The housing market started to cool in 2025, and price pressures have subsided. It is interesting that despite the past few years’ steep price hikes, high interest rates, and tight borrower-based measures, the share of first-time buyers has not only held steady, it is above its ten-year average. Over the past twelve months, for example, the share all homebuyers were making their first house purchase was 34%, slightly above the average of 33% over the past decade. As we discuss below, however, other data imply that the position of first-time buyers has begun to tighten.
First-time buyers facing tighter conditions
The share of first-time buyers has held its own in the recent past, but those buying their first home have increasingly had to adjust their purchases to changed circumstances. The price gap between first-time buyers and other buyers has widened, and first-time buyers’ loan-to-value (LTV) ratios have risen.
The price gap between buyer groups has widened
In February 2026, the average price paid by first-time buyers was ISK 59.7m, as compared with ISK 81.9m for other buyers. The spread between the two averages was therefore ISK 22.2m, or 37%. While it is unsurprising that first-time buyers should purchase less expensive properties than others do, the size of the gap is noteworthy. In fact, it is at its widest since 2009 and is far above the long-term average of 17% for the period since 2007. These figures suggest that the price gap between the two buyer groups has grown.
Comparing the average price paid by first-time buyers against developments in house prices tells a similar tale. In that case, it appears that first-time buyers have fallen behind in the market recently and have adjusted by setting their sights on lower price points. Developments in the past two years show this very clearly, as the house price index has risen by 11%, while the average price paid by first-time buyers has remained more or less flat. Because of this, the gap between the average first-time purchase price and the house price index has widened – from 4.4% in 2024 to the current 17.5%.
First-time buyers’ LTV ratio rises
Despite higher property prices and high interest rates, the LTV ratio for new mortgage loans declined at the start of the pandemic, especially among first-time buyers. This is probably due to a combination of factors, including the borrower-based measures introduced by the Central Bank (CBI) and the rapid rise in house prices, which made it more difficult for new prospective homebuyers to enter the market.
This trend has reversed in the recent term and has diverged from one buyer group to another. The LTV ratio for first-time buyers started rising at the beginning of 2024, climbing from 67% to 73%, while the same ratio for all buyers combined continued to ease, falling from 56% to 53%. This is interesting given the above-described widening of the price gap between the two groups, and it indicates that first-time buyers are positioned far more poorly than other buyers are.
In November 2025, the CBI’s Financial Stability Committee relaxed its rules capping LTV ratios for first-time buyers, increasing the maximum ratio from 85% to 90%. This change may well have prompted the past few months’ rise in LTV ratios for this group and will probably keep doing so in the near future.
First-time buyers’ debt service-to-income ratio is unchanged
The debt service-to-income (DSTI) ratio for new mortgage loans has been broadly unchanged in the recent term, after having risen somewhat since the onset of the pandemic (see the chart below). Since 2022, first-time buyers’ debt service burden has grown only slightly, even in the current high interest rate environment. The most recent data show a DSTI ratio of 31.6% for first-time buyers, as compared with 25.2% for all buyers combined, suggesting that the former group have not been taking on excessive debt service burdens.
The CBI’s rules probably prevented borrowers from becoming overleveraged during the past few years’ surge in house prices. When the CBI increased the maximum LTV ratio for first-time buyers it also expanded credit institutions’ exemption from 5% to 10%. As yet, the data do not imply that debt service burdens have been affected by this.
First-time buyers are facing a steeper climb
On the whole, first-time borrowers have stood their ground in the housing market, despite tighter conditions. Even though their share in home purchases is still above its historical average, this does not mean it is easier to buy a home for the first time. On the contrary: it suggests that first-time buyers have had to make adjustments in order to buy a home in a changed environment.
The data imply that first-time buyers have not been able to keep pace with property price movements in the recent term; instead, they have focused on less expensive properties – for instance, by buying homes on the periphery of the capital area or in communities where prices are generally lower. The price spread between first-time buyers and other buyers has widened, and first-time buyers’ loan-to-value (LTV) ratios have risen, which shows that market conditions have grown tighter for these entry-level buyers.
The Housing and Construction Authority’s (HMS) equity loan programme has probably helped first-timers to enter the market. Because such loans are only granted if specified conditions concerning buyer income and property price are satisfied, the programme may well have fostered first-time buyers’ shift to less expensive dwellings. This could explain why the price gap between first-timers and other buyers has widened even though first-time buyers’ share in the market has remained high. Overall, it can be concluded that although first-time homebuyers have held their ground in the market, at least technically speaking, their actual access to the market has grown much tighter.
Analyst
