Rising house prices make borrowers more prudent, report shows
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Borrowers have become more prudent when it comes to house purchases as property prices continue to climb, according to a new report by a banking representative body.
The latest Mortgage Market Profile Report by the Banking and Payments Federation Ireland (BPFI) found the mortgage market to be a difficult environment for some home buyers last year, prior to European Central Bank (ECB) interest rate hikes, which has led to a rise in borrowers using increased equity when getting a mortgage to try and minimise borrowing costs.
“There has been a sharp rise in residential property prices from the middle of 2021, resulting in the continued increase in mortgage drawdown values we’ve seen in recent months,” said BPFI chief executive Brian Hayes.
Mr Hayes said the increased use of equity when getting a mortgage also reflects the trends seen in household saving, with the current rate of around 20% compared to about 10% pre-pandemic.
The report, which examined the mortgage market in the second half of 2022, found that while increasing mortgage drawdown values reflect the sharp post-covid rise in property prices, the rise in median mortgage values between 2020 and 2022 were significantly less than that of median property prices.
The median value of properties purchased by first-time-buyers (FTBs), excluding self-builds, rose by €35,000 between 2020 and 2022 to €320,000 while median mortgage increased by €24,000 to €254,000, which the BPFI said indicated a more prudential approach by borrowers and reflecting saving trends which emerged during the pandemic.
The largest mortgage market remained in Dublin, in regional terms. The median FTB mortgage value was €315,000 in both Dublin and Wicklow, while Dublin's median FTB property value was €5,000 higher than Wicklow's at €400,000.
Cork was the second largest mortgage market with nearly 13% of FTB property and 10.3% of FTB existing property mortgages in 2022.
Last year, FTBs dominated the mortgage market and reached the highest semi-annual volumes since H2 2007 with 14,018 drawdowns.
Some of the figures in the BPFI report did not show the full impact of ECB monetary policy over the last year on rates paid by new borrowers.
“We expect to have better visibility of that impact in the coming months as we continue to monitor trends,” said Mr Hayes.
“If people are finding themselves in difficulty given additional pressures from the rising costs of living, the most important thing to do is to contact your bank or mortgage provider as soon as possible,” he said.
Finance Minister Michael McGrath recently said there is potential for existing mortgage holders to make mortgage savings by switching.
“This is a particularly important consideration at a time of rising interest rates,” he said.
Mr McGrath made these comments while replying to a parliamentary questions last week.