The financial burden being taken on by those buying homes continues to rise, according to two new reports, and there is little sign yet of a slowdown in price growth. The latest MyHome.ie report shows that the asking price for houses listed on the site was up 8.4 per cent year on year in the final quarter. And with a lot of properties selling above the asking price, the level of price inflation is even higher.
To pay these higher prices, borrowers are taking on bigger loans, helped by both rising earnings and Central Bank rules which changed in late 2022 to allow loans of up to four times income for first-time buyers. Increased State supports through the Help-to-Buy and First Home schemes are also allowing first-time borrowers to pay more for new homes.
Figures out on Friday from the Banking and Payments Federation Ireland (BPFI) show that the average mortgage being taken on by a first-time buyer rose by 8.3 per cent, or more than €24,000, in the twelve months ending November 2024 to reach over €319,000. The total value of mortgages taken out by first-time buyers in November was more than 11 per cent higher year-on-year.
The ongoing rise in house prices, requiring buyers to take out ever-bigger mortgages, is concerning. It is the result of chronic undersupply resulting in large part from a string of policy mistakes over the past 15 years, as well as the surprisingly fast growth in the economy and the population.
Higher pay for public service staff to afford homes should be time limited and phased out
‘I make a mark in the grass with my foot as I go.’ How GAA groundstaff line pitches for new football rules
WRC ruling is final nail in coffin of the right to remote working
‘I stepped through a door and emerged as a US citizen - but now comes the journey of belonging’
The risk is obvious. The Economic and Social Research Institute (ESRI) has calculated that house prices have now risen above the level which would be justified by the underlying strength of the economy. This has left them overvalued by 8 to 10 per cent, it said in a report last month, and increases the chances of a “painful correction” in prices if the economy hits a difficult period.
The higher prices go, the greater this risk becomes and the more exposure for young buyers who are now entering the market.
The outlook for house prices this year is uncertain. Price growth could slow as this year goes on, as affordability factors come more into play. However, prospects of further falls in interest rates could give buyers a bit more room for manoeuvre and support prices, particularly if the jobs market remains strong and wages continue to rise.
The urgency of tackling the housing crisis in all its aspects needs to be recognised in the programme for government negotiations. Increasing supply will, inevitably, take time, but there is a need to get on the right path. Meanwhile, the Central Bank needs to closely monitor mortgage lending practices and ignore calls to loosen the lending rules further. The level of house prices needs to be recognised as a problem and this also calls for a review of the State demand schemes, rather that commitments to increase them further.