A price war for less risky customers has led banks to slash interest margins when mortgages fall below 80% of the value of borrowers' homes. But new research shows that, because house prices are rising so quickly, many first-time buyers reach the 80% threshold within months of getting on the property ladder.

According to John Cotter, professor of finance at UCD, the property boom means that a 100% mortgage taken out in Dublin or Cork at the start of 2004 would have dropped to under 75% of the house price by the early months of this year. This means the borrower could switch to a substantially cheaper home loan, escaping most of the effects of recent hikes in interest rates.

Cotter's research was compiled for National Irish Bank, which later this week will announce big cuts in the interest margin charged to borrowers with substantial equity in their homes.

"House price inflation works in your favour once you're on the property ladder because it creates equity, " said Terry Browne, head of markets at NIB. "It also works in the bank's favour because its loan is better secured."

Cotter's research found that, over the past two years, house buyers in Cork and Waterford enjoyed the fastest equity accumulation while those in Limerick suffered the slowest growth.

"The research tells us a lot about the equity built up even with relatively new mortgages, " said Browne. "People assume that Dublin has the strongest price inflation but there has been significant equity accumulation right across the country."

With people having to borrow ever more to get on the property ladder, and rising interest rates squeezing the amount they can borrow, Cotter believes they have a strong incentive to keep shopping around for a better deal.

"Worsening affordability has increased the borrower's emphasis on management of their mortgage package in terms of the repayments they have to make, with a greater emphasis on the different repayment costs associated with the various packages, " he said.