House prices to fall further

House prices could fall by 1 per cent a month until March, forcing the average cost of a home below €300,000, according to estimates released yesterday.

Mortgage lender EBS and economic consultants DKM predicted yesterday that house prices would fall by 1 per cent a month during the first quarter of this year.

At the publication of the EBS/DKM Affordability Index, Annette Hughes of DKM said prices could continue falling beyond March, but added it was too early to forecast.

According to Dara Deering, director of membership business with EBS, the national average house price is €303,000.

On this basis, a fall of 1 per cent a month throughout the first quarter could see this drop to €294,000.

The fall in prices, allied to the Budget's increase in mortgage interest relief and changes to stamp duty, could be good news for anyone looking to get on the property ladder.

The EBS/DKM affordability index measures the share of take-home pay that a notional "first-time buyer" couple earning €79,585 a year would have to pay towards a mortgage, based on average prices.

The index calculates that the first-time buyer couple's repayments will be €1,195 or 22.1 per cent of pay this month. This should fall to €1,171 or 21.7 per cent of pay in March.

In Dublin, where property costs more, January repayments will be €1,547 or 27 per cent of pay.

This could drop to €1,516 or 26.4 per cent in March.

Ms Hughes said yesterday that if prices continued to fall past March, mortgage repayments could take up less than €1 in every €5 of the average couple's take-home pay.

This would be the lowest rate since the mid-1990s, when home loan repayments averaged 17 per cent.

However, the index is based on the European Central Bank (ECB) keeping its key interest rate unchanged at 4 per cent.

This determines the interest charged on home loans, which currently stands at about 5.3 per cent.

There has been some speculation that the ECB will increase rates to counteract inflation from rising oil prices.

Ms Deering said the most likely scenario would be that the bank would leave rates unchanged for the moment.