Tuesday 19 September 2017

Families priced out of property market as a third of income needed for mortgage

House prices keep rising as supply choked off by a dearth of new builds

A study on affordability in the property market nationwide today reveals how the dire shortage of homes is having a significant knock-on effect on affordability for first-time buyers. Photo: Bloomberg via Getty Images
A study on affordability in the property market nationwide today reveals how the dire shortage of homes is having a significant knock-on effect on affordability for first-time buyers. Photo: Bloomberg via Getty Images
Gareth Morgan

Gareth Morgan

Families are being priced out of the property market and working couples in some areas will soon need more than a third of their take-home pay each month to service a mortgage.

A study on affordability in the property market nationwide today reveals how the dire shortage of homes is having a significant knock-on effect on affordability for first-time buyers.

It is now more than two years since the Central Bank introduced new loan restrictions, in order to try to bring certainty to the market.

However, the EBS DKM Irish Housing Affordability Index notes that "in that time a definite deterioration in affordability has become apparent across all regions of the State".

The proportion of disposable or after-tax income that a working couple needs to fund a new mortgage is at 21.2pc and is forecast to increase further through the rest of the year.

This compares to 18.7pc of disposable income in May 2015.

Couples are particularly constrained if they want to buy in Dublin as the price for the average first-time buyer property in May 2017 stood at €336,914.

This implies a mortgage of €269,531, which would need 27.4pc of net income to service each month. The affordability report estimates that by the end of the year this will rise to 29pc, or almost a third of after-tax income.

Startling

Single buyers are even worse off and in May this year, some 32.2pc of their net income was required to pay a monthly mortgage. With increased pressure on house prices, this is expected to rise to a startling 34.5pc by the end of this year.

In terms of geographic breakdown, Dublin and the commuter belt are the least affordable. Kildare and Wicklow are becoming particularly expensive, where couples must sacrifice 23.2pc and 24.7pc of income respectively if they wish to buy a home.

Dún Laoghaire is the toughest area to be a first-time buyer, with 35.8pc of income going into a home loan.

Meanwhile, the most affordable counties are Longford, Offaly and Leitrim.

Longford is now the only county in Ireland where working couples are paying less than 10pc of their net income in monthly mortgage repayments, at 9.9pc.

The report continuously returns to the key issue of supply and cites this as a major driver in the deteriorating affordability of homes.

"We are now halfway through 2017 and housing supply continues to be one of the most contentious issues in the Irish economy," the report notes.

Housing data from last year's Census shows that in the previous five years, housing stock grew by less than 9,000 units.

Looking at the measures that have been introduced to influence the housing market in recent years, the report mentions both the Central Bank rules on the size of loans, introduced in late 2016, and the more recent Government Help-to-Buy scheme.

In the two years since the Central Bank introduced these rules, the average first-time buyer house price has increased by 18pc, from €208,366 to €245,662. In the same period, average disposable incomes have risen by just 3pc.

The report says that "while the Central Bank rules have been introduced to account for the demand side of the market, the supply side of the market is only now beginning to show signs of recovery.

"In particular, from an affordability perspective, house prices have continued to increase in recent months."

It says that the Help-to-Buy scheme has sparked a significant increase in first-time buyer mortgage approvals, despite the constraints of the Central Bank rules. But the report says the policy "would only have a positive impact on affordability provided it is accompanied by an increase in new house building".

The EBS DKM Affordability Index is calculated using the proportion of after-tax income required to meet the first year of mortgage repayments. It looks at first-time buyer couples and single people on average earnings sourced from the Central Statistics Office (CSO).

It takes into account property prices, mortgage rates, mortgage interest relief and disposable incomes.

Despite the current pressures, the percentage of income going into mortgages is still some way off the peak - at the height of the boom some 32pc of take-home pay was required to fund a mortgage.

Irish Independent

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