The cost of a mortgage for Irish first-time buyers (FTB) will have dropped by 50 per cent by December, since 2006 according to the EBS/DKM Affordability Index.

The quarterly index forecasts that in December, FTB working couples will pay 13% of their net income in mortgage repayments (16.1% in Dublin). These figures compare with 26.4% (32.5% in Dublin) at the end of 2006.

The EBS DKM Housing Affordability Index is a measure of the proportion of after tax income required to meet first year mortgage repayments for an ‘average’ first-time buyer (FTB) working couple, each on average earnings with a 90% mortgage. It takes into account changes in mortgage rates, changes in the level of mortgage interest relief, and is based on average earnings and average FTB new house prices nationally and in Dublin.

First Time Buyers accounted for 45% of the house purchase market in H1 2009, up from 35% of the market in H1 2008.

According to Dara Deering, Director of Membership Business, EBS Building Society: “The number of mortgage applications at the Society has grown by 66% over the past three months when compared with the first three months of the year. September was a particularly busy month with more than double the level of applications that we received in February. A significant portion of this activity is being driven by first time buyers who now account for 45% of the house purchase market."

On a national basis, the index compilers expect house prices to have dropped c.14% in 2009 and new house completions to be in the order of 21k units down from 52k units last year. All of this will lead to a total new lending market of c €8.8bn in 2009 down from €23bn in 2008 and a fraction of the highs of €40bn seen in 2006.

Annette Hughes, Director, DKM Economic Consultants said: “By December 2009, the projected net repayments for a first-time buyer working couple on a €165,000 mortgage will have fallen by €513 per month since July 2008 (on a national basis) - - roughly 43%.

The equivalent drop in Dublin will be €643 per month, or 41% (based on a €218,000 mortgage). This has helped affordability in a situation in which incomes have remained the same or have declined over the period.

“Similarly, affordability for single first time buyers has improved with falling house prices and mortgage rates - - projected to fall from 54.5% in December 2006 to an estimated 25.2% by December 2009. However, the average house price to disposable income ratio remains high for single persons. By September this year, single persons were paying around six times their disposable income for the average FTB priced house."

DKM has calculated that there is currently a supply overhang (i.e. over and above what is considered as the ‘normal’ level of vacant units) in the residential market of 136,000 units on average. This is equivalent to around four years of current housing demand nationally, although the mismatch between supply and demand is likely to be less in some areas of the country. The number of unsold new homes is estimated at around 35,000.

EBS/DKM Affordability Index

DKM Key Construction Statistics

Review of the Construction Industry 2008 and Outlook 2009-2011