First-time buyers’ annual mortgage repayments headed for €3,000 more than last year

The cost of paying a mortgage for a new buyer couple is now heading for €3,000 more annually than this time last year.

And there are warnings that more mortgage rate hikes are on the way, something that will make it even harder for new buyers to purchase their own homes.

An analysis of the market shows that property prices will have to fall sharply if thousands of people are to avoid being priced out of the market.

This time last year, a first-time buyer couple was able to get a fixed-rate mortgage at 2pc.

Borrowing €300,000 over 30 years meant a couple had monthly repayments of €1,109, according to calculations by Bonkers.ie. This works out at €13,308 a year.

But following five increases in European Central Bank (ECB) rates, the typical fixed rate in the market now stands at 3.5pc.

This means repayments on the same-sized mortgage have risen to close to €1,340 a month.

Over a year this means additional repayments of around €2,770.

The higher cost of borrowing comes after Permanent TSB, Bank of Ireland, AIB, Avant Money, Finance Ireland and ICS Mortgages have increased their fixed rates, with AIB also raising its variable rates.

Fixed rates are expected to rise again, with the ECB warning it will impose another increase to its rates next month, and another in the summer.

Daragh Cassidy of Bonkers.ie said the impact of rising rates on mortgage repayments will be immense, with repayments potentially rising by over 60pc for first-time buyers unless property prices fall dramatically.

“The lowest mortgage rate on offer in Ireland is currently 2.75pc, up from just 1.90pc less than a year ago.

“However, by the end of the year the lowest mortgage rate on offer in the entire market is likely to be over 5pc, with the average rate around 6pc.”

Mr Cassidy says if rates rise to these levels, property prices would need to fall anywhere from around 30pc to 40pc to keep mortgage repayments at similar levels to last year.

It’s hard to see how an outright fall in prices this year and next can be avoided

Bonkers.ie forecasts that this affordability squeeze will outweigh other factors and lead to a fall in property prices.

Mr Cassidy said the impact of rising interest rates seems to have been forgotten about when it comes to forecasts for property price growth.

“Given the huge increase in interest rates since last July, with another 0.50 percentage point increase almost guaranteed in March and a further 0.25 percentage point increase likely by the end of this summer, it’s hard to see how this won’t hugely affect property price growth.

“Some of the forecasts for growth this year seem wildly optimistic. Indeed, it’s hard to see how an outright fall in prices this year and next can be avoided.”

He said that since last summer the ECB has hiked rates by three percentage points, “with more to come”.

“And if the full three-percentage-point increase in rates is eventually passed on by all the main lenders, the lowest mortgage rate on offer in the entire market will soon be around 5pc.”

This will put huge pressure on first-time buyers, Mr Cassidy said.

“Bonkers.ie is not saying property prices will fall by this amount, as there are many other factors to take into account, and this is just a representative example, but it goes to show the huge impact a rise in interest rates of just a few percentage points has on monthly repayments and affordability.”

An option for first-time buyers to counter rising interest rates is to stump up a bigger deposit. But with record rents and near record inflation, this is likely to prove challenging.

The most recent Central Statistics Office property price data shows prices in Dublin fell 0.2pc in November compared with October. However, they rose on a national level.