Davy survey finds mortgage offers improving

Irish banks are making more attractive loan offers to mortgage applicants than last year, according to a ‘mystery shopper’ survey carried out by stockbroker Davy

It found a single person was offered on average 5.4 times their salary, up from 5 times in August 2008. Based on disposable income, provisional loan offers of 7.8 times were received up from 7 times last summer.

Over the last year mortgage interest rates have fallen sharply as the average variable rate on offer eased from 5.8 per cent to 3 per cent. Between October and May the European Central Bank cut interest rates seven times to bring them from 4.25 per cent to 1 per cent.

This has seen average interest repayments for a single applicant fall from 43 per cent to 28 per cent of disposable income.

According to Davy there is evidence lenders are actively discriminating against apartments by applying lower loan-to-value loan ratios to these properties. Banks are also requesting more detailed information on the location of the apartment, the customer's job and nationality.

The survey found rent-a-room schemes and parental guarantees have "largely disappeared", as have tracker mortgages.

For a 27-year-old single first-time buyer earning €60,000 per annum the average loan offer was €322,000, a 6 per cent rise compared with a year earlier. Davy said it not proceed to drawn down the loan.

Davy suggested political pressure on the banks covered by the Government guarantee was one reason why higher offers were being made and noted these were "in sharp contrast to far less attractive offers in the UK market".

Both AIB and Bank of Ireland committed to increasing lending to first-time-buyers by 30 per cent this year as part of the Government recapitalisation scheme.

It added that despite the improvement in repayment affordability there was evidence that banks "are not passing on the full benefit of interest rate reductions in the amounts they will offer".

This indicates banks' stress testing is currently running at higher levels than the 2 per cent over current rates required by the Regulator, according to the survey.