A new report by the Banking and Payments Federation Ireland (BPFI) has found that borrowers have become more cautious when it comes to purchasing homes as property prices continue to rise. The latest Mortgage Market Profile Report highlights the fact that the mortgage market has been a challenging environment for some home buyers in the past year, especially prior to the European Central Bank (ECB) interest rate hikes. This has led to a rise in borrowers using increased equity when getting a mortgage to try and minimise borrowing costs.
According to BPFI chief executive Brian Hayes, there has been a sharp increase in residential property prices from the middle of 2021, resulting in the continued increase in mortgage drawdown values seen in recent months. He also stated that the increased use of equity when getting a mortgage 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 was significantly less than that of median property prices. For instance, 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. This indicates a more cautious approach by borrowers and reflects saving trends that 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.
The report also notes that some of the figures did not show the full impact of ECB monetary policy over the past year on rates paid by new borrowers. BPFI chief executive Brian Hayes stated that they expect to have better visibility of that impact in the coming months as they continue to monitor trends. He also emphasised the importance of contacting banks or mortgage providers as soon as possible if people find themselves in difficulty given additional pressures from the rising costs of living.
Finance Minister Michael McGrath recently highlighted the potential for existing mortgage holders to make savings by switching. He made these comments while replying to a parliamentary question last week, stating that this is a particularly important consideration at a time of rising interest rates.