Why it's taking two years longer to save for a house

Downpayment in South County Dublin soars from €35,000 to €76,000 in 24 months

4th October, 2016
Couples must save for longer to get a house. Pic: Pixabay

A Central Bank study has found it takes two-and-a-half to four years to save for a deposit for three-bedroom house in Dublin.

The same figure for other cities is up to one and a half years, while it is under one year in rural areas.

The main reasons for the longer wait are:

- A reduced capacity of households to save because of a post-crisis recovery in rental values

- The increase in the size of down payments as house purchase prices grew rapidly between 2013-2014

- Price increases are concurrent with historically low levels of supply

- Central Bank mortgage measures in 2015 are a further constraint on first-time buyers

In South County Dublin, the down payment on an average three-bedroom house has more than doubled €35,000 to €76,000 over the two years.

Other areas of the capital city and county have seen deposit increases of between €10,000 and €22,000.

The study has used "reasonable living expenses", a metric previously compiled by the Insolvency Service of Ireland for bankruptcy cases, in collating the figures.

The Central Bank says the ISI figures provide "a detailed calculation of a reasonable standard of living".

The totted expenditure includes food, social inclusion and participation, and private transport. Other items include clothing, personal care, communications, home heating and savings / contingency, pegged at €60 per month.

The representative prospective FTB purchaser is a couple with one car, no children and no special circumstances, which is attributed a monthly non-housing expenditure of €1,486.62.

The figures show that, relative to 2014, the time to save required has increased by one to two years.

The report notes a reduction in the capacity of some households to save, due to a post-crisis recovery in rental values which has been increasing in momentum since 2013.

The size of down payments has been rising as house purchase prices grew rapidly in Dublin through 2013 and 2014 (with year-on-year price rises reaching 25.1 per cent in August 2014). This increases are concurrent with historically low levels of supply.

The Central Bank's macro-prudential mortgage market measures in February 2015, compelling buyers to find ten per cent of the first €220,000 cost of a house, are also having an effect.

The report is the first to explicitly allow for changes in the local rental market price which affects household ability to save, to feed in to its index.

It reports from US research pointing to the possibility of a bifurcation in savings behaviour whereby house price increases lead some households to stop saving completely, while other households “double down” and increase their savings as a percentage of monthly income in order to accumulate the down payment.

The report also points to international research showing that the demand for housing is highly sensitive to changes in deposit requirement.

The average US first-time buyer in the 1990s had saved for between two and three years for a down payment for a house.

The message from the Central Bank analysis is that households with the same income level will have different housing market experiences depending on their location.

In the Central Bank analysis, all of the deposit is accumulated through savings and none by gift from parents or other relatives.

However, recent British studies have shown an average gift of £17,500 from parents to their children to help in house purchase, in one quarter of cases.

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