Mortgages taking third of first-time buyers' pay

First-time buyer couples in Dublin are spending almost one-third of their combined income on mortgage repayments, up from 29 per cent this time last year, a new survey shows.

According to EBS Building Society and DKM Economic Consultants' Affordability Index, first-time buyer couples in Dublin are spending almost €1,700 a month on mortgage repayments. On a countrywide basis, first-time buyer couples are spending more than €1,300, equal to 27 per cent of their combined monthly income, the study showed.

Over the past decade housing affordability - a measure of the proportion of net income required to meet mortgage repayments - has declined significantly for first-time buyers, with house prices rising to record levels. Since 1996, prices in the Dublin area have risen almost fourfold, while across the whole country they have tripled.

The index comes in a week when the European Central Bank is expected to raise interest rates by at least a quarter per cent, with several commentators expecting a rise of half a percentage point.

According to Dara Deering, head of mortgages at EBS, every quarter point rise in interest rates adds about €28 a month to the average mortgage, meaning finances could become tight for any buyers who stretched themselves to buy their first property.

"There is going to be some adverse impact on affordability but it's the culmination of a number of increases that will make the difference," said Annette Hughes, director at DKM Economic Consultants. EBS is forecasting further rate increases for September and December.

Ms Hughes said that while house price growth is expected to slow slightly, Ireland's high levels of employment, the continuing influx of migrant workers and the youthful demographics will prevent the market from crashing.

As many as 47,000 first-time buyers are expected to buy a home this year, resulting in mortgage borrowing of €8.5 billion, up 15 per cent on 2005, according to EBS.

First-time buyers account for just under one-quarter of total mortgage lending in Ireland and according to Ms Hughes are the key drivers of the market.