Could return of bridging loans help fix our current housing supply problem?

The successful purchaser signed unconditional binding contracts on the date of the auction, with the closing date and handover of keys taking place about six weeks later.

Overall, the entire process took two to three months and was relatively straightforward.

So, why does it now take at least five to six months to buy a home?

I remember a conversation early in my career with a more experienced colleague who explained how auctions worked in the 1980s. Prospective purchasers would attend an auction and only after successfully bidding for the home of their choice would they finalise their mortgage and take steps to put their own house on the market.

Shocked to hear this? So was I. Back then, if you managed to secure a verbal agreement with the bank to buy a property, it was relatively easy to purchase it.

Lenders also offered bridging finance – a short-term mortgage allowing a homeowner to buy a property prior to selling their home first, with the loan being paid off in its entirety following the sale.

Fast forward to today and we find ourselves dealing with a completely different process in securing mortgages and buying properties.

Following the property price crash between 2007 and 2011, restrictions on lending and borrowing were imposed via Central Bank regulations, as well as internal rules at financial institutions.

Lenders that had been approving 100pc mortgages were now implementing a stringent process for those seeking financial support to buy a home.

As late as 2015, the Central Bank formalised tight lending ratios as they feared the large increase in average property values between 2013 and 2014 was a repeat of a trend experienced before the crash.

These restrictions were not subsequently eased, despite property values having recovered to levels last seen in 2005 and 2006 and purchasers able to offer large deposits.

The annual increase in property values during the Celtic Tiger was phenomenal and driven purely by ease of securing credit, so it is understandable why the Central Bank increased the restrictions.

However, we now find ourselves in another dysfunctional market. This time, the rise in property prices is due not to ease of credit, but to a shortage of supply to meet significant demand.

The submission process for mortgage approval is currently extremely regimented and challenging.

Large deposits are required, and should purchasers identify a home requiring work, they need to have funds for the refurbishment costs on deposit, as financial institutions are wary about exposure to increasing building costs.

Once a property is identified and a sale is agreed, the conveyancing process commences – a process that has become equally laborious.

The intensity with which a title must be checked by the purchasing solicitor to qualify for financial institutions has increased dramatically, often slowing down the chance of completing a sale promptly.

While there are many homeowners who wish to sell, and are confident their homes will sell, they are reluctant to place their home on the market until they secure a new property. Why? Because they are worried that if they don’t find a suitable property after selling their own home, they will be priced out of the market because of how fast prices are rising. It is a vicious circle.

So what could help?

The simple measure of re-introducing bridging finance would certainly be a step in the right direction.

Bridging loans are generally unavailable from Irish banks, due to the fact that Ireland implemented the EU Mortgage Credit Directive in 2016, which required lenders to explain the features and risks of the product in much greater detail. Most chose to stop providing the finance instead.

While it may not be wise to grant bridging finance at similar levels to 15 years ago, when credit was virtually unlimited, it could make sense to allow it in certain circumstances, particularly for purchasers whose current home is mortgage free or has a low loan-to-value ratio.

This will help minimise the buyer’s leverage and prevent purchasers from over-extending. It would also make the finance essentially inaccessible to speculators or house-flippers.

Having such a financial facility available would mean homeowners – particularly those looking to downsize and who have cleared their mortgage in full – could secure a new home while reducing the risk of being priced out of the market in the middle of the buying process. They can then sell their existing property, secure in the knowledge they have a home to move into.

This option would also remove the fear of being forced into the short-term rental market, which comes with its own insecurity, shortages and pricing challenges.

As a result, more family homes would come onto the market, helping reduce the shortage of supply, especially in the secondary market.

If we don’t find ways of changing the system for the better, the housing market will continue to be a very stressful and frustrating environment.

Michelle Kealy is divisional director of Lisney Sotheby’s International Realty