Mortgages:Most lenders use borrowers' net incomes to assess how much they will advance. The repayments on the mortgage usually cannot exceed between 30 and 45 per cent of their net disposable incomes. As increases in interest rate push repayments up, it also means that the size of the mortgages first-time buyers can receive approval for will drop.
This could mean all the difference to someone who wants to able to afford to buy even a shed-sized property within commuting distance of their place of work.
Yesterday's interest rate increase will reduce the amount a first-time buyer will be approved for by a five-figure sum.
According to Conor Swan, mortgage adviser with Liberty Mortgage Corporation, a change in the ECB base rate from 3.75 per cent to 4 per cent will mean approvals for first-time buyer couples could fall by €11,000-€13,000, with the exact amount depending on the incomes of the applicants.
For example, a couple with a joint income of €77,000, where one partner earns €45,000 and the other partner has a gross salary of €32,000, would have been able to secure approval for a mortgage of €414,000 from one of the Republic's biggest lenders, Permanent TSB.
But after yesterday's rate rise, this approval will fall to €401,000, Swan says.
A couple with a joint income of €72,000, with each earning €36,000, will see their mortgage approval fall by €11,000 from €339,000 to €328,000.
The massive difference in the approvals given to two couples can be explained by Permanent TSB's credit criteria, which will allow couples with incomes of €75,000 or more to draw down a loan with repayments up to 40 per cent of their net incomes. If their incomes are below €75,000, the repayments cannot exceed 35 per cent of their net incomes.
Borrowers who opt for fixed rates may find that lenders are willing to give them the extra cash they need to get on the ladder.
According to Swan, the first couple could get approval for a loan of €486,000 if they opt for First Active's five-year fixed rate of 4.89 per cent, because the lender will allow repayments of up to 45 per cent of net incomes under the fixed rate, as long as borrowers are not seeking a 100 per cent mortgage.
The risk here is that while typical variable tracker and standard variable rates may soon leapfrog 4.89 per cent, over a period of five-years those rates could well average at a figure below 4.89 per cent, meaning the fixed-rate customer will pay more. Swan does not see it that way, however. "You're not paying over the odds. You're paying for that extra bit of security," he says.
Lenders are not "throwing money" at people and never were, adds Swan. Low interest rates simply facilitated bigger loans in the past.
