First-time buyers clamber back on the housing ladder
It may be time to buy as prices stabilise in some parts - but beware hidden costs and bureaucracy
Prices are rising, transaction levels are up and first-time buyers are back in the market, accounting for about one in every two property purchases in Ireland so far this year.
As Michael Dowling, spokesman for the Independent Mortgage Advisers Federation, asserts: “There is no doubt that we are seeing increased demand from first-time buyers [FTBs] who want to borrow money”.
With the flow of lending starting to trickle again, and prices still at more realistic levels – despite the recent rises – for Dowling the biggest concern for first-time buyers in the Dublin area is “trying to find a suitable property to buy”.
“They typically want a three-bed semi-detached or terrace with a garden of some description, but there is a lack of supply for that kind of property,” he says, adding that he has seen “no interest at all in apartments”.
“I can’t recall when, in the last 12-18 months, I’ve last done a mortgage for an apartment.” he says.
But, while the headlines might point to signs of recovery in the property market, it’s still a volatile business and there is no certainty as to whether or not prices have stabilised for the longer term, even though they appear to be rising again in Dublin.
In this regard, Dowling notes “a sea change” in attitude among savvy first-time buyers, who are now opting to borrow what they believe they can afford – rather than what the bank might be willing to lend them.
So, if you feel that now might be the time to get that first step on the ladder, it may be time to do the sums. Having moved on from the days of banks offering special deals – such as free home insurance or valuations – to lure first-time buyers, choosing a lender is likely to come down to, firstly, who offers the cheapest rates and, secondly, who will lend to you?
How much can I borrow?
First things first. Before you even cast your eye over that property supplement or log on to view homes in your favoured area, it’s worth considering how much you can afford.
Historically, banks decided how much they would lend based on a multiple of your income, or your joint income. So, for example, if you earn €45,000, you could borrow up to €168,750 based on a multiple of 3.75. Alternatively, if you are buying a property with someone else, you may be able to borrow 4.75 times the joint income.
However, these days a more commonly applied metric is how much disposable income you have. And this is where you can run into problems. If you have any outstanding credit card debt, or have regular costs such as childcare, for example, this will reduce your disposable income and may push you below the banks’ requirements.
For example, if you are single you can expect that the bank will want you to have about €1,300 left after servicing your mortgage each month. If you’re a couple, this figure will rise to €2,050, and if you have children, you can add on about €250 per child. So, while you may have a very healthy salary, if you have plenty of outgoings, this will reduce your capacity to borrow.
How much you can borrow will also depend on a bank’s loan-to-value calculation – for example, AIB says it will lend up to 92 per cent of the purchase price, which means that you will need to come up with an 8 per cent deposit yourself. KBC, on the other hand, looks for a 10 per cent deposit – and, in reality, all the lenders would probably like to see larger down payments, as this limits the probability of a mortgage falling into negative equity should house prices slide again.