First time buyer couples nationally are spending on average 27% of their income on their mortgage repayments, with those in Dublin spending 32% according to a new Affordability Index introduced today by EBS Building Society and DKM Economic Consultants. These figures compare to 24% nationwide and 29%  in the Dublin area this time last year.

The Affordability Index, published by Irish Property Buyer magazine, shows that average net monthly repayments are in excess of €1,300 for first-time buyer couples across Ireland and almost €1,700 for couples buying in Dublin. The Affordability Index, which will be published quarterly, will track levels of affordability for first time buyers and will allow buyers and lenders to monitor the level of debt that first time home buyers across the country are taking on.

Housing affordability is a measure of the proportion of net income required to meet net mortgage repayments for first-time buyers on average earnings. The EBS/DKM Affordability Index takes into account changes in mortgage rates, changes in the level of mortgage interest relief, and is based on average earnings and average new house prices for Dublin and nationwide. Trends over the past ten years show a significant deterioration in housing affordability for first-time buyer couples.  Since 1996 house prices have increased threefold nationally and almost fourfold in the Dublin area. Despite the downward trend in mortgage rates over this period a first-time buyer couple had to spend 26% of their joint income on their mortgage at the end of 2005 compared with only 14.5% in 1996. The higher house prices in Dublin meant that this proportion rose to 30% for Dublin couples at the end of 2005.

With mortgage rates now on an upward path since December 2005 and with further increases in the pipeline over the remainder of the year, the Affordability Index demonstrates the adverse impact on net mortgage repayments, which will be particularly difficult for first-time buyer couples already highly geared. Every 0.25% increase in the mortgage rate will mean that the net monthly mortgage repayments for every €100,000 borrowed will increase by €14 or €168 per annum.  There is the prospect of further income increases, however, from the second half of this year which will help lessen the impact for all buyers.

Discussing  the issue of affordability, Ms Dara Deering, Head of Mortgages, EBS said:  “First  time  buyers  make  up  a very important segment of the overall  mortgage market and are expected to contribute €8.5 billion to the market this year.  With  rising  property  prices  and  interest  rates, affordability  is  the  key  issue for many first time buyers.  House price growth is also impacting on affordability. Based on house price data for  the  first  four  months  of  2006,  we  expect  to  see stronger than forecasted  growth in house prices in 2006.  Future affordability should be a  key  factor  in  the  choice  of  a  mortgage and lenders need to take a responsible  approach  to affordability and encourage consumers to consider the impact of possible interest rate rises in the future.”

Annette Hughes, Director, DKM Economic Consultants explains the new Affordability Index: “The Index can be thought of as an indication of a couple’s mortgage-paying commitments in the early years, each on average earnings. Affordability is the most important barometer as to whether the property market is reaching saturation point. The general consensus is that we will see further interest rate increases over the remainder of 2006. While the amount of any individual increase may not impact significantly on borrowers, combined increases in mortgage rates over the next 18 months could have a significant impact on housing affordability.”

It is expected that 47,000 first time buyers will take out a mortgage this year with the average price nationally at the moment at €292k and €388k in Dublin. EBS research has shown that 51% of all first time buyers agree that having what they consider to be a significant sized mortgage restricts them in the lifestyle they can live. The EBS/DKM Affordability Index will regularly measure and publish changes in affordability levels among first time buyers in Ireland.