More evidence of ‘soft landing’ for property market
Affordability has remained stable for the average first-time buyer working couple in Ireland throughout 2007, according to the latest EBS/DKM Affordability Index, published by Irish Property Buyer magazine.
The report claims that during the past eight months, there has been little change in the relative costs of a new mortgage for this social group: a slight decline in house prices off-set the recent mortgage rate hike, which has left first-time working couples spending a consistent 24% of their net income on mortgage repayments since January.
The EBS/DKM Affordability Index is an indication of a first time buyer couple’s mortgage-paying commitments in the early years, on the presumption that each of them is on average earnings and buying the “average” new house. The Index takes into account changes in mortgage rates, changes in the level of mortgage interest relief and increases in average earnings.
First-time buyer affordability has remained steady due to two key factors working in opposite directions: the increase in the average mortgage rate in March and June on one hand, and the recent slight decline in house prices up to June, on the other.
Changes to stamp duty, mortgage interest relief and the prospect of a further decline in house prices resulted in many potential first-time buyers opting to stay out of the market in the first eight months of this year.
However, strong market forces remain, according to Dara Deering, Head of Retail Business, EBS and ensure that the market will continue to plateau rather than dip.
“There are still significant numbers of people of house buying age; in the 2006 census, 1.38 million people were aged between 20 and 40 years of age and Irish people typically buy their first home between the ages of 24 and 35,” said Deering.
“Many of these people have yet to buy their first house. Furthermore, a high level of immigration to the country, with many immigrants buying homes in this county, continues to support the market.
“Employment in Ireland is also strong, maintaining strong affordability levels for first time buyers. By the year’s end we expect to see house prices fall marginally compared to prices at the end of 2006 and then remain unchanged as we move into 2008.”
According to Annette Hughes, DKM Economic Consultants: “The EBS/DKM Housing Affordability Index has been stable since the beginning of the year, and remains better than the position at the end of December 2006.”
“By the end of June the average first-time buyer working couple nationally was spending 24.5% of their net income on a 90% mortgage, compared with 26.4% at the end of December 2006.
“Assuming average house prices decline by 0.5% per month up to this month and there is a further increase in the mortgage interest rate, we estimate that that same working couple will still be spending around 24% of their net income on their mortgage at the end of September.”
