As house prices continue to increase the size of loans for new borrowers is on the up and up. And with house prices possibly set to go up by another 21 per cent it is a trend that looks set to continue.
The latest figures from the Irish Permanent house price index show house prices up 10.4 per cent in the first six months of the year. According to Irish Permanent's chief executive there is concern that house price growth has accelerated again.
The Irish Permanent figures differ from the Department of the Environment figures released last month which indicated that prices fell in the first three months of the year in Dublin. The Department's figures showed a 1.1 per cent fall in new house prices and a 2.2 per cent fall in secondhand house prices in the first three months. This compares with the First Active index which showed a 4.6 per cent drop in Dublin house prices and Irish Permanent's 5.1 per cent increase in Dublin over the same period.
Interestingly, despite the house prices increases, according to Irish Permanent, the average loan and price of a new home has declined. The average loan to value is now 72 per cent for first-time buyers and 47 per cent for secondtime buyers. It seems likely that the falling loan to valuation ratio is mostly a result of generous parents who are releasing part of the equity in their own homes to provide for their children and of course these loans are also counted in the second-time buyers statistics.
For example, if a couple had repaid their loan some years ago and owned an average home in Dublin's suburbs it could be worth £300,000. If they raised £50,000 for their children's deposit their loan to value would only be 16 per cent and that would be counted in the average figures. This obviously brings both loan to value ratios down without any extra income being earned. The first-time buyers index is brought down as these buyers are able to put up a bigger deposit than they would otherwise have been able to.
The Department of the Environment's figures tell a different story. They do not release data on loan to valuations but the average loan in the first quarter was £84,391 compared with £71,329 in the first three months of 1999. But these figures hide both the big mortgages that are becoming increasingly popular as well as homes bought for cash which again are very much on the increase.
Larger mortgages of over £150,000 are becoming more common, although most of the new homes bought for millions are financed without a mortgage. Returning US property speculators or businessmen may have no need for a mortgage. Pop stars and other celebrities are often in the same happy circumstances.
However, there is a surprising number of larger mortgages being funded by business people and professionals from this State. Here professionals tend to dominate and with the amount of money being made by lawyers in tribunals this is a trend that may continue.
Many people with very large mortgages would be able to repay them if they needed to. These loans are frequently backed by either extensive property interests or shareholdings or both.
However, there are others who are seeking loans of £250,000 or more. These tend to be graduates in their late 20s or early 30s, sometimes even in a first home who are now working in very lucrative careers in the high-tech industries. Bonuses may be very generous and future earnings expectations high and as a result the banks are more generous than they would be to others. It is not unknown for a first-time buyer in this situation to have a loan worth far more than the average house price.
But, for the first time, the lot of the ordinary borrower has also changed dramatically. It is no longer unusual for someone in a regular job to be looking for a loan of £150,000 or even £180,000 and with two people working this can sometimes be affordable, although not if the lender sticks to traditional lending criteria.
Overall it seems that Ireland is heading towards the high level of indebtedness that characterises other economies.
