Real deal: The Business of Property
Mortgage market heats up
Published 13/11/2016 | 02:30
They say competition is healthy and in what can only be seen as a positive development, the Irish mortgage market is starting to heat up again, as new players enter the scene.
During the recession there was an exodus from the market and, when it returned to a functional level two years ago, the key remaining players were AIB/EBS, BOI, KBC Bank and, to a lesser extent, Permanent TSB.
Last February a subsidiary of the Australian-listed financial services group Pepper was the first non-bank and new entrant to the Irish market in nearly 10 years. Pepper launched an offering through the mortgage broker network, targeting buyers who traditionally might not have qualified under the standard T&Cs, such as self-employed or first-time buyers or those who might have had some past credit issues.
This week, Pepper Money has launched a new product that is being sold directly to the consumer through a dedicated online platform which will process the application more or less to completion. The offering is targeted at residential and buy-to-let customers and carries an additional premium of approximately 1-1.25pc for those with historic credit issues.
Another company, Dilosk, which took over the ICS mortgage book in 2014, is also about to enter the market, also targeting buy-to-let investors. They are expected to launch their product officially through ICS brokers in early 2017.
The cheapest residential variable rate in the market currently stands at 3.3pc with AIB with a LTV under 80pc. The best three-year residential fixed rates are with BOI at 3.45pc, with rates for the buy-to-let investor starting at 4.8pc.
If a consumer can't secure finance via the traditional banks because of over-zealous lending requirements, it's heartening to see other providers coming to the table with a little more flexibility in their assessment of borrowers.
'Build to Rent' - the new asset class
A NUMBER of recent studies show there is a shift in the number of people moving towards renting rather than buying their homes, especially among twentysomethings. They can't afford to purchase in the cities and larger urban areas, but this is where many of them aspire to live, work and play. But it seems, too, that many are happy to rent.
International investors are starting to see this as a real opportunity. They are looking to spread their risk and identify alternative asset classes. The 'Build to Rent' concept involves a developer buying a green-field site, building the properties and letting them all as opposed to selling them on to investors who in turn let them out.
Previously in Ireland, speculators in this sector were either developers or investors and have made up only a small part of the market, but they are expected to become increasingly significant over the coming years as the gap in average values between city and country looks set to widen and urbanisation of our population continues. Professional landlords already in play include the various REITs and the US fund Kennedy Wilson, who purchased a variety of mixed-use developments such as the former military barracks in Islandbridge, Dublin, which they have developed into Clancy Quay.
Build to Rent is very popular in the US and Germany and was common in the UK back in the 1930s. If, as expected, more players enter this sphere in the short term, they may help to fill the void left by exiting amateur investors.
Trumping the market?
As the dust settles in the US after this week's shock election results, the question is what impact will it have on the Irish property market? Traditionally, US buyers - alongside the UK buyer - are strong in the country homes market. But nothing puts the brakes on the property market like uncertainty. It's likely that there will be a hold on that section of the market as potential buyers assess the outcome of Trump in the White House. Challenging times, especially given the loss of prospective UK buyers already caused by the Brexit vote.
Who would be a landlord?
The Department of Housing has commenced the consultative process with stakeholders in relation to Pillar 4 of the housing strategy, which deals with the shortcomings and needs of the rental sector.
The cost of accommodation in this country is one of the significant drivers in the cost of living and is making Ireland a less competitive place to live and work.
It is abundantly clear that the Government sees the bulk of future new housing requirements being provided by the private sector. While this may not be the best approach, the fact remains that these homes have to be provided. The primary demand is urban-based and while debates continue as to whether we should be building upwards or outwards, building smaller more affordable units, or trying to reduce the cost of construction, homes must be built.
To date, there have been two distinct types of landlord in Ireland: professional investors such as Kennedy Wilson or the REITs; and the amateur investors who make up a high percentage of the 324,000 tenancies registered with the RTB and who, typically, own just one or two properties. For the supply void to be filled, the amateur investor is vital and so needs to be retained.
So who would be a landlord? How attractive is it for a landlord entering the market in this country? The barriers to entry are substantial. A lack of suitable stock being the primary one. Second is access to finance, as many lending institutions, up until now, have not been interested in lending to small investors. Cash sales still make up 50pc of all sales. If the market was functioning normally, this figure would be closer to 70pc.
But as Sunday Independent columnist Ronan Lyons outlines below, the latest Daft.ie rental report shows rents rising 11.7pc this year. These increases will continue well into 2017 and will put pressure on prices and provide a threat to the stability of the market.
Interest relief for the investor was increased in the Budget from 75 to 80pc. A welcome step. But it will still take five years for full 100pc relief to kick in. Exit costs are also high for investors in Ireland, with the Capital Gains Tax rate currently at 33pc, among the highest rates in Europe.
So all in all, if the Government wants to achieve its aim of an increased housing supply, it will have to increase the size of the carrot that is being dangled in front of potential landlords and hope that lenders will be more engaging in 2017.
Philip Farrell is a market commentator and property consultant