East leads way in home ownership
NEW research shows that home buying patterns have changed dramatically in this country over the last 10 years.
While there has been significant debate in relation to the changes that have taken place, much of this appears to be centred on the context of national historical experience. For example, there is a significant reference to the way things were in the past, particularly on house prices.
Perhaps it is time to take a look at other countries, their levels of home ownership and property financing arrangements. For the purpose of this review, the EU, US, Canada, Australia and New Zealand as well as a select number of non-EU countries markets were considered.
Irish home ownership levels are currently estimated to be in the 77% range.
While Ireland beats the US at 66%, UK at 69%, Canada at 65%, Australia at 66% and New Zealand at 64%, our overall level of home ownership is, perhaps surprisingly, exceeded by Hungary (90%), Lithuania (88%), Estonia (85%), Italy, (83%), Slovenia (83%) and Spain (82%).
Low level of ownership
In countries such as Sweden and Germany, home ownership levels are very low. In Germany home ownership is estimated to be just 43% and in Sweden, home ownership is just 38%. In the area of property finance, Ireland matches many developed economies. For example, in the area of 100% finance, Ireland is providing the same level of financing as is available elsewhere. However, some countries have a slightly different approach to lending.
Loans up to 130%
In the Netherlands, the US and UK, loans can exceed 100% (up to 130% can be made available in the Netherlands). In the US, lenders will advance up to 125% of the property value although this is usually arranged by way of a second mortgage (or second charge) on the property. Also, 125% loans are a niche product available to homeowners with perfect credit ratings.
In the UK, some institutions will offer mortgages in excess of 100% and in countries such as Canada, Australia, New Zealand, Germany, Greece, Spain, Norway, and Iceland, financing up to 100% can be arranged.
From a mortgage-application point of view, lenders typically consider a number of issues as they determine a borrower's repayment capacity. Put simply, a lender will look at the borrower's current earnings and apply a formula to determine whether or not they can afford a mortgage.
Stress test
The main component of this is how much money the applicant earns. Interest rate increases are also factored into the equation ( ie the bank applies a 'stress-test' to factor in future interest rate increases to assess in the event of mortgage interest rates increasing, if the borrower could afford higher mortgage repayments.
The major issue when evaluating a mortgage application is not the rate of interest but the applicant's job.
It is in the important area of job creation that Ireland continues to outperform most other developed economies. In Europe, only Switzerland has a lower recorded level of unemployment (3.8%) than Ireland. Even the US and the UK have slightly higher levels of recorded unemployment than here. Ireland's unemployment level is estimated to be just 4.5%. In other areas too, Ireland, and more particularly, our mortgage market has moved to catch up with markets elsewhere. Many Irish banks have now adopted the debt-service-ratio as the main method of assessing the borrowing limits of borrowers.
Also, as with the US, Canada, Australia and the UK, the development of the sub-prime or non-conforming markets is a positive move.
Research from Irish Mortgage Corporation confirms that the arrival of this product will herald a more structured approach and cheaper sources of lending to homeowners and first time buyers who, up to now, would have had limited opportunity of getting a mortgage due to a variety of factors.
Overall, we have developed many important characteristics of a mature mortgage market (and indeed a mature economy), long may it last!
Frank Conway is a Director with Irish Mortgage Corporation and can be contacted on: (01) 676-3654
