Banks battle for first-time buyers in new mortgage war
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Banks have launched an aggressive price-war for first-time buyers in a move experts say could kick-start the stagnant mortgage market.
Lenders are attempting to lure first-time buyers back into the market by slashing the interest rates on mortgages for new purchasers.
Halifax threw down the gauntlet yesterday when it cut the rate on its first-time buyer mortgage to just 3.20pc -- lower than the European Central Bank rate of 3.25pc.
The Scottish bank said it had set aside €100m to fund the move, but would allocate more money if demand was strong.
Based on an average first-time buyer mortgage of €250,000, around 400 new buyers would benefit from the new rate.
The new 3.2pc mortgage is fixed for two years and compares with typical rates of 5pc in the market from other lenders.
Last week, AIB shook up the market for first-time buyer mortgages by offering a one-year fixed rate of 3.25pc -- the same as the European Central Bank rate. Halifax will lend up to 90pc of the value of homes being bought, with AIB lending up to 92pc of the value of the house being mortgaged.
Mortgage market experts said the moves by Halifax and AIB were likely to tempt new buyers back into the market.
Both banks will lose money on the lower-priced mortgages as they attempt to stimulate the market. Director of the Irish Mortgage Corporation Frank Conway welcomed the moves, which he said meant there was a price war for mortgages for first-time buyers.
Positive
"It is an extremely positive development to see some of the largest financial institutions begin to compete again for this very important market.
"Competition among lenders had taken a back seat during the worst of the credit crisis. Now competition is back and first-time buyers will benefit."
Mr Conway said lenders that failed to keep up with this level of competition would be left behind and emerge weaker and more vulnerable from this current market.
Karl Deeter, of Irish Mortgage Brokers, said the offers from AIB and Halifax were at least 2pc lower than other fixed rates for new buyers.
The attempts to target the first-time buyer market by AIB and Halifax contrasts with moves by lenders such as KBC Homeloans and Permanent TSB to make it more difficult for new buyers to get loans.
A total of 15,988 new buyers took out mortgages in the first nine months of this year, down from 23,619 on the same period last year. New buyers have seen new house prices fall from their peak of €311,000 in January 2007 to €267,000, according to the Permanent TSB/ESRI house price survey.
Based on being able to borrow 92pc of the value of the home, a new buyer would need a deposit of €26,700 to get funding from AIB or Halifax.
First-time buyers are also set to benefit from a rise in mortgage tax relief from January. The maximum new buyer couples will be able to claim will rise from €333 a month to €416.
Interest rates are also expected to fall again next month, having fallen by 1pc in the past six weeks.
- Charlie Weston Personal Finance Editor
