Falling Mortgage Rates Set to Drive Up Irish Property Prices—But Can Buyers Borrow Enough?

Mortgage Rates Dip, Prices Rise? The Affordability Squeeze Continues.

There's a familiar dynamic playing out in the Irish property market. As hints of easing inflation lead the European Central Bank (ECB) to signal potential rate cuts, Irish lenders are cautiously starting to lower mortgage interest rates. This seemingly good news promises increased borrowing power for buyers.

However, trapped between stubbornly strict Central Bank lending rules (limiting borrowing based on income) and a chronic lack of housing supply, the question is: will cheaper borrowing actually improve affordability, or simply fuel another round of price increases?

The Math: Lower Rates = Bigger Loan Potential

The logic is simple. Lower interest rates mean lower monthly repayments for the same loan amount. Banks assess affordability based on these repayments. Therefore, if rates fall, buyers can theoretically qualify for a larger mortgage while keeping their monthly outlay manageable.

For instance, if rates drop from 4% to 3.5%, a buyer might find their maximum approvable loan increases by tens of thousands of euro, significantly boosting their purchasing power – on paper. Irish rates, typically higher than the Eurozone average, have more room to fall, potentially amplifying this effect.

"Every 0.5% drop in mortgage rates can add significant capacity to what buyers can bid," notes a financial commentator. "In a competitive market, this extra capacity often translates directly into higher offers."

The Reality Check 1: Supply Still Lags Far Behind Demand

The fundamental problem hasn't changed: Ireland simply isn't building enough homes. Organisations like the Society of Chartered Surveyors Ireland (SCSI) consistently point to a need for 50,000+ new homes annually, while completions struggle to reach even two-thirds of that.

This means more buyers, armed with potentially larger mortgages thanks to lower rates, will be chasing the same limited pool of available properties. Basic economics dictates that when demand surges and supply is fixed, prices rise. Projections from property portals already suggest price increases of 5-7% nationwide in 2025, potentially higher in urban hotspots.

"Increased borrowing power without increased supply is a recipe for price inflation," warns an housing economist. "The affordability gains from lower rates risk being completely eroded by the resulting price hikes."

The Reality Check 2: Central Bank Rules Bite Hard

Even if lower rates mean you could theoretically afford repayments on a larger loan, the Central Bank's macroprudential rules act as a hard ceiling. These rules limit borrowing based on income multiples:

• First-Time Buyers: Max loan of 4 times gross annual income.
• Second-Time Buyers/Others: Max loan of 3.5 times gross annual income.

Crucially, lower interest rates do not change these income multiples. If your income limits your borrowing to €300,000, that limit remains whether the interest rate is 4% or 3%. While lower rates make reaching that limit easier in terms of monthly repayments, they don't allow you to exceed it.

Deposit requirements (10% for FTBs, 20% for others) also remain a major hurdle, unaffected by interest rate changes.

The Verdict: Limited Relief

Falling mortgage rates offer some psychological relief and may help some buyers on the margins qualify for a slightly better property *if* their income allows. However, constrained by lending rules and fierce competition for scarce housing, widespread improvements in affordability seem unlikely. Instead, the primary effect may simply be to push already high property prices even higher.