THE COST of a mortgage for first-time buyers (FTB) will have dropped by 50 per cent by December, compared to three years ago, according to a new forecast.

The quarterly EBS/DKM Affordability Index predicts that the cost of a mortgage for the average FTB working couple will fall to 13 per cent of their net income by December.

Three years ago, a FTB couple would have spent on average 26.4 per cent of their net monthly income on mortgage repayments for a new home.

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 FTB working couple, each on average earnings with a 90 per cent 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.

Interest rates are at an all-time low following a series of cuts by the European Central Bank as it tries to stimulate a recovery in the euro zone economy.

FTB mortgage repayments are expected to be 44 per cent lower by the end of the year compared to 2007, equivalent to €539 per month, according to the index.

By December, the projected net repayments for a FTB working couple on a €165,000 mortgage will have fallen by €513 per month since July of last year on a national basis. The equivalent drop in Dublin will be €643 per month, or 41 per cent.

According to Dara Deering, director of membership business at EBS, while the overall number of national FTB transactions had fallen to 3,184 this year, there is evidence of an increase in activity in the market in recent months.

“While there continues to be a lack of clarity about how far the market has yet to fall, the reality is that for many first-time buyers, and indeed second-time buyers, the home that they want, in a location that is suitable for them is likely to be very competitively priced at the moment,” said Mr Deering.