DESPITE FALLING income levels, housing affordability for first-time buyers has improved to levels not seen since the mid-1990s.

The latest EBS/DKM housing affordability index shows that the average first-time buyer working couple is spending 14.2 per cent of their disposable income on mortgage repayments.

Overall, the proportion of income needed to pay the mortgage on an averagely priced house has dropped from more than 26 per cent in December 2006.

The net monthly mortgage repayments for an average first-time buyer couple is €749 a month, compared with €1,203 in July 2008.

On average, Dublin-based buyers are making mortgage repayments of €1,015, down from €1,552 last July.

Although measures announced in the supplementary budget in April have affected income levels, the ECB’s main interest rate has fallen to a record low of 1 per cent and house prices have continued to decline this year.

But even though housing affordability has improved significantly, Annette Hughes of DKM Economic Consultants noted that there was “no urgency” among prospective first-time buyers to buy, as confidence in the market remained weak and house prices were expected to fall further.

However, Dara Deering, director of membership business at EBS, said she had observed some signs of a pick-up in mortgage activity among first-time buyers. “Application levels in EBS are up 30 per cent in the last two months,” she said.

Ms Deering said many banks, in particular foreign lenders operating here, may appear to be open for first-time buyer business, but have used “two levers” – price increases and changes in lending criteria – to effectively withdraw from the market.

There is less choice for buyers because fewer players are operating in the marketplace, she added.