Rates may be finally falling but people can't afford to buy

Charlie Weston

Stock picture

February 24 2020 02:30 AM

There has never been a better time to take out a mortgage, with strong competition emerging in the home-loans market after years of poor value.

However, the irony is that there is so little choice and a chronic affordability issue when it comes to securing a property to buy with the newly competitive mortgages.

Last year some 21,000 homes were completed. This was up on the previous year.

But just 8,000 of these were brought to the market, according to the Construction Industry Federation.

Some 5,000 units were one-off houses which are not available for sale, and another 4,400 were acquired or leased by the State for use as social housing.

Cuckoo funds bought 95pc of the 3,644 apartments completed here last year, squeezing out want-to-be buyers.

The builders' body said the average cost of a home in Dublin is now €386,000, which is beyond most would-be first-time buyers.

The builders say a young couple with a combined income of €94,000 would still be unable to get a mortgage that would allow them to buy a home at that price.

No wonder banks have finally started to get serious about cutting mortgage rates.

With so few buyers in the market, lenders now need to offer decent value to get a slice of the market.

What this means is that after years of high mortgage rates in this country, compared to the rest of the eurozone, we are finally seeing European-style low mortgage rates.

Intense competition among about eight lenders for the tiny number of first-time buyers who can afford to purchase a home has driven mortgage rates down as low as 2.2pc. The scramble for mortgage business has also meant a renewed effort by banks and other lenders to target the switcher mortgage business.

And there are now also lots of incentives to entice new buyers and switchers.

Ulster Bank joined Bank of Ireland last week in offering €2,000 in cash if new buyers save at least €10,000 for a deposit and take out a mortgage with it.

KBC offers €3,000 to switchers, with Bank of Ireland offering up to 3pc in cash back on the mortgage amount drawn down to new buyers, movers and switchers.

Permanent TSB offers 2pc cash back, and it also dangles a 2pc cash back on the monthly mortgage payment amount.

Add to that a string of mortgage rate cuts. AIB is just the latest to reduce its rates. Last week KBC cut its fixed rates, the second decrease in six months, while Ulster Bank and ICS Mortgages have also been reducing rates lately.

All this comes at a time when the latest figures from the Central Bank show that mortgage rates in this country have fallen below 3pc for the first time in years.

We are in the grip of a mortgage rate war, which means we can expect more cuts to come. It is just a pity there are so few affordable homes to buy with these good-value mortgages.