New data shows that even before the interest rate increases by the ECB, mortgage repayments in Ireland were increasing. We take a look at the data to determine what’s going on.
Mortgage holders have had a tough ride this year.
Property prices, which rose 10.8% in the year to September, are close to their all-time peak in most regions, while the European Central Bank (ECB) has started raising interest rates aggressively, making mortgage repayments even more expensive.
But new data from the Banking & Payments Federation Ireland (BPFI) shows that despite these interest rate increases, the average mortgage repayments for both first-time and existing property owners had already increased prior to the ECB’s decision.
What’s the data saying?
As per the BPFI’s Mortgage Market Profile Report H1 2022, which tracked changes from the first half of 2020 to the most recent half of 2022, the mortgage market seems to be healthy in terms of activity, despite the increased uncertainty due to interest rate increases.
In the first half of this year, the number of mortgages drawn down increased by 17% to 21,895, its highest level since 2009. First-time buyers' drawdown levels reached a record high of 11,178, eclipsing 2007’s previous peak.
However, the data also shows the dearth in new house building.
While first-time buyers moving into new builds increased by 25.5% in 2022 compared to 2019, it is still some 159.8% lower than its peak in 2005, suggesting that there are far less new builds for first-time buyers to move into, and they are competing with existing mortgage owners for previously occupied properties.
The increased property prices we have seen in the past decade are also reflected in the increased value of mortgage being draw down. The average value of a mortgage has increased by 17.7% since 2019 for first-time buyers moving into existing homes, while the highest mortgage values - those of existing mortgage holders moving to existing homes - increased by 20.7% to €303,000.
Reducing mortgage repayments
The report also highlights how borrowers are attempting to save on mortgage repayments by putting up bigger deposits and, less so, by increasing the term lengths of their mortgages.
Loan term lengths have remained relatively stable; with first-time buyers opting for the longest term length of 35 years hovering between 22% and 28% since 2015, with 26% opting for this in the latest report. Second-time buyers are for more likely to take out a mortgage under 20 years (33%) than 35 years (5%), perhaps explained by their generally older age profile.
The report also found that since 2020, 17% of first-time buyers and 38% of existing mortgage holders have opted to borrow less than the Central Bank's limits, showcasing that more and more people are saving up in order to reduce their monthly outlays.
Those who got the maximum loan available tended to have deposits that were half that of those who forked up a bigger deposit, with the median first-time buyer's deposit, who is maximising their loan, coming in at €54,000, compared to €101,000 for those who didn't maximise.
Similarly, the median mover deposit who maximised their loan was €116,000, compared with €231,000 for those who did not.
This can be seen in the lower monthly repayments - €1,031 for first-time buyers maxing their loan and €966 for those not, and €1435 for movers' maximising their deposits compared with €1250 for those not.
What are the newest findings?
Perhaps the most interesting finding from the data relates to the average monthly repayment values, which increased by more than €110 to €1,020 for first-time buyers and by €150 to €1,361 for existing buyers between the first half of 2020 and the first half of 2022.
These figures, which exclude self-builds, show that even before the recent interest rate increases there has been a general increase in mortgage bills for homeowners. Combining both first-time buyers and existing homeowners increases, there has been a 12.2% increase.
The report also highlights the disparities between first-time buyers and movers in terms of the types properties they buy, with movers far more likely to own a detached home or bungalow (48%) compared to a first-time buyer (30%).
Similarly, first-time buyers (11%) are more likely to own an apartment than existing buyers (5%), while also buying a higher percentage of terraced (20% vs 13%) and semi-detached (39% vs 33%).
Age differences are also reflected - with the average of first-time buyers clocking in at 34 while mover purchasers' average was 43.
Speaking on the release of the report, BPFI Chief Executive Brian Hayes said:
“In the face of rising residential property prices and wider increases in the cost of living in the first half of 2022 and higher European Central Bank interest rates in the second half, there is understandably an intense focus on mortgage repayments at present. Prospective borrowers aiming to buy a home have options to minimise their regular repayments. The latest Mortgage Market Profile Report, which includes mortgages drawn down before the ECB began increasing its interest rates, looks at two of those options: longer loan terms and larger deposits.”
Other data insights
In a separate report that was also released by the BPFI, which analysed October's mortgage activity, revealed some interesting insights into mortgage activity.
A total of 5,349 mortgages were approved in October, with first-time buyers accounting for over 40% and mover purchasers just over 18%.
Although this was largely unchanged compared to September, it represents a 17.1% change from October of 2021. Although the value of these mortgages fell by 0.7% month-on-month, it is 23% higher than this time last year.
Another interesting revelation is the growing trend of mortgage switching and top-ups, which saw a 124% increase in volume and 164% increase in value.
While this can be partially explained by the exit of KBC and Ulster Bank from the Irish market, it also shows that consumers are shopping around for better mortgage deals.
What does it all mean?
Increased mortgage activity in the first half of the year can come down to a lot of reasons - such as potential home-buyers aiming to ‘beat’ the market before interest rates kicked in, as their increase had been mooted for a long time due to spiralling inflation.
It is also important to know that mortgage repayments have been going up steadily for years, outside of all of the current focus on the potential increases that we will see. This suggests that the market for homeowners and potential homeowners is unforgiving – and is set to get a lot worse.
However, the report did highlight ways to reduce monthly repayments - like longer loan terms and larger deposits, which equate to smaller mortgage drawdowns. But, easier said than done.
Check out our mortgage articles
If you’re looking for more information before applying for a mortgage, take a look at our mortgage guides.
- Familiarise yourself with the different types of mortgage interest rates in this guide.
- Fixed rates are now more popular than ever before, with more people opting for them over variable rates. You can learn about the pros and cons of both in this guide.
- Discover how mortgage applications are assessed in this guide.
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