Anyone know who 'approves' of new lending regulations?
Mortgage availability - more than anything else - will mould the Irish market in 2016, writes Sinead Ryan
Amid the noise of politicians, lobbyists and commentators opining on the property market on everything from homelessness to the demise of the Dublin 6 market, perhaps one figure stands above all, and indeed, drives all other conversation.
It comes from the Banking and Payments Federation which shows the number of mortgage approvals for property purchase dropped by 14.1pc over the year (the value by 12.6pc) most notably in the final quarter, the biggest decline since they began reporting in 2011.
Now, where does this fit in with all the snazzy ads about 'Backing Brave' or 'Unlimited Cash Back' offers, never mind the free legal fees, cut-price insurance and whatever you're having yourself, trumpeted by banks as they bend over backwards trying to chuck cash at us?
It doesn't. The truth is that mortgage lending is still at risible levels. It's not all the banks' fault, clearly. The Central Bank threw a not-inconsiderable spanner in the works in January which filtered through to the market by April in mandating higher deposits. The market itself pulled back as over-heating had been felt by late spring, and the number of new-build projects hit miserable levels.
Turnover in the residential market amounted to just 42,000 properties during the year, according to the Institute of Professional Auctioneers and Valuers (IPAV), a meagre 2pc of the market. A less dysfunctional system would see a minimum of 100,000 given our population size.
With all the talk of celebrating the Rising in 2016, it won't extend to a rising mortgage market, says broker Karl Deeter. "The changes to lending criteria and in particular the Central Bank changes meant that while 90pc LTV (loan to value) mortgages were available, as the year progressed more banks started to withdraw them. Due to the way the figures are going to be reported in 2016 it will be a case of, 'Want a 90pc mortgage? Get it in January or July'. And that's because the half-year periods are going to be the times in which they are mostly available."
On top of these, January and July may also be the peak months when the 'opt out' mortgages become more likely. These are the discretionary loans banks are allowed to make to those who don't meet the criteria of either 10/20pc deposit or 3.5 times income (see panel). Will they now offer them in a rush in the first quarter or 'eke' them out over the year?
If it's the latter, how will they know how many to hold back in terms of lending? What constitutes a 'good enough' customer for them? It's all a bit haphazard for a rule that was supposed to end all the speculation. At least one bank has run into trouble by offering all its exceptions in a rush, leading them to refusing more applicants towards year end. The pillar banks managed their loan books a bit better and evened out their distribution of exceptional cases.
Although it has not been said, these are in essence upper middle class to upper class exemptions. They won't be offered to nurses or guards. These exemptions are in practice being used as an enticement to lure borrowers in the upper income brackets.
"The rules are premature in a market where lack of supply is the issue. And in such a market the effect of crude lending restrictions is that the weakest financially are getting hit the hardest," says IPAV chief executive Pat Davitt.
One positive change, says Deeter, was that interest rates came down during the year, in particular fixed rates as banks came under pressure to explain Ireland's excessive rates compared to those enjoyed by our EU neighbours. Although all banks rocked up at the Banking Inquiry, and most were (or tried their best to sound) contrite, the truth is that pillar Bank of Ireland in particular never had any intention of reducing rates for customers. It is no longer State controlled, and can do what it likes. And it does. It saw right through Michael Noonan's limp threat to sanction it - and the Finance Minister blinked first. Introducing a suite of lower fixed rate products was a sop and its 2pc cash back offer, which is extremely attractive to buyers, merits being balanced out against higher level variable rates over the term.
State-controlled AIB did reduce its rates a couple of times across the board, because it was told to. The others were a mish-mash in between; the foreigners like Ulster and KBC were under no compunction to pay any regard to Noonan.
So, if the Minister isn't a threat, and the CBI is impotent, what will do the trick? Competition, says Deeter. "I think it will occur in 2016, it's just really slow to happen. Supply side issues need to resolve, credit is only one half of one side of the property market so it's the little brother of things for now, but that isn't a sign of good health, a high proportion of cash sales [up to 50pc in many markets] is a sign there are other issues at play."
Borrowers outside Dublin definitely get a better deal and the deposit rates are not posing a problem even in cities, as €220,000 still buys plenty of bricks and mortar. However, with many rural areas now seeing growth in house prices, 2016 will be interesting in terms of affordability in places like Cork and Limerick.
The key issue, mainly in Dublin, remains supply and this shows no signs of abating in 2016. There have been calls among experts to introduce higher 'Dublin Deposit' limits to compensate for the higher prices, but so far it has fallen on deaf ears.
Will developers build? Why should they if they can't turn a buck and borrowing is a problem for many of them too. Minister Alan Kelly has U-turned on apartment sizes, but without credit to match the demand, there's little scope for movement.
Nama is proving a success story in many ways, and its quest to build 20,000 units will set the cat among the property pigeons, however mortgage brokers recount the pain of trying to close sales with the State behemoth, or receivers where delays around title, finances and closing are "the biggest nightmare" according to one. "Receivers say they accept an offer, go sale agreed but then won't sign the contract off".
On the plus side, banks are happy to offer mortgages on Nama properties, especially new builds where they are working hand in glove with developers. The builds are high quality and properly inspected by the agency, making them a good risk, if it all does take a few months longer to tie off the deal.
So, what's envisaged in the 2016 mortgage market? Mortgage loans will still be like hens' teeth for starters. Without meaningful foreign competition, interest rates will remain higher than the EU and there'll be less stick to wave about by the Department of Finance. Criteria and selection will remain fussy and cash sales, still surprisingly high, will continue to distort pricing, leaving the geared borrower at a disadvantage on in-demand properties.
More of the same, then.
Five things you need for a mortgage
1. Get your bank statements in order. Banks will scrutinise them for consistency, spending and items that look 'out of the ordinary' for at least six months. If you have a regular deduction for, say, a gambling App, get rid of it. If you have inconsistent payments going out, make sure you can explain them. If you have payments disappearing to another account, expect to be asked about it.
2. Get your Deposit history. Is it enough, where did it come from and can you show a clear savings record? Banks disapprove of gifts and other loans to make up your deposit.
3. Have your employer lined up to supply P60s, information on salary, bonuses or anything else you're relying on for a loan. If you are self-employed, you must provide at least three years of audited accounts.
4. Get your life insurance sorted. It is a mandatory requirement, but you don't need to buy it from the bank. Shop around, or ask a broker. Bear in mind there may be medical or other data required before it is issued, so give it time. At worst you'll pay an extra couple of premiums, but you cannot draw down your mortgage without it.
5. The house you buy matters to the bank. Surveyors' reports, auctioneers values will count. Most banks will not mortgage a pre-63 house that needs renovation so don't set your heart on a 'project' without checking first.