Burden on first time buyers

First-time buyers bear a greater burden of the costs arising from mortgage lending restrictions despite being 30% less likely to default on their loans than other homeowners.

Research by the Central Bank shows first-time buyers are far less likely to default on mortgages than their counterparts whose loans have been taken out on a subsequent property.

However, the mortgage lending caps such as those introduced in Ireland earlier this year, which seek to stabilise the banking system and reduce the risk of a credit-induced collapse, is borne by first-time buyers more so than their peers.

Such macro-prudential rules which include loan to value (LTV) and loan to income (LTI) limits impact heavily on first-time buyers, which generally form a younger cohort of homebuyer, given the greater difficulty they have in building up savings to buy a home.
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The findings of the report provide empirical evidence for tailoring macro-prudential policies — as the Central Bank did here — to reflect the additional burden placed by such policies.

The new Central Bank research advises weighing the desire for financial stability with access to homeownership for first-time buyers.

A number of potential reasons as to why first-time buyers are less likely to default are put forward by the research paper.

These include them being more cognisant of the potential negative impact of defaulting and the knock-on effect on their credit history.

Being, on average, a younger borrower also affords first-time buyers greater income growth potential.

Of the 291,000 loans analysed, approximately 15% of second and subsequent borrowers are in default with the same rate one third lower for first time borrowers.

In January, the Central Bank introduced LTI and LTV caps to curb the increase in credit but made concessions for first-time buyers which chimes with the research released yesterday.

An 80% LTV limit — requiring homeowners to provide a 20% deposit — was introduced for all borrowers bar first-time buyers.

Instead, those seeking a mortgage on their first home were required to cough up a 10% deposit on a property up to the value of €220,000 and an additional 20% deposit on the additional portion of the loan above this cut-off point.

A LTI limit of 3.5 was also introduced for all borrowers.

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