Wednesday 28 June 2017

First-time buyers feel squeeze with €43,000 rise in cost of new home

'Fewer homes have been sold so far this year compared with the same period of 2015, and they are about 20pc more expensive, an analysis of the Property Price Register shows' (stock photo)
'Fewer homes have been sold so far this year compared with the same period of 2015, and they are about 20pc more expensive, an analysis of the Property Price Register shows' (stock photo)
Paul Melia

Paul Melia

Newly built homes are costing an average of €43,000 more today than a year ago, raising serious concerns that young families are being priced out of the market.

Fewer homes have been sold so far this year compared with the same period of 2015, and they are about 20pc more expensive, an analysis of the Property Price Register shows.

Sherry Fitzgerald chief economist Marian Finnegan Photo: Doug O'Connor
Sherry Fitzgerald chief economist Marian Finnegan Photo: Doug O'Connor

Experts warn that developers' focus on high end homes is a key problem in the housing market which has largely failed to cater for first-time buyers (FTBs) since the economic collapse.

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In many cases, only expensive and larger properties are being built, earmarked for cash buyers or those on higher incomes. This is due to uncertainty surrounding the ability of FTBs to secure a mortgage capable of meeting asking prices for starter homes.

And there are major concerns that supply will not ramp up in the short term to bring completions to the required 25,000 per annum, with just over 10,500 houses and apartments finished so far this year.

Director of research and chief economist with Sherry Fitzgerald, Marian Finnegan, said the lack of investors and FTBs in the market meant that builders were only completing homes which sold quickly.

Read more: Making it easier for first-time buyers will hike up prices

Around half of all transactions were cash, and activity in the market was less than expected.

"What has happened is the new homes we are building are more expensive," she said.

"In one instance, prices were up 25pc in the value of new homes sold nationally in the first half of this year compared to the first half of last year.

"There's no point in building houses that no one can buy. If you don't have investors, and first-time buyers which account for around half of the new homes market, you won't build starter homes.

"We haven't seen massive changes in the treatment of investors, and we need more investors. You won't turn back on the tap (of supply) tomorrow. We should start to see some movement from next year, and we might see 18,000 (completions)."

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The figures come in light of changes to Central Bank lending rules this week which reduce the amount of money FTBs have to save to secure a mortgage.

Deposit

From January 1 next, 10pc of the property purchase price must be saved towards a deposit before a mortgage can be secured. Under the old system, FTBs must have 10pc of the first €220,000, and 20pc of the balance.

For a €300,000 property, the new rules require a deposit of €30,000. The existing arrangements require a deposit of €38,000.

However, the changes have been criticised amid fears they will fuel house price inflation. AIB chief executive Bernard Byrne said they were likely to spur price hikes, but added that rising prices would have a positive impact on the market because it would encourage more development.

Fianna Fáil has also criticised the changes, which come after the Government announced a help-to-buy tax rebate where 5pc of the purchase price to a maximum of €20,000 will be refunded from income tax payments and which can be used to form part of a deposit.

Read more: We can't blame the Central Bank any more if the builders don't start cranking up diggers on sites

But there are few homes available for this cohort of buyers. Figures released by property website Daft.ie found there are just 2,540 properties on the market that quality for the tax rebate, with just 643 in Dublin, where demand is keenest.

The lack of new homes coming on to the market means that scarce supply is being snapped up. Official figures from the Central Statistics Office (CSO) show that prices rose 7.3pc in the year to September. However, the Property Price Register data suggests that the price paid for both new and second-hand homes today is far higher than the average for last year.

The average price paid for all homes this year is €240,240, an increase of €22,000 or 10pc. A new-build costs €260,600, up 20pc or €43,000. The figures also show almost 40,000 transactions of new and second-hand homes have been completed so far this year, down 2,310 on the same period of 2015.

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While official figures show that 10,500 units have been completed in the first nine months of 2016, experts believe this figure is over-stated.

"A lot of these would be units which are being finished off. I think the number of completions could be closer to 8,000 when these are taken into account," one said.

The Construction Industry Federation has also warned that not until 2018 will supply begin to return to normal levels as builders ramp up activity.

Irish Independent

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