First-time buyers pushed to limit as runaway house prices burden them with bigger loans

New data from the Banking and Payments Federation of Ireland (BPFI) shows the mortgage market grew strongly in the second half of 2022, with the number of loans taken out rising by 24pc to nearly 31,000 in the year – the most since 2008.

Much of that increase was due to the massive growth of the switcher market, with borrowers racing to lock in cheap interest rates as the European Central Bank (ECB) embarked on the steepest rate hikes in its history. However first-time buyers (FTB) still make up the bulk of mortgage customers, although evidence is emerging that runaway house prices are pushing them to the edge of their financial capacity.

The BPFI data shows that while the median house price for a FTB went up €35,000 between 2020 and 2022, the median FTB mortgage increased by just €24,000.

That means new owners are being forced to borrow more as their cash resources have remained roughly steady over that period.

The BPFI said the data indicated “a more prudential approach by borrowers and reflect[ed] saving trends which emerged during the pandemic”.

Yet an analysis of the BPFI figures shows that FTBs are, in fact, borrowing a lot more while adding very little in terms of deposit equity.

According to the BPFI, the median FTB in 2020 bought a home for €295,000 with a mortgage of €230,000. That means they put €65,000 cash down and borrowed 77.9pc of the value.

A median buyer last year, however, would have put €66,000 down on a house worth €320,000, financing it with a much bigger mortgage of €254,000 – a 79.4pc loan-to-value ratio.

In other words, the median FTB was able to put just €1,000 more of their own cash into a purchase but was borrowing €24,000 more.

This reliance on bigger loans has become especially pertinent in the last year, as the ECB has put up rates seven times to 3.75pc. ​

While the full weight of those increases has not yet been passed through to Irish borrowers, the cost of funds has risen in the last year.

Not surprisingly, the BPFI also found that monthly mortgage repayments increased considerably since 2020, although those increases primarily reflect bigger loans and higher house prices rather than interest-rate rises.

However, new house-price data shows the market is cooling, with month-to-month prices falling between January and March as higher borrowing costs made an impact.

Buyers in Dublin and surrounding counties are being squeezed the hardest by big payments, with 59pc of FTBs in the capital paying more than €1,250 per month.

The share of mortgages with repayments over €1,250 jumped 14 percentage points to 34pc in Meath and by 10pc points to 47pc in Kildare.

Switching and remortgaging activity continued to show strong growth last year, rising 153pc in the second half of last year as borrowers responded to the start of a new rate-hiking cycle in July.