Age matters for mortgage sizes

In the property market, nobody likes feeling that they're being left behind. It can be disconcerting to watch peers climb the housing ladder while you're trying to grasp the first rung.

Countless surveys over the past few years offer conflicting evidence on whether the average age of first-time buyers in the Republic has gone up or down over the previous decade. But various studies concur that the current average age for people to take their first step is somewhere just shy of their 30th birthday.

This average will vary according to where you live. The chasm in house prices between Dublin and the rest of the country means that capital dwellers are more likely to have a few grey hairs by the time they can afford to buy. Helping to counter the effects of escalating house prices is the now firmly established "mortgages before marriage" trend, where couples sign for joint mortgages long before they feel ready to make "death do us part" type commitments.

This presumably drags average first-time buyer ages down a little, just as the requirement to save five-figure deposits pushes it up. But does the age at which people first go property hunting actually matter?

The answer is yes, it can make a big difference for the simple reason that younger borrowers are eligible for longer mortgage terms. The longer the term, the smaller and more affordable the monthly mortgage repayments.

Take the example of a single borrower who has reached the age of 30 and wants to borrow €250,000 to buy a two-bedroom apartment. Such a borrower will easily qualify for a 35-year mortgage. At a rate of 3.1 per cent, the monthly repayments over this term will be €976, or €909 once mortgage interest tax relief is taken into account.

But a 40-year-old borrower, especially if he or she is a PAYE employee facing compulsory retirement at age 65, may only qualify for a 25-year term.

This pushes repayments up to €1,199. Interest relief softens the blow by €67 a month, but the higher monthly cost could still be too much for the 40-year-old first-timer to bear. Instead, they may have to downsize their ambitions to a one-bedroom apartment or reconcile themselves to a more tedious morning commute.

Two lenders - Ulster Bank and First Active - offer 40-year mortgages. Forty years might seem like an interminably long time to be carrying the burden of a mortgage, but longer terms help first-time buyers with limited earning power borrow what they need to be able to buy. However, the cut-off age for 40-year terms is often 25.

There is more than one ladder out there to climb, and many younger people will be happy to put off buying property in the expectation that their careers will take off and solve all affordability problems. (Either that or they will eventually meet someone willing to be their co-borrower.)

If your salary and take-home pay is embarrassingly handsome, repaying a 15 or 20-year mortgage won't prove any trouble, no matter how many candles are on your birthday cake.

But if there is one note of caution attached to the "I'll be richer when I'm older" attitude: your wage increases will need to be sharper than any housing price inflation that irritatingly takes place in the meantime.