Central Bank rules hit Dublin house prices with a dose of reality
New mortgage lending limits aren't just cooling house prices, they're freezing them, writes Ronald Quinlan
The days of spiralling house prices in south county Dublin and beyond have been brought to an end by the Central Bank's introduction of tighter mortgage lending rules.
That's the view of economist Ronan Lyons following the publication of the latest quarterly report by property website, Daft.ie, which shows a distinct softening of asking prices in the capital and in the most exclusive postal codes of Dublin 4, 6 and 18 particularly.
Speaking to the Sunday Independent, Mr Lyons said the era of "aspirational house values" appeared to be over now that prospective buyers had been limited to borrowing a multiple of 3.5 times their salary, and being required to have a 20pc deposit in the case of those trading up.
He said: "I know of estate agents who are walking sellers through the process, explaining how buyers' incomes now determine price. They're asking sellers to consider, 'what kind of couple will buy my house, and what do they earn?'. Now that mortgages are being linked to income, the price of a house shouldn't go up by more than that [rate of wage inflation] each year."
The new reality already appears to be taking a firm hold on those looking to sell their homes in the most sought-after areas of Dublin.
An examination by the Sunday Independent of the price change register on property website myhome.ie throws up numerous examples of houses in the capital where asking prices have dropped by between 6pc and 32pc since the start of September.
In the case of one three-bed bungalow in Rathdown Park in Terenure, for example, the seller dropped the asking price by €50,000 (6.29pc) from €795,000 to €745,000 on September 23.
On the more extreme end of the scale, the seller of a period house on Rathgar Road in Dublin 6 reduced their asking price by €400,000 from €1.25m to €850,000 on September 18. In this case, it should be noted that the house is an investment property currently divided into flats.
Quite apart from reduced prices now being sought by those selling properties, those with an interest in buying expect prices to moderate.
Asked what their expectations were for house prices in Dublin in the coming year, those surveyed for Daft.ie's latest buyer sentiment survey said they expected to see growth of 3pc. The figure represents a fraction of the 12pc price growth anticipated by those surveyed a year ago, and prior to the introduction of the new mortgage rules.
Daft's latest quarterly figures show annual house price inflation in Dublin decreased from 24.5pc between 2014 and 2015 to just 2.4pc this year. The situation outside the capital stands in stark contrast. Here, the average rate of price increase jumped from 2.1pc between 2014 and 2015 to over 13pc in the past year. Urban house prices in Cork, Galway and Limerick are now rising by nearly 20pc a year.
The stricter lending criteria has played its part in cooling price growth in Dublin and in the sought-after parts of south county Dublin. But Mr Lyons noted that Dublin prices had already risen substantially in the two years to 2014.
The variation between the rate of price growth in the capital and outside the capital can be further explained by differences in the timing of the cycle of individual property markets around the country.
While the bottom of the Dublin market was reached in the second quarter of 2012, nationally, the bottom of the price cycle wasn't reached until the third quarter of 2013. In the case of Limerick city and county, the situation was even more acute, with the lowest point of the cycle not arriving until the final quarter of 2014.
According to Daft.ie's latest findings, prices have so far rebounded in Dublin by 41pc and by 23pc nationally.
This staggered nature of the timing in house price recovery across the country mirrors the prediction given by Dr Conor Skehan - now chairman of the Housing Agency - in October 2011. Interviewed for RTE documentary Property Crash - Where to Now, Dr Skehan said the recovery would come to Dublin and along the Eastern seaboard first, and would be "particularly abrupt". "I like to make the analogy of what happens when you hold a ping-pong ball under the water and let it go, the way it abruptly pops up, and I think the speed and vigour of the recovery when it happens will surprise many," he said at the time.
With the rate of house price inflation now being tempered in Dublin, Mr Lyons described as "worrying" suggestions being made in "early election kite flying" that the rules could be watered down in the near future. He stressed that the current supply shortage would not be tackled by increasing the credit supply.
The impact of the Central Bank's limits was borne out last week in the latest mortgage approval statistics.
These show a month-on-month fall in approvals and drawdowns for the first time in two years. While approvals have risen by 5.2pc annually, they have fallen by 3.1pc month-on-month.