Una McCaffrey

Just when it seemed as if the housing and mortgage markets were easing towards their summer slumber, last week brought a series of revelations that succeeded in keeping everybody wide awake. First, we had the Central Bank issuing its by-now-familiar warnings on our levels of debt.

It seems we could be borrowing too much for too many things, without so much as a nod to the reality that interest rates will rise at some point in the future. It is indeed a serious business, with a few quick sums proving the point.

Consider, for example, the repayments on a €250,000 mortgage. At today's variable and tracker rates, the repayment of this would be slightly more than €1,000. If rates were to rise by, say, two percentage points however, this monthly repayment would increase to more than €1,300.

Given that this hike could come at the same time as higher repayments on other liabilities such as car loans, it could cause serious pressure for household budgets, hence the Central Bank's concerns.

Which brings us neatly on to last week's second revelation: First Active's move towards offering 100 per cent mortgages to first-time buyers. Arguably one of the most significant shifts seen in the market this year, this new loan will cover the entirety of a property's purchase price, regardless of the borrower's job.

It marks an increase from the 92 per cent loan-to-value available from other lenders and is designed at freeing would-be buyers from the burden that can be created by raising a deposit.

But before the world and his girlfriend beat a path to First Active's door, it is worth considering a few of the details attached to the new product. First, it is not being made available to buyers of studio or one-bed apartments - the classic fodder of first-time buyers. Second, its existence does not imply any extension of the multiples First Active applies to its mortgage applications.

Thus, if last week your income allowed you to qualify only for a €100,000 mortgage that covered 40 per cent of your desired purchase price, you cannot expect to get any more this week just because of the new product. This is because the lender has made a judgement on how much you can afford to repay, and this is likely to stick to this.

There are of course some circumstances where the new loan will make an important difference in the amount that can be borrowed. This will happen where applicants' income could previously have justified the repayments on a 100 per cent loan, but this option was closed to them because of the 92 per cent rule.

The big elephant in the room with all of this, of course, is whether it makes sense for a band of borrowers to be tied into mortgages worth just as much as their property. What happens if prices fall, and their outstanding loan amount ends up being higher than the price they could get for a sale?

This negative-equity scenario is one that has spooked Irish buyers for several years now, principally because prices have climbed so fast and a number of commentators (including The Economist) have predicted a crash. Happily, the harbingers of doom are still in the minority and, as price growth eases, things are becoming calmer. Even so, a 100 per cent loan should never be taken as a light commitment.