Wednesday 20 September 2017

One in three houses sold for more than bank threshold

Houses are selling for more than the bank threshold.
Houses are selling for more than the bank threshold.
Paul Melia

Paul Melia

THERE will not be enough new homes built to meet pent-up demand until at least the end of the decade, a stark report on the housing market warns.

The collapse of the construction sector, lack of planning permissions and shortage of funding for new developments means houses prices will continue to rise as buyers compete with each other for scarce units.

And an analysis of property sales by the Irish Independent shows that tough new mortgage lending rules will have a profound impact on buyers hoping to secure a first home or move to a larger property.

One in every three homes sold across the country last year cost more than €220,000, according to the Property Price Register, meaning buyers will face an uphill struggle to secure a home loan under tough new lending rules.

Last week, the Central Bank decided that first-time buyers would be required to provide a deposit based on 10pc of the value of the property up to a limit of €220,000, and 20pc for amounts above this threshold.

For a house costing €300,000, the deposit will amount to €38,000 for first-time buyers and €60,000 for existing homeowners, who will have to find 20pc.

The high prices come as a report, the 'Irish Housing Market' by Goodbody, warns that just 11,000 homes were completed last year at a time when 30,000 were needed.

While construction activity will rise to EU averages, it will not be enough to meet higher demand here, it says.

Shortages are expected to be most acute in Dublin, Wicklow, Kildare and Meath, but problems are also expected in other parts of the country.

This is because there is a shortage of new builds and homes coming onto the market in recent years due to the collapse of the construction sector and a lack of funding for new projects.

An analysis of the Property Price Register also shows that one in three homes sold across the country were above the €220,000 threshold, meaning a higher deposit will be required before a housing loan is approved.

It shows:

• Nationally, some 40,679 homes were sold between January 2014 and January this year. This figure excludes sales of multiple units in one transaction, and those sold for less than the full market price.

• Of the total sales, 13,083 were above the €220,000 threshold, or 32pc.

• The counties with the lowest number of these units available for sale below the threshold are Dublin, Wicklow, Kildare, Meath, Cork, Galway and Kilkenny.

• The new rules are least likely to affect people living in predominantly rural counties, particularly those with large numbers of ghost estates.

These include Roscommon, Leitrim and Longford, where fewer than 3pc of homes sold for more than €220,000 over the period analysed.

The Goodbody report also warns that the lack of supply will continue to drive prices, which are expected to increase by 7pc this year and 5pc in 2016, placing further pressure on buyers hoping to secure a home.

"It may take until the end of the decade for supply to match expected household demand, given development and planning lags, construction sector capacity constraints and limited financing," the Irish House Market report says.

Property prices have rocketed by as much as 50pc in the capital since 2012, following the economic collapse. They have risen by 14pc nationally in the same period, Goodbody says.

One of the country's main mortgage lenders, Bank of Ireland, has warned the Central Bank that it will take the 'average' first-time borrower four-and-a-half years to save a 10pc deposit under the new rules.

While banks had no problem with the plan to limit to three-and-a-half times gross income the amount that can be loaned to people, this will severely limit the amount of money that can be borrowed.

Recovery

If implemented in full, this rule will reduce the amount a couple on a combined €75,000 income can borrow by around €100,000.

The Goodbody report says that the housing market is two years into what it describes as a "sustainable recovery", and the first stage of this recovery is illustrated by rising prices, led by market conditions in Dublin. It also says demand is growing.

"Housing demand has remained strong in Ireland even through the recent deep recession, due to the country's young and growing population," it says.

"This helped mop up the supply excesses of the boom years. Demand has risen further in as labour market conditions, confidence and the banking system have recovered in the context of the fastest-growing economy in the euro area."

A reluctance by banks to foreclose has also contributed to the low number of homes available for sale, it says. Last year, some 102,000 mortgages were in arrears but just over 2,000 had been repossessed.

Irish Independent

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