Home Buyers Guide

Chapter 2: Buying a Home During the Credit Crunch

Positives of buying a home:

Buying a home has become a lot more affordable over the last 12 months for three main reasons – lower
interest rates, a significant drop in house prices, and an increase in mortgage interest relief.

• Lower Interest Rates:

The ECB reduced mortgage interest rates by 1.75% in the last 3 months of 2008.
This resulted in a typical saving of €279 per month on a €300,000 mortgage over 25 years, which is a pretty
substantial saving in anyone’s book.

The expectation is that there will be further interest rate cuts in 2009, bringing down the cost even further.

Update: as of September 2 2009, ECB rates are at 1%.

• Drop in House Prices
On top of the reduction in interest rates, house prices have dropped considerably over the last year too.
According to the Permanent TSB / ESRI House Price Index, prices have dropped 10.2% in the 12 months to
October 2008 (14.9% in the 24 months from October 2006)

In reality, due to the way they record their figures, the Permanent TSB / ESRI house prices will reflect house sale
prices of approx. 4 – 6 months ago, so the reductions in property prices are probably even higher than the figures suggest.

The reduced prices are even more evident in the new homes market, as property developers slash prices to shift their properties.

The general consensus is that the prices of new homes have fallen by 30 – 35% since their peak in 2006.

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