First-time buyers borrowed close to 80% of property value last year

First-time buyers borrowed an average of 78.8 per cent of the value of their property and 2.9 times their income in 2016, according to a Central Bank study.

A new overview of residential lending in Ireland shows 29,893 new mortgage loans with a total value of €5.7 billion were issued last year.

Second and subsequent buyers borrowed an average of 66.4 per cent of the property value and 2.4 times income.

The loan-to-value and loan-to-income averages observed were similar to the averages found for 2015.

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An economic letter by Christina Kinghan, Paul Lyons, Yvonne McCarthy and Conor O'Toole examines the impact of the Central Bank's mortgage lending rules.

The letter, which uses data from all the main mortgage lenders including AIB, Bank of Ireland, Permanent TSB, Ulster Bank and KBC Bank Ireland, shows the average loan drawn down by first-time buyers under the rules was €185,939, while the average property price was €250,361.

This compares to an average loan of €172,872 and an average house price of €234,599 in a similar study published last summer relating to 2015 data.

The average income for first-time buyers in 2016 was €67,287, up from €64,721 in the previous study.

Second buyers

For second and subsequent buyers the average loan drawn down within the scope of the Central Bank regulations in 2016 was €217,602, with an average property price of €390,933 and an average income of €106,421. These numbers were also higher than they were in 2015.

The letter uses information collected by the Central Bank to monitor compliance by lenders with its regulations on loan-to-value and loan-to-income limits.

Some 56 per cent of first-time buyers in 2016 were single borrowers, down from 57.5 per cent in 2015, while by contrast 72 per cent of loans to second and subsequent buyers were to couples, down from 73 per cent.

The average age of first-time buyers was 34, up one year on 2015, while the average age for second and subsequent buyers was once again 41.

Dublin

Some 35 per cent of first-time buyers bought properties in Dublin, while 42 per cent of loans to other buyers were for properties in the capital.

The average interest rate for first-time buyers was 3.6 per cent. About 56 per cent of this group had a fixed interest rate mortgage in 2016, with 44 per cent on standard variable rates.

The average interest rate for second and subsequent buyers was 3.3 per cent, while in contrast to first-time buyers, 53 per cent had a standard variable rate mortgage in 2016. Some 65 per cent of second and subsequent buyers had a loan-to-value of less than 80 per cent.

The data in the economic letter refers to lending that took place before the Central Bank’s last revision of its mortgage market rules following a review. These changes came into effect in January 2017.

Negative equity loans

Negative equity loans, which are outside the scope of the regulations, tended to be smaller than those borrowed by other second and subsequent borrowers, and the prices of the properties being purchased were also lower on average by €78,000.

The average loan-to-value for negative equity loans was also much higher, although the authors of the letter said this was not unexpected. The loans are aimed at borrowers who are carrying residual debt from the sale of their previous property, which would have been bought at or the near the top of the market.

People with negative equity loans borrowed an average of three times their income and at 27 years had longer loan terms than other second and subsequent buyers. On average, they were 38 years old, while couples represented a larger share of negative equity borrowers, accounting for 87 per cent of these loans.