Only 40% eligible for mortgage, says Central Bank

Recent higher interest rates mean that only the top 40 per cent of households ranked by income would be eligible for a mortgage, according to a Central Bank report released today.

The report shows that last year the equivalent percentage would have been 50 per cent.

The criteria for eligibility was that the repayments on an average new home would only consume 40 per cent or less of household income.

Ireland's private sector is one of the most heavily indebted in the world and levels could reach 248 per cent by the end of the year the bank says, although it adds that the rate of indebtedness growth has slowed since 2006.

Ireland is one of the most heavily indebted euro area countries, the others being Spain, Portugal and the Netherlands,  and by the end of the year the personal sector credit-to-disposable income ratio here will be in the region of 175 per cent.

It notes that the value of mortgages issued in the second quarter of the year slowed to €8.7 billion, down 13 per cent on the loan amount issued during the same quarter in 2006.

The Central Bank also notes that mortgages for buy to let properties have been increasing and now account for around one quarter of all new housing finance, compared with 17 per cent at the end of 2003.

Noting that during the first nine months of 2007 house prices fell by 3.6 per cent to mid-2006 levels, the Central Bank says that over the summer, investors were facing a 36 per cent shortfall between rental income and mortgage repayments on new properties.

The bank notes there has been a significant deterioration in this ratio since 2005 when it was just 16 per cent.

For investors in second-hand properties, the shortfall between rent and repayments was 43 per cent. Household savings rates declined to 5 per cent of income in 2006, having remained relatively stable at around 7.5 per cent for the previous five years.