New data from the Banking and Payments Federation of Ireland (BPFI) shows that the mortgage market grew strongly in the second half of 2022, with the number of loans taken out rising 24 per cent to almost 31,000 in the year – the highest number since 2008.
Much of that increase was due to the boom in the switching market, with borrowers scrambling to lock in cheap interest rates as the European Central Bank (ECB) embarked on the steepest rate hikes in its history. But first-time homebuyers still make up the bulk of mortgage buyers, even though there is growing evidence that runaway house prices are pushing them to the brink of their financial strength.
The BPFI data shows that while the median home price for an FTB rose $35,000 between 2020 and 2022, the median FTB mortgage increased by just $24,000.
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That means new owners are forced to borrow more as their cash resources have remained more or less stable over that period.
The BPFI said the data indicated “a more prudential approach by borrowers and reflection[ed] savings trends that emerged during the pandemic.”
Yet an analysis of the BPFI numbers shows that FTBs actually borrow much more while adding very little to deposits.
According to the BPFI, the median FTB bought a home for $295,000 in 2020 with a $230,000 mortgage. That means they put down $65,000 in cash and borrowed 77.9 percent of the value.
However, a median buyer last year would have put down $66,000 on a $320,000 home, financing it with a much larger $254,000 mortgage — a loan-to-value ratio of 79.4 percent.
In other words, the median FTB could only invest €1,000 more of their own money in a purchase, but borrowed €24,000 more.
This reliance on larger loans has become particularly relevant over the past year, as the ECB raised interest rates seven times to 3.75 percent.
While the full weight of those increases has not yet been passed on to Irish borrowers, the cost of funds has risen over the past year.
Not surprisingly, the BPFI also found that monthly mortgage repayments have increased significantly since 2020, although those increases are mainly due to larger loans and higher house prices rather than interest rate hikes.
However, new house price data shows that the market is cooling down, with monthly price falls between January and March due to higher borrowing costs.
Buyers in Dublin and surrounding counties are hardest hit by large payments, with 59 per cent of FTBs in the capital paying more than €1,250 a month.
The share of mortgages with a repayment of more than €1,250 increased by 14 percentage points to 34 percent in Meath and by 10 percentage points to 47 percent in Kildare.
Switching and remortgaging activity continued to grow strongly last year, rising 153 percent in the second half of last year as borrowers reacted to the start of a new cycle of rate hikes in July.