CHANGES in the Budget have made homes more affordable for first-time buyers, but there is now a risk that this will re-ignite the housing market.
A typical first-time buyer has been left â‚¬130 a month better off by the Budget, which means new buyers can now borrow more.
But the fear is now that the generous changes to mortgage interest relief will send house prices rocketing again this year, economist Annette Hughes said yesterday.
Last year, house prices rose by 11.8pc, but by the end of the year the rate had slowed to a standstill.
Most commentators are now predicting house prices will rise at a much more moderate level this year, probably between 3pc and 6pc.
An affordability index released yesterday shows the changes to mortgage interest relief in the Budget have cancelled out three of the last interest rate hikes.
Ms Hughes, of DKM Economic Consultants, who complied the study, said there was a major risk that the generous budgetary changes for first-time buyers would set off a new house-price spiral.
“The risk is this will fuel house-price inflation. It is all down to how confident buyers are in the market.”
In last December’s Budget, Finance Minister Brian Cowen doubled the amount of tax relief new buyers can claim.
This left first-time buyer couples with mortgages more than â‚¬300,000 better off by â‚¬133 a month.
A typical Dublin first-time buyer couple taking out a 90pc mortgage for the average house priced at â‚¬363,000 had net repayments of â‚¬1,767 a month before the Budget.
The doubling of mortgage interest relief has reduced their monthly repayments to â‚¬1,637.
This is a gain of â‚¬130, according to the DKM/EBS Affordability Index. Ms Hughes said this was a reduction of almost 7.5pc in their total repayments in the month.
Even with the expected 0.25pc rise in European Central Bank rates in March the couple’s monthly repayments would rise by â‚¬45, but they would still be â‚¬85 better off.
The survey shows that the average new-buyer couple across Ireland is spending 24.7pc of their net income on their mortgage. This compares with to 26.6pc in December 2006.
The corresponding figure for the Dublin first-time buyer couple is 29.8pc at the moment, compared with 32.7pc in December 2006.