Soaring deposits put houses out of first-time buyers' reach

First-time buyers are struggling to get on the first step of the property ladder as a result of a significant increase in the down payment required to fund the property transaction.

According to figures from the Banking & Payments Federation Ireland (BPFI), the average deposit needed to buy a property in Dublin has more than doubled to €51,000 as of the end of 2015, a level of savings which may be out of the reach of many.

While residential price growth is obviously a factor in the increase in down-payments, new rules from the Central Bank which were introduced in February 2015 and which require deposits of as much as 20 per cent, are also making a significant impact.

The new regulations mainly affect those looking to buy property in the larger metropolitan parts of the country, where a deposit of 80 per cent is needed for property purchases for first time buyers on the portion in excess of €220,000. Those trading up or making their second property purchase are also struggling, as they must have a deposit of 20 per cent on the entire purchase price. Typically someone trading up would benefit from carrying equity in their first property with them, which reduces the amount of savings they may need. But, the impact of negative equity for many who purchased in the boom years, means that they may now have to save the entire amount required for a deposit.

Soaring deposits

In the second quarter of 2012 for example, the figures from the BPFI show that a typical Dublin buyer needed an average deposit of just €25,000. Fast forward three years and six months however, and by the end of 2015 the average deposit in the capital had shot up to €51,300, an increase of more than 100 per cent, with the deposit jumping by almost €13,000 in the year to end-2015 alone.

Property buyers in so-called commuter areas around Dublin are also being asked to stump up considerably more for a down payment, with an average deposit of €33,000 reported in the fourth quarter of 2015, up by 74 per cent from about €19,000 back in 2012.

In Munster, Cork buyers have had to find an additional €12,000 to fund their property purchase, with the average deposit reaching €32,000 in December.

The increase was less marked outside of these metropolitan areas, where property prices are lower, with the average deposit in Galway rising by about €3,000 to €27,000, and by about 14 per cent or €2,500 to €20,000 across the rest of the country.

Mortgage slump

The figures come after the BPFI last month showed a significant slump in the number of putative home buyers seeking mortgage approval. Mortgage approvals plummeted by 15 per cent in the three months to January 2016, and the decline in mortgage approvals was most marked for first time buyers (FTB), with mortgage approvals down by 23.1 per cent on a number basis, to 1,067, and by 12.4 per cent (€ 190m) on a value basis, in the wake of the new regulations. However, the slump may be due to the rules around exceptions. Under the rules, banks can allow a certain proportion of their mortgage books exceed the aforementioned limits. As these are typically run on an annual or quarterly basis, banks effectively ran out of these exceptions by year-end. This may have led some property buyers to postpone their mortgage approval - and the chance to get a bigger loan - until the new year, thus causing the slump in the figures.