High prices do not deter first timers

Increasing house prices are making it more than difficult for many people to buy their first home. But nonetheless there is no shortage of first-time buyers in the market, as many find different ways around the problem of escalating prices.

Prices have of course been rising across the State but Dublin is still far more expensive than the rest of the country. Lenders say that the majority of first-time buyers are now looking at properties in the commuter belt or towns such as Naas, Drogheda, Navan and Mullingar.

The average first-time buyer is now earning around £25,000 a year and a couple on this salary would be able to fund a mortgage of up to £100,000, according to Bank of Ireland.

The Department of the Environment says the average price of a new house in Dublin is £174,000 while the average second-hand home is £200,000. These would be unaffordable for the average first-time buyer. But the average new home in the country is £122,000 and a second-hand home £131,000, which would be more easily affordable.

Many lenders also allow for the first-time buyers grant up front. ICS, for example, will give the customer the £3,000 grant up front to be used as a deposit and will then claim it back from the State. This means the borrower does not have to wait the two or three months the process normally takes.

Lenders also say that bonuses and guaranteed overtime are becoming a bigger part of everyone's salaries as work intensifies for most. ICS will take these into account as normal salary for anyone who can prove that they can be relied upon. One option is to think about taking out a much longer term mortgage. Many lenders will allow terms of up to 35 years.

Extra years, however, mean substantial extra interest repayments and a millstone around your neck for a lot longer. As a result only around 5 per cent of borrowers opt for such long terms. But in some cases it can make the first few years easier. But the key is to increase repayments as soon as you can afford to and hence bring the term back down again.

For example a £100,000 loan over 35 years with Irish Permanent at the discount variable rate would cost £514 a month. In the second year at the standard variable rate of 6.14 per cent that would rise to £580.

But if at the start of the third year the repayments were increased by £100 a month to £680 the term would reduce to 24 years. That would produce a massive saving. If the borrower kept up the minimum repayments for the full 35 years, the total interest paid would be £140,597 - by increasing the repayment by £100 that falls to £91,426, a significant saving of some £49,171.

Parents are also subsidising many buyers. But contrary to reports most lenders say there are few parental guarantees. Irish Permanent says a guarantee may make a difference in a few, very marginal, cases but really the bottom line is the person's own ability to repay.

The far more usual way for parents to get involved is to fund the deposit. Most lenders will only provide 90 to 95 per cent of the value of your new home and the rest, including stamp duty, must be funded by the borrower. Some parents see this as giving their children their inheritance early and fund it through a mortgage themselves. Others may sell some land to fund the deposit.

Lenders also note that the average age of first-time buyers is increasing, with many now in their thirties.