Desperate househunters are looking to borrow their downpayments, writes Laura Slattery.

One irksome side effect of the property boom is that getting together the deposit for a house or apartment has become even more of a chore for wannabe first-time buyers.

And it doesn't matter how much you are earning, or how comfortably you can afford to repay the mortgage, in almost every case lenders won't cough up more than 92 per cent of the purchase price of the property.

The other 8 per cent, plus extra costs like professional fees and potential stamp duty bills, will require onerous and lengthy saving periods, handouts from parents, some creative borrowing at the credit unions or a combination of all three.

According to a draft version of a forthcoming National Economic and Social Council (NESC) report, paying the deposit is a key problem for lower-income workers hoping to escape the rental sector.

For someone on the average industrial wage, a typical deposit now equals a year's earnings, compared with one-third in 1989.

The Government should step in and introduce measures that would help younger, lower-income people, who are "not in a position to acquire housing deposits from parental gifts or other sources of wealth", to bridge the affordability gap, according to the NESC.

Its report suggests two ways in which the State could intervene. It could introduce tax relief on savings for a deposit or, alternatively, it could lend buyers a 10 per cent deposit in exchange for a 10 per cent equity stake in the property, to be repaid at a later date.

"This would provide the effective opportunity to secure a 100 per cent mortgage on a property, something financial institutions seem reluctant to do," the draft report notes.

While the Government takes its time to consider the NESC's recommendations, people hoping to buy their first home will continue their struggle to find a deposit. The average price paid by a first-time buyer for a property in July 2004 was €215,000. A first-time buyer who qualifies for 92 per cent of this amount - €197,800 - will still have to cough up the remaining €17,200 from their own resources.

Even at the cheapest standalone rates available, conveyancing fees will cost the buyer €499 plus VAT and outlays (available from the Home Buy Home Sell network if the mortgage is arranged through online intermediary Primafinance.ie).

Then there's the cost of structural surveys of second-hand properties (up to €500) or snag lists if it is a new property (around €200).

For people who have spotted the second-hand property of their dreams, stamp duty can be the killer expense that means signing across the dotted line remains a fantasy.

Stamp duty on second-hand properties can be charged at rates as high as 9 per cent, but on a property worth €215,000, a 3 per cent rate applies, generating a bill of €6,450.

In total, the first-time buyer will have to save, beg or borrow at least €17,900 if it is a new property and at least €24,650 if it is second-hand.

So just how are first-time buyers amassing these sums?

Surprisingly, two-thirds are still managing to save the money themselves, according to a Permanent TSB survey published earlier this month, while one in 10 look to their parents for help.

But anecdotal evidence also suggests that a significant number of first-timers take a savings shortcut and borrow their deposits - or at least try to.

According to Mr Ronan Mackey, new business executive at NC Mortgage Brokers, seeking mortgage approval from one lender and then trying to secure a loan for a deposit from another is a frequent mistake.

"There are naive people who will get their mortgage from, for example, Permanent TSB and then go down the road and get a loan from Bank of Ireland," he says.

"They will tell Bank of Ireland it's for a car, but it's actually for the deposit."

Because they have already gone through the mortgage approval process, they assume that the mortgage lender has completed its checks of their credit records, which is stored at a central database called the Irish Credit Bureau (ICB).

However, the lender may do a second credit check or seek updated current account statements immediately before it releases the funds.

"If the lender catches a whiff of the other loan, that's it," says Mr Mackey. It will withdraw its original loan offer and cut the sum approved accordingly.

This leaves borrowers back where they started, short of the cash they need to purchase their first home.

Such borrowers have traditionally found a friend in the credit unions, which have remained outside the ICB system.

This means that - as long as loans are paid off with cash in person and not through a current account direct debit - lenders cannot detect if mortgage applicants have a credit union loan and thus cannot take it into account when they are calculating how much applicants can afford to repay.

It also means that credit unions don't know if members have other borrowings elsewhere and cannot refuse a loan on the basis of a poor credit history.

The Irish League of Credit Unions (ILCU) has no statistics on the numbers of first-time buyers who take advantage of this situation to borrow the full purchase price.

The credit unions are often not told the real reason the person wants the money, according to Mr Dave Matthews, business unit manager at ILCU, and in many cases it might be parents who borrow the deposits on their children's behalf.

"I'm sure it does go on," Mr Matthews says.

But most credit unions are now expected to become members of the ICB within a year.

