Recently the credit crunch has taken a whole new turn, and the way it is affecting the Irish mortgage market is of interest to anybody who has a mortgage. Today’s post will be about the changing position of first time buyers, the end of 100% mortgages.

First time buyers never had it easy, that’s my theory and here’s why: before stamp duty reform they had to pay for any property that was over €127,000 (an old £100,000 before the €uro came in) and that could not be borrowed, it had to be saved, during the time that prices were in that region the wages were much lower and stamp duty was a definite drawback to prospective home owners, on top of that they had to come up with a deposit of 10% which was also difficult because of the taxation system here. Then we all got a bit more prosperous, the Celtic tiger started to roar, cheap money became available and prices shot up. The old first time buyers were now owner occupiers basking in equity and that was fine, but the new breed of first time buyers didn’t have it easy. We’ll call this the 1995-2000 group.

They were still burdened with stamp duty, and now prices were going up, so they had to outlay more for their properties, that meant bigger stamp duty and bigger deposits, again, they had to save this money up (or get help from parents which was very common) and saving up bigger and bigger sums took time, prices rose as they saved and many took desperate measures in order to get on the ladder. For this group who were the 2000-2003 group it was hard, but as they got their homes (at last!) they too basked in equity, and many re-mortgaged to consolidate debts brought about from the high life that the Celtic tiger seemed to produce, and to pay off loans which were taken out from the BOF (bank of family) to pay stamp duty.

Then we had the 2003 – 2006 group, they didn’t have it easy, stamp duty was wiped out up to €317,500 and in response every property overnight was priced at more than €317,500, this group had to contend with HUGE leaps in price and competition for a home, this often involved camping out overnight and except for the fact that the Celtic tiger was still roaring we could have been mistaken for people queueing for bread. Mortgages for 100% of the purchase price became available, because of the time it would take to save up a 8-10% deposit on a house that was now very highly priced people opted for these loans, granted, they didn’t have to save up but they also didn’t have any equity from the very start, and many were caught for stamp because of the way prices went.

The 2007 didn’t have it easy either, they were able to get 100% mortgages but they paid astronomical prices, and once they moved in (unless they were on fixed rates) almost instantly their mortgage payments rose as the ECB embarked on a series of rate increases. Then prices started to drop and they were instantly in a position of negative equity, meaning that it was very hard to jump ship even if they wanted to. It’s fair to say that this is a case of some people getting the shortest straw but that is little consolation to the people in that situation.

Last of all is the 2008 group, they dont’ have it easy, for them they have entered a market that was known to be falling, 2007 had price drops but there was still a lot of confidence out there and people ready to buy. In 2008 some have come to the market thinking they are getting a deal when in fact they are simply buying into an asset that is dropping further, 100% mortgages are now in the annals of history and in fact bigger deposits than ever are required, with many lenders apartments now require a 20% deposit! Many feel slightly miffed at people who were able to get 100% mortgages (albeit they are mostly in negative equity) because saving a 20% deposit is hard irrespective of the economic climate.

Many are now fearful of property and will likely be renters for some time to come, having said that, rental prices are dropping too and there is no 20 year or more obligation in a rented house. Renting seems to be the safe haven for first time buyers at the moment, and rightly so, until our market rationalises it is only for those with the most confidence, or who are willing to jump in order to get a specific property in an area that they like who will be buying in the latter half of 2008.

The one thing to remember though is that first time buyers don’t have it easy today, but realistically they never did! They were either burdened with huge deposits, stamp duty, negative equity, high rates or any combination of those things at once, is negative equity any worse than an equivalent amount of stamp duty? Or a grossed up amount that constituted a deposit? None of these options are relished, however, all of them are or at least were a reality.