FIRST-TIME HOME buyers could find mortgage repayments more affordable this year, despite the increase in the tax burden in this week’s Budget, according to AIB.
The bank expects a small improvement in its repayment affordability index. Its quarterly housing bulletin suggests mortgage payments could account for just 15 per cent of disposable income, the lowest since 1996.
However, AIB does not expect an impact on housing demand with income levels falling from rising taxes and wage cuts. The measures introduced in the supplementary Budget this week are expected to reduce the income of an average first-home-buying couple by 3 to 4 per cent.
“Improved affordability alone may well be insufficient to outweigh the dent to sentiment from an overall fall in net incomes. This only adds to the current difficult housing market conditions,” said AIB chief economist John Beggs.
He also said first-time buyers would benefit from the increased rate of mortgage interest relief from 20 to 25 per cent in the first two years – a measure announced in last October’s budget.
Mr Beggs expects further interest rate cuts by the European Central Bank will ease the pressure on homebuyers with rates predicted to fall another quarter percentage point.
Interest rates have already been slashed from 4.25 per cent to 1.25 per cent since October last.
Meanwhile, house prices have continued to drop, by about 18 per cent, according to Permanent TSB and the Economic and Social Research Institute.
Estate agent Sherry FitzGerald reports much higher declines, with price cuts up to 40 per cent in the Dublin secondhand property market.
“Thus, and also taking into account the lagging nature of the index, we anticipate that Permanent TSB/ESRI first-time buyer’s house prices will continue to decline through 2009 and into 2010,” Mr Beggs added.
Mortgage lending has declined by 4.9 per cent alongside a net increase of just €58 million in residential mortgages in February.
Stamp duty receipts also dropped 62 per cent last month.
