this is that the banks are now willing to provide mortgages for migrant workers.

And with our economy still showing a healthy outlook, with high employment and lots of confidence, the market looks set to decelerate to a soft landing in the coming years, says Ms Hunt.

First-time facts

* First Time Buyers are young. Average age is 30 and most have second level education.

* They make up over one-third of the residential market.

* Most save for their first home, spending up to four years, accumulating €23,000.

* The cost of the average FTB house is €250,000, with an average mortgage of €225,000.

* The average term for a mortgage is now 27 years, and typically, the loan is a joint undertaking.

* Only 20% of FTBs get monetary support from their parents.

* One-third of FTBs spend up to 40% of their income on their mortgage, while another third spend between 20%-30% of their earnings on their loan.