Irish homeowners are getting older. According to a new report from Banking & Payments Federation of Ireland (BPFI), the median age of first time buyer borrowers rose to 35 for the first time in the year to June 2023. This is a sharp increase on the typical age of those buying their first home in years gone by.
Back in 2004, for example, almost two in every three first-time buyers was aged 30 or under. By 2015 this had shrunk to about one in three: now it’s just one in five.
This means that almost half of all first-time buyer purchases (44 per cent) are by people who are aged over 35, compared with just 17 per cent in the same age cohort back in 2004.
“I’m nearly 30 years in this business and you can clearly say that buyers are getting older,” says Michael Dowling of mortgage specialists Dowling Financial.
More than anything, he says it’s the economics of buying a house with house prices rising ahead of income growth that is behind it, but he notes that lifestyle factors, such as people going to Australia or travelling for a year, also result in the buying decision being pushed out.
“In reality, all stages of life seem to have pushed out,” says Martina Hennessy, managing director of Doddl, adding that it is also taking people longer between getting mortgage approval, to drawing down their mortgage, due to issues around supply.
The rise in single buyers is another factor behind the shift in ages, as it can take longer for them to attain their goal, given the cost of property.
“In my experience, it’s single applicants who have to be more established in their career to be able to buy,” she says.
Separation and divorce are likely other factors behind the growth in older buyers. As long as your name is no longer on a house deed when you go to purchase, you can be treated as a first-time buyer.
There are obvious upsides to being an older buyer – the chance of earning a larger income being one. Indeed the BPFI report shows that median incomes were up by 6.5 per cent in the year to June 2023 for first-time buyers, to almost €82,000 annually (or €90,200 in Dublin when buying a second-hand property). This led to an increase in the amount they were borrowing, with the median first-time buyer mortgage up by €20,000 to €270,000.
However, there are also particular challenges associated with being an older buyer.
Shorter mortgage term
The older you are, the shorter your term is likely to be. As the report notes, older first-time buyers also had shorter loan terms than their younger equivalents, with almost 85 per cent of first-time buyers aged over 35 having loan terms of 30 years or less.
This is partly because many buyers wouldn’t like to carry such debt into retirement with them. While they may continue working into their late 60s, many employers still have a retirement age of 65, with the state pension not kicking in until 66 or thereafter.
Secondly, lenders typically have a maximum lending age, beyond which they won’t lend. Bank of Ireland will offer a loan term of 35 years – however, you must be no older than 70 by the end of the mortgage term.
With PTSB, you must have finished your mortgage term by the age of 70, while AIB/EBS will only lend to the age of 68.
In addition, Hennessy notes that some lenders may also restrict the mortgage term to 66 years, or need to see a provision for a pension if going above this.
“One of the questions that banks ask me for a 35-year term for anyone other than public servant is do they have a pension?” says Dowling, noting that banks can easily see such deductions in your payslips.
“Some won’t lend beyond age 65, unless they can see evidence of a pension,” he says, even if, “in reality, the bank hasn’t a clue what pension they will end up with”.
This means that if you’re 42, for example, you won’t be able to get a mortgage over a 30-year term with most lenders. You’ll be restricted to a term of just 26 years with AIB.
And what if you’re buying as part of a couple and one member is older than the other? Hennessy cites the example of a client who is 33 and is looking to purchase with a partner who is 45.
“They would like a 30-year term but cannot due to the age of the elder applicant. Regardless of whose income is stronger, if any income is taken from the elder applicant then the term has to be at their age at expiry,” she says.
On the plus side, a shorter term can mean a cheaper mortgage, as you will end up paying lower levels of interest over the full term of the loan. Hennessy gives the example of a €300,000 mortgage, where you would pay one-third less interest repaying over 25 years, than over 35 years, or almost €100,000 less.
Limit on mortgage
However, if the term of your mortgage is shorter, the amount you can borrow may also be reduced. This is because monthly repayments will be higher if the term of the mortgage is based on a shorter period.
Consider someone with a joint income of €90,000. Based on the Central Bank’s lending rules of four times income for a first-time buyer, they should be able to purchase a home worth €400,000, based on a 10 per cent deposit of some €40,000.
On a monthly basis, this would mean repayments of €1,385.46, based on an interest rate of 3 per cent. However, if the applicant only qualifies for a 25-year term, then repayments would shoot up to €1,707 a month, or some 23 per cent – €322 – more.
Given that banks typically stress test monthly repayments on the basis that interest rates might rise by two percentage points, the applicant going for the 25-year loan may find that there is a reluctance to lend them the full €360,000 as they don’t have enough income to pass this test – even if the Central Bank rules dictate that they should be allowed the full amount.
Dowling had a recent client, a 52-year-old who had just separated and was buying on her own and looking to get 3.5 times her income. Her lender approved an 18-year term but because she couldn’t show the repayment capacity of that mortgage when the repayments were stress tested, she couldn’t borrow the full 3.5 times salary.
“Don’t automatically assume you’ll get 3.5 times/four times salary,” says Dowling.
Hennessy notes that when there is a shorter term, it can find itself measured against a debt service ratio, which is known by different names among different lenders, but is ultimately the same thing: the mortgage repayment to net income ratio. The debt service ratio only starts to get tight if you are going over four times income, or if the term is really pulled back severely.
Accessing life insurance, which is needed to get a mortgage, can be another issue. “You rarely have a problem getting life cover for someone in their twenties, but as you get towards 45, it might be more difficult,” says Dowling.
In a typical world – or at least that which has gone before – a property buyer will buy a so-called “starter home” before trading up a few years later to either a larger home or one that is in their chosen location, perhaps closer to schools, etc of their choice.
This is often achieved due to a combination of two factors – rising house prices and a falling mortgage – which allows them to build up equity in their home that can be subsequently used as a deposit/down payment on their new, more expensive home.
However, this approach will often require time to work – something that the older buyer won’t have. While the situation has improved somewhat – Central Bank rules dictate that second-time buyers now need a deposit of 10 per cent to trade up, where previously it was 20 per cent – it can still be a difficult process.
“You’ll have less equity if you want to trade on subsequently,” says Dowling.
As first-time buyers continue to age, it is no surprise that fewer people will manage to buy their own home. Latest home ownership figures from Eurostat show that Ireland now has the ninth lowest home ownership rate across 33 European countries, at 70.4 per cent. Back in 1991, the rate was more than 80 per cent.
This puts it ahead of countries that traditionally have had large numbers of their population renting long-term, such as Germany (46.7 per cent); Denmark (59.6 per cent); and France (63.4 per cent), and in line with the average for the EU-27 (69.1 per cent). However, it now lags behind other European states such as Spain (76 per cent); Portugal (77.8 per cent) and Poland (87.2 per cent). Such a low rate may be seen as being problematic when the Irish rental market remains constrained and expensive.