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

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

Ireland's property market is bracing for yet another surge as mortgage interest rates begin to decline, boosting buyers' borrowing power and driving renewed competition for homes. With the European Central Bank (ECB) signaling further rate cuts amid easing inflation, banks and lenders in Ireland are following suit, making mortgages cheaper and more accessible.

However, while falling interest rates mean buyers can afford higher loan amounts, the Central Bank of Ireland's lending rules could put a cap on just how much people can borrow. As demand heats up once again, questions remain about whether affordability will truly improve—or if house prices will simply rise in response to this new wave of credit.

Lower Mortgage Rates, Higher Borrowing Power

For many prospective homeowners, the recent drop in interest rates is welcome news. Lower rates mean reduced monthly repayments, which in turn allows banks to approve larger loans without increasing financial strain on borrowers.

To put this into perspective, a buyer who could previously borrow €350,000 at a 4% interest rate may now qualify for a €400,000 loan at 3% while keeping their monthly repayments nearly the same.

According to Banking & Payments Federation Ireland (BPFI), the average new mortgage interest rate in Ireland stood at 4.05% in late 2024, significantly higher than the eurozone average. However, with rate cuts expected in 2025, mortgage rates are projected to fall below 3.5% by mid-year. This could significantly boost homebuyers' purchasing power, particularly among first-time buyers who rely on mortgage financing.

"Mortgage rate reductions act as a double-edged sword," says financial analyst Mark O'Reilly. "They make borrowing cheaper, but when demand surges, property prices often rise in response, ultimately offsetting much of the affordability benefit."

Supply Shortages Likely to Drive Prices Higher

While buyers may be able to afford larger mortgages, the supply of available housing remains critically low—particularly in urban areas like Dublin, Cork, and Galway.

According to the Society of Chartered Surveyors Ireland (SCSI), Ireland needs to build at least 50,000 new homes annually to meet demand, yet just 32,695 units were completed in 2024. This supply-demand imbalance means that even though buyers may qualify for higher loan amounts, they'll be competing for the same limited pool of properties.

As a result, property prices are expected to rise again in 2025, with MyHome.ie forecasting a 5-7% increase nationwide, and up to 10% in Dublin as more buyers re-enter the market.

"Any increase in borrowing power will quickly be eaten up by rising prices unless housing supply catches up," warns economist Sarah Dunne. "We've seen this cycle before—when borrowing capacity expands, sellers increase their asking prices, and home affordability doesn't necessarily improve in real terms."

The Central Bank's Lending Rules: A Key Limitation

Despite falling interest rates, there remains a significant barrier preventing buyers from borrowing excessively—the Central Bank of Ireland's strict mortgage lending rules.

• First-time buyers can only borrow up to four times their annual income.
• Second-time buyers and investors are limited to 3.5 times their annual income.
• A 10% deposit is required for first-time buyers, while second-time buyers must provide 20% upfront.

For example, a single buyer earning €60,000 per year can borrow a maximum of €240,000, even if lower interest rates theoretically allow for a larger loan. A couple with a combined income of €100,000 will be capped at €400,000, regardless of mortgage rates.

"Even with lower rates, the biggest challenge for many remains coming up with a large enough deposit or having a high enough salary to meet Central Bank rules," says mortgage broker Laura Kearney. "This is particularly difficult in cities where property prices are still increasing."