If this summer has taught us anything about the mortgage market, it is that first-time buyers are providing a heady battleground for the Republic's ever-competitive community of lenders.
First Active was first out of the blocks in July with its offer of 100 per cent mortgages to first-time buyers who were struggling to come up with the 10 per cent deposit traditionally needed for a property purchase.
Many observers were appalled by the move, with the most worried of market-watchers making the point that negative equity could now easily spread in the market if house prices fall.
Viewed as the nastiest underbelly of the property market, negative equity comes about when a mortgage-holder's homeloan is worth more than the property for which the loan is held. This leads to repossessions, upheaval in the property market and a bad feeling in the economy.
The curious thing about the recent rash of 100 per cent mortgage launches is that the more we have, the less noise the dissenters are making. With EBS the latest to join the 100 per cent gang this week, the products have almost become a normal facet of the mortgage market.
The question remains: are 100 per cent loans a positive addition to the market or could they threaten its stability over the longer term? With this and other questions in mind, an analyst from stockbrokers Davy earlier this week published a piece of research Irish banks party on. . . but is a hangover likely?
As part of the study, analyst Scott Rankin tested the criteria lenders use when deciding whether to lend money to a given customer. In doing this, he posed as a first-time buyer couple with a joint income of €60,000. Based on a 100 per cent loan, he was offered a mortgage of up to €360,000 over 35 years. In Davy's eyes, this offer, which would represent repayments of 37 per cent of disposable income, suggests "some weakening" in credit rules.
"We think repayment criteria may be starting to stretch and we would be concerned about a willingness to bend the rules to 'do the deal'," wrote Mr Rankin in his research note.
In general, however, he found that two new trends have helped to support the "affordability" of property over the past few years: a lengthening in mortgage terms and the increased availability of interest-only loans.
Longer terms help because they reduce the percentage of disposable income that is needed to service monthly repayments. Interest-only loans, on the other hand, by definition carry lower monthly repayments.
In his own fictional first-time buyer case, Mr Rankin found a lender advising him to say he was going to rent a room so that his application would be boosted with the lender's auditors.
This research prompted the analyst to wonder how well today's mortgage-holders can actually afford their loans under such conditions. In the end, he found, perhaps surprisingly, that they can do so quite well.
With interest rates and unemployment expected to remain low (thus making loans cheap and giving people job security), most consumers with mortgages should be reasonably comfortable over the next few years, according to the analysis. Mind you, says Rankin, credit growth needs to slow if this is to remain the case and people at the margin of affording their liabilities will, as always, need to be careful.
umccaffrey@irish-times.ie
