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Searching for the ‘average’ first-time buyer in borrowing figures

Central Bank loan-to-value percentage calculations skewed by high-deposit buyers

In the Help-to-Buy initiative, the Central Bank claimed that offering the rebate only to buyers who borrow 80 per cent or more of the price was unwise, as it could force people to borrow more than they might need

Tue Nov 1 2016 - 06:03

It's not an inaccurate statistic the Central Bank has put forward over the past week with regards to deposits and first-time buyers, but it may be a teensy bit misleading.

In the fall-out from the budget decision to introduce the Help-to-Buy initiative to help first-time house buyers get on the property ladder, the Central Bank claimed that offering the rebate only to buyers who borrow 80 per cent or more of the purchase price was unwise, as it could force people to borrow more than they might need in order to qualify for the scheme.

The basis of its argument was that the average loan-to-value (LTV) of a first-time-buyer loan in Ireland today is 78 per cent – which, one could reasonably conclude, means that the "average" first-time buyer has a down payment of at least 22 per cent of the purchase price.

But where are all the cash-rich first-time buyers with a deposit of 22 per cent coming from?

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Statistics

The answer lies in statistics. Yes, Central Bank figures show, the average LTV of those mortgages subject to the new lending rules between February and December 2015 is 78 per cent. The figure is arrived at by dividing the total value of property purchases, by the total value of mortgages.

But this average may be skewed by a certain number of well-endowed first-timers buying expensive properties in Dublin with chunky deposits.

So is there another statistic that could have been used? Well, the Central Bank could have decided to proffer the LTV at which most first-time buyers borrow. This casts a different picture, showing that some 65 per cent of first-time buyers (by number, not value) actually borrowed more than 80 per cent when buying their first home in 2015 under the regulator’s rules. And of these, almost half (or 30 per cent of all first-time buyers ) borrowed more than 90 per cent.

This means that just over a third (35 per cent) had deposits of 20 per cent or more – which is quite a different from an “average” LTV of 78 per cent.

It’s just a distinction, but a useful one all the same.

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