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Surge in mortgage approvals looks set to fuel house price increases

The number of people approved for a mortgage surged by a third last month, driven largely by first-time buyers.

Potential buyers are getting approved for higher amounts of borrowings, according to the figures from the Banking and Payments Federation. The figures imply property prices will keep rising.

A total of 4,124 want-to-be buyers got approval during May. In the same month last year there were 3,046 approvals, which means the total was up 34.5pc in a year.The approvals in May were valued at €884m in total. The average purchase approval in May was €228,505, up 7.7pc year-on-year.

The rise in the numbers getting the go-ahead for home loans comes as the Government has committed to reviewing the help-to-buy scheme.

First-time buyers rush for rebate

More than 800 applications have been made for the new Help-to-Buy scheme for first-time buyers (FTBs).

Interest has remained high since it opened earlier this month, with some 828 FTBs filling out online application forms over the week in the expectation of securing a lucrative tax rebate.

The scheme allows for a refund of income tax and DIRT, but not USC or PRSI, paid over the previous four years which can be put forward towards a deposit to buy a new house or apartment.

Some 5pc of the purchase price to a maximum of €20,000 can be claimed. A price ceiling of €600,000 applies to homes purchased between July 19 and December 31 last. This falls to €500,000 for properties bought this year.

Good news for mortgage holders: ECB rate hike ‘years off’

There is unlikely to be a rise in European Central Bank interest rates for the coming years, a development that will be a huge boost to thousands of mortgage holders.

Trackers are pegged to the ECB lending rate, and cannot be increased unless the ECB raises its main rate.

It could be three to four years before interest rates rise.

It is estimated that about 350,000 mortgage holders are now on tracker rates, with about 300,000 on variable rates.

All you need to know about the rule change for first-time buyers

The Central Bank has made a dramatic change to its mortgage lending rules for first-time buyers.

However, there are also fears that the loosening of the lending limits will lead to even higher property price rises.

First-time buyers will now be able to borrow with a deposit of 10pc, if they meet other lending criteria.

Up to now, new borrowers could have been approved for a mortgage with a deposit of 10pc for borrowings up to €220,000 and a 20pc deposit for all amounts over that. The changes will take effect from 1st January 2017.

At the moment, a first-time buyer purchasing a home for €300,000 needs a deposit of €38,000.

From next year, the new buyer should qualify for mortgage approval with a deposit of €30,000.

This will give the buyer an extra €8,000.

And if the buyer qualifies for the Government’s Help-to-Buy scheme for new homes, they will get a tax rebate of €15,000.

This means they will be able to buy with an effective deposit of 95pc of the property’s value.

Surge in approvals for home loans – but few are likely to buy

There has been a surge in the number of people getting approval for a mortgage, but many of these people being approved for a home loan are competing hard with each other for the few houses that are available and are unlikely to end up drawing down the mortgage, experts have said.

In August, close to 3,000 people received mortgage approval to buy a home – a rise of 37pc on the same month last year. However, the number of homes listed for sale on MyHome.ie was close to a historic low – at 23,500 in June this year. Put simply, the lack of housing construction means that greater numbers of potential buyers are focusing on a smaller pool of homes listed for sale.

Central Bank told to change lending rules

Fianna Fail and Labour call for deposit cuts for first-time buyers struggling to get on ladder.

First-time buyers are being frozen out of the housing market due to high rents coupled with the massive mortgage down payments they are forced to save due to the Central Bank rules.

Young families hoping to trade-up are also being crippled by the lending conditions which mean they have to save a huge 20pc deposit on any home they hope to buy.

Fianna Fail is calling for the rate for first-time buyers to be slashed by a third if the house-buyer has a proven track record of paying rent for three years.

The party’s submission, which was prepared by Fianna Fail finance spokesman Michael McGrath, also calls for new laws which will force banks to take out insurance against losses arising from borrowers defaulting, or entering into a mortgage arrears resolution process.

The cost would be shared between the borrower and lender – the bank would add an interest rate to the loan to cover the insurance.

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Having children now comes before buying a home

Having a baby now comes before owning a home for a new generation that has little choice but to rent until their mid-thirties. Increased barriers to acquiring a home have raised the average age of Ireland’s first-time buyer by four years to 33. In 2005, the average first-time buyer in Ireland was about 29, but according to Real Estate Alliance (REA), this figure is up and still rising.

The newly emerging trend is more and more Irish couples are now starting their families in rental accommodation- a social shift which goes against the longstanding Irish tradition of buying your home first.

A combination of circumstances have combined to make it extremely difficult for young people to buy:

  • New Central Bank rules pushing up the deposit that must be saved for a house;
  • Returning emigrants finding it difficult to secure mortgage approval without a full year’s employment behind them;
  • The increase in contract work, as opposed to a “job for life”, making it difficult to get a mortgage;
  • A change in attitudes following the property crash and unwillingness to buy the “wrong” home.

Property prices rise nationally but fall in capital

The cost of buying a home has risen by more than 10pc year-on-year, but prices are falling in Dublin.

The Central Statistics Office (CSO) says residential property prices in the capital have dropped by 0.4pc in June, compared with a national increase of 0.1pc across the country.

And although house prices continue to increase, the rate of that rise has slowed down.It says that prices rose nationally by 0.1pc in the month of June, compared with 0.5pc in May and an increase of 2.9pc recorded in June of last year.

This is likely due to new rules introduced by the Central Bank in February which require first-time buyers to have saved 10pc of the property price, and second-time buyers at least 20pc, before they can secure a mortgage.

However, in Dublin, prices are falling, down 0.4pc last month. Despite this, prices are still 11.1pc higher than a year ago. The fall was more pronounced for apartments, which dropped 0.4pc, compared with 0.3pc for houses

Income limits causing ‘mortgage lockout’ for First-Time Buyers

Sunday Times article ; results of Mortgage Brain survey.

A new survey of brokers highlights that the income rules will provide a ‘killer blow’ for First Time Buyers (FTB) and not the deposits as previously expected by many analysts. This survey was carried out by Mortgage Brain Ireland, the team behind the IrishMortgages app. Some 200 broker companies were surveyed throughout Ireland. Brokers recommend increasing the lending limits to 4.0 or 4.5 times income.

 

The Loan to Income limits (3.5 times joint income) will be the real “killer blow for First Time Buyers trying to get on the housing ladder” according to Michael Quinn, Managing Director of Mortgage Brain Ireland. Some ” 48% of brokers feel that this income rule will have a high impact on the FTB’s ability to get a mortgage while another 40% of brokers believe there is a medium impact” according to Quinn.

 

Michael Dowling, a leading Irish Mortgage broker and chairman of Mortgage Brain Ireland said: “These new rules will directly impact First Time Buyers’ ability to purchase a home. The rules will likely put home ownership out of the reach of most young FTB’s unless they are earning a substantial salary. For example he points out that a couple who are now trying to buy a house worth €300,000 will need a deposit of €38,000 (12.6%) on a mortgage of €262k and this will require a joint income of €75,000.”

 

The new income limits (3.5 times joint income) will mean that the majority of public sector workers, and those on medium to low incomes, will not be able to borrow enough to buy a home in the city. This ‘mortgage lockout means that only white-collar professionals on high salaries will be eligible to borrow enough to match the high house prices in Dublin, Cork and Galway.

 

The IrishMortgages App survey asked Brokers their opinions on how we could improve the situation. Some 51% of brokers would recommend an increase in income multiples to 4.0 times income, while a further 33% suggested increasing this to 4.5 times income according to Quinn. In the UK the income multiple is 4.7 for single applicants and 4.5 for joint applications.