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Borrowers now need bigger incomes to buy homes than during boom era

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Borrowers now need higher incomes to qualify for a mortgage than they did during the Celtic Tiger property boom.

The typical household income of first-time buyers has shot up to €77,000 a year which is much higher than during the property bubble years.

In 2005, half of first-time buyers of new homes had an income of €60,000, according to the latest Mortgage Market Profile Report from the Banking and Payments Federation Ireland.

House prices are now within touching distance of the levels seen during the Celtic Tiger property frenzy.

Central Bank rules on lending and the absence of mortgage interest relief have led to borrowers now needing higher incomes than during the property bubble years to qualify for a mortgage.

The typical, or median, income of first-time borrowers is now
€6,000 higher than the typical borrower needed to qualify for a mortgage in 2019.

Back in 2005 more than half of new borrowers buying new homes had an income of €60,000.

Almost a third of mover-purchasers had this level of income.

In contrast, just 13pc of new buyers had a household income of €60,000 last year.

The report also shows that first-time borrowers are forced into higher debt levels than during the property bubble.

An average new buyer of a new home is now taking on a mortgage of €254,000.

This compares with average borrowing of €237,000 in 2008, the height of the property boom.

Movers are now taking out mortgages of €285,000, compared with an average home loan of €273,000 in 2008.

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The share of first-time buyer mortgages with incomes over €80,000 almost doubled between 2005 and 2021 to 39pc for those buying second-hand homes.

Wicklow had the state’s highest median household income for first-time buyers buying or building a new property.

A new buyer of a new property in Wicklow typically had a household income of €100,000.

Chief executive of the Banking and Payments Federation Brian Hayes said: “With average house prices and loans returning to levels last seen in 2008 our latest Mortgage Market Profile report shows new mortgage customers now need higher incomes than in the past to purchase a home.”

But he stressed the mortgage market now is very different compared with more than a decade ago.

“Mortgage interest relief was available on qualifying home loans drawn down between 2004 and 2012 and played a key role in reducing home mortgage costs.”

In 2008 alone, home buyers benefited from almost €705m from mortgage interest relief – a tax relief on the interest paid in a tax year on a mortgage.

And lending limits introduced by the Central Bank in 2015 restrict borrowing based on income. In most cases borrowers are limited to borrowing three-and-a-half times their income.

First-time buyers in 2008 were typically borrowing four-and-a-half times their income.

Mr Hayes said: “This essentially means that new mortgage customers need higher incomes than in the past.”

The report also shows more borrowers are buying or building homes in the county where they live. However, this is not the case for Dublin borrowers who are often buying in commuter belt counties of Meath, Kildare and Wicklow.

This is due to higher incomes in Dublin than in other counties and the fact that home movers from Dublin may also benefit from higher-value collateral.


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