THE country’s two biggest banks are to make €2 billion available to first-time buyers as part of a drive to stimulate the housing market.

Bank of Ireland (BoI) will today launch a €1bn fund aimed at first-time buyers offering a one-year fixed rate of 2.45%.

AIB, which offers a one-year fixed interest rate for first-time buyers of 2.49%, said it aims to increase lending in this market by 30% this year, which would see it giving out 4,300 mortgages, also to the value of €1bn.

AIB also said it is contacting customers who didn’t qualify for a mortgage in 2007 and 2008, telling them it is now in a position to approve them given the changed interest rate conditions.

The first-time mortgage offers by AIB and BoI are part of their commitment under the Government’s recapitalisation plan.

Affordability has also improved dramatically after a series of interest rate cuts from the European Central Bank (ECB). It is expected to slash rates again on March 5 by half a percent.

Last year, 3,300 of the 27,000 mortgages AIB offered were to first-time buyers, equating to €830m in loans.

The bank is already showing signs of increased lending in the mortgage market, having approved 150 mortgages in this sector, almost a third more than the 115 in the same month last year.

In the overall mortgage market, AIB approved more than 1,000 mortgages last month, which was largely comparable to the number in the same period last year.

An AIB spokesman said it still provides mortgages up to 92% of the purchase price, if it is satisfied that customers have sufficient repayment capacity.

"Customer affordability has improved dramatically as house prices and interest rates have fallen together. Based on the AIB offering, affordability is now back to the level available in the late 1990s," a spokesman said.

BoI, meanwhile, called its €1bn fund an "important move" and said it wants to ensure its customers know it is "very much open for business". The bank said it hopes to offer 4,000 mortgages to first-time buyers.

Director of the Irish Mortgage Corporation Frank Conway said the offers were a huge boost for first-time buyers: "There is tremendous value there now and these are some of the best rates I have ever seen in the market."

Mr Conway said mortgage offers are set to grow as lenders charge higher interest to higher risk applicants, offering mortgages based on the loan to value of the property.

Mr Conway also said shopping around and understanding the difference between competing loan-to-value offers has never been so important.

- IRISH EXAMINER, Niamh Hennessy