First-time buyers with bigger incomes taking out bigger loans, study reveals

First-time home buyers in the Republic had bigger incomes and were taking out larger loans linked to more expensive properties in 2017 compared to the previous year, according to a study by the Central Bank.

The finding reflects the difficulties faced by prospective buyers in the Irish market with annual house price inflation now running at over 13 per cent.

The average loan drawn down by first-time buyers was €206,216 while the average property value was €272,655, the report suggested. This equated to an average loan-to-value (LTV) ratio of 79.8 per cent and an average loan-to-income that was three times gross income.

The study assessed credit conditions faced by different borrower groups in light of the bank’s mortgage lending rules by examining over 35,000 loans worth over €7.4 billion.

Apple’s billions will merely be ‘resting in our account’

---

Sterling tumbles as UK growth hits five-year low

---

Revenue audits and compliance measures yielded almost €500m in 2017

---

Central Bank highlights ‘build up’ of systemic risk in Irish economy

---

It found a higher share of first-time buyers were on a fixed-interest rate compared to 2016, 62 per cent in 2017 versus versus 56 per cent in 2016.

There was also a higher proportion of loans originating in the Leinster, excluding the Dublin region, in 2017, perhaps reflecting the growth in demand in Dublin commuter belt counties such as Kildare, Wicklow and Meath.

The research revealed that average loan sizes and property values for second and subsequent buyers (SSBs) were also on the rise, albeit the average income of this buyer category was unchanged from the previous year.

The Central Bank’s study found that for second and subsequent home buyers (SSBs), the average loan size (€232,275) and the average property value (€407,110) were also higher than the previous year, but average income (€106,926) for this category of buyer remained unchanged.

The average LTV for SSBs in 2017 was 67.6 per cent while the average LTI was 2.6, which represented a slight increase compared to the average values recorded in 2016.

Similar to first-time buyers, there was an increase in the share of loans on a fixed interest rate for SSBs compared to one year earlier (up 10 percentage points) while SSBs were again predominantly couples (73 per cent) and employed (89 per cent).

When it came to buy-to-let (BTLs) investors, the study solely focused on loan characteristics. The average loan drawn down by BTL borrowers in 2017 was €127,750 and the average property price was €246,293. Average LTV was 57.6 per cent, compared to 55.9 per cent in 2016.

While banks are allowed break the Central Bank’s lending parameters for certain part of their loan book, the study found that only a small number of FTBs (49 loans in total) had an LTV greater than 90 per cent standard limit. In contrast, 17 per cent of the aggregate value of SSB lending exceeded the 80 per cent LTV limit. It also noted that SSBs with an LTV allowance had higher loan sizes and incomes but lower property values compared to those with no allowances.

“Similar to 2016, we observe differences in the characteristics of borrowers with and without an allowance to exceed the limits of the regulations,” the study concluded.

“ In particular, borrowers with an LTI allowance had larger loan sizes, longer loan terms and tended to be based in Dublin and be single compared to those borrowers without an LTI allowance,” it said.