Each credit union will be able to choose whether or not to join, but ILCU expects that most will.

So what does this mean for people who have started saving modest amounts at a credit union with the intention of hitting them for a five-figure deposit six months down the line?

Will the fact that the credit union can now see they have a six-figure mortgage to repay mean they will be declined a loan?

Around 90 per cent of credit union decisions will be based "on the way it's always been done", according to Mr Matthews, in other words largely based on members' pattern of saving. The ICB records are simply "additional information".

"The large majority of credit unions are still quite small. It's really only the very big loans that credit unions might be wary of."

But, crucially, mortgage lenders will be aware of any credit union loan for the first time and may not be prepared to advance as much.

There will still be little to stop parents from borrowing deposits from credit unions on behalf of their children.

But all borrowers should remember that credit union interest rates are not cheap, says Mr Michael Dowling, president of the Independent Mortgage Advisers Federation (IMAF).

"You might have more flexible terms in paying it back but you could be paying rates of 8-9 per cent," he says. In fact, credit unions can legally charge interest of up to 12.68 per cent APR.

However they do it, first-time buyers are still managing to scrape deposits together, Mr Dowling notes. "There is no evidence that house sales are being hampered by people's inability to get a deposit."

Although Mr Dowling says there would be demand for 100 per cent mortgages were they widely available in the Republic, he does not think that this would be healthy.

"It is better when there is a greater onus on putting some money in. If people come into difficulty making the repayments, they have an idea that it's some of their own money at stake, not just the banks," he says. In theory, they then fight harder to keep their home.

Having to fund the deposit also encourages a disciplined savings habit, says Mr Dowling. People unwilling to make any sacrifices to buy their first home will be more likely to find meeting monthly mortgage repayments a burden.

Three easy option for raising a deposit:

Save2Buy: With this savings account, Permanent TSB says you can earn an attractive interest rate on your savings. You will then receive a 0.5 per cent mortgage interest discount for the first year on a fixed or variable-rate mortgage from the lender, plus some other discounts and freebies.

All customers have to do is save €150 or more each month, making at least 16 monthly contributions over a period of 18 months. Only a maximum of two withdrawals can be made from the account over this period, subject to a maximum of 10 per cent of the balance on the account. The maximum balance allowed in the account is €25,000.

The prospect of qualifying for discounted mortgage rates might be enough to encourage customers to develop a regular savings habit with Permanent TSB and hence build up their deposits. But, the "attractive" interest rate paid on the account is actually a mere 1 per cent.

First-time buyers would be better off seeking out more generous accounts such as Northern Rock's Demand Online, which currently pays a rate of 3 per cent (2.6 per cent CAR) on a minimum balance of €1,000, then applying for the cheap tracker mortgages available from a range of lenders instead.

Family First: This mortgage product is aimed at parents looking to help children who could afford mortgage repayments but are struggling to save the initial deposit.

The mortgage allows parents to borrow against the value of their own home to raise a deposit for their children or cover other expenses involved in buying their first home.

Parents with existing mortgages would have to move these loans to EBS to avail of the offer.

The parental loans are repaid at EBS's standard variable rate, currently 3.25 per cent.

Repayments can be deferred for an initial three-year period if the parental loan is €30,000 or less. At this point, parents can decide whether they wish to take on the repayments, or the child can decide to pay off this part of the loan.

Although EBS's dramatic advertising campaign for Family First was lambasted by those who felt it would encourage children to emotionally blackmail their parents, many mortgage brokers believe the product is basically a good one and could in fact have gone further to help families.

100 per cent mortgage for professionals: Ulster Bank remains the only lender to officially offer 100 per cent mortgages in the Republic, although some other lenders are said to have bent their own rules in individual cases.

The Ulster Bank 100 per cent loan is only open to eight different types of professionals who the lender judges to be low credit risks with assured career paths and, therefore, have excellent capacity to repay.

These are accountants, solicitors, barristers, doctors, dentists, vets, pharmacists and opticians.

The maximum 100 per cent loan allowed is €400,000 and applicants have to be 23 or over and earning a salary of at least €32,000.

The amount advanced by Ulster Bank will be on a net pay basis, with the sum leading to repayments equal to up to 40 per cent of net monthly income in most cases.

Like Family First, the 100 per cent mortgage lends customers the full purchase price.

But unlike Family First, it allows them to do so all in their own name without the need for their parents to release equity from the family home or even act as guarantor.