Q I want to get on the property ladder, but feel that I should wait a while and see what happens. What do you think I should do?

Property markets are showing signs of slowing in response to higher interest rates in tandem with the cost-of-living crisis. But…

As well as the cost of utility bills, fuel and groceries rising steadily, mortgage servicing costs have increased. While many were lucky enough to be in or get into fixed rates in advance of the rate hikes, many more will not or will be coming out of fixed rate arrangements in the months and years ahead and will be facing a much more expensive rates regime. For others, who will be entering the property market for the first time, they too will likely be meeting vastly more expensive mortgage costs in the years ahead.

Most analysts agree that interest rate hikes will contain house price growth to some extent and, indeed, we have already witnessed quite a considerable lag on prices in the space of a few months. Much of that can be accounted for by the rapidly rising cost of owning a home.

Unless a buyer is paying cash, they will be seeking finance and as an example a €300,000 mortgage over 30 years that would have cost just over €1,100 a month at an interest rate of 2 per cent, would now cost €1,600 a month if that rate moved to 5 per cent. That’s a whopping €500 a month increase, adding considerably to the total cost of financing that loan.

If that doesn’t exercise the mind of the prospective buyer, it certainly will the lender as banks carry out stress tests on a mortgage applicant’s ability withstand an increase in interest rates. The tests are essentially for what we’re going through now – a period of sustained increases in interest rates. This stress test criteria, along with the rising rates, could rule a prospective borrower out of the reckoning.

There are signs that mortgage approvals for first-time buyers may be waning and much of the activity in the market is being driven by people switching providers, for the most part locking in fixed rates in an attempt to ride out the higher interest rate period.

Many would-be buyers could be forced to sit out the market for a while and indeed if there are signs of prices stabilising – or potentially falling – some could decide to actively wait it out for longer.

Unfortunately, for those hoping to see a sustained fall in prices in Ireland, it looks unlikely that it will follow here due to population growth, net inward immigration, a strong economy and a continued mismatch between housing supply and demand.

Supply actually shows signs of slowing instead of rising in the short term at least. First-time buyers can now borrow up to four times their income instead of a limit of three and a half times.

In addition, the extension of the Government’s Help-to-Buy scheme for first-time buyers and the new shared equity scheme will help to support prices for newly built homes.

The best-case scenario for a prospective buyer is perhaps that prices will stabilise this year and next. However, they will be paying significantly higher servicing costs for that debt.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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