Mortgage arrears deal may hammer home values
Apartment prices could plummet 10%
Apartment prices could tumble by as much as 10 per cent if banks step up their repossessions of properties, experts have warned.
Repossessions of buy-to-let properties are expected to pick up under a new plan to tackle the mortgage arrears crisis, which was unveiled by the Central Bank and government early last week.
The plan increases the pressure on banks to repossess properties as it sets out targets lenders must meet to deal with customers who have fallen behind on their mortgage repayments.
Buy-to-let investors are expected to bear the brunt of any hike in repossessions – with owners of apartments in the firing line, according to Michael Dowling, managing director of the mortgage brokers Abacus Finance.
"A lot of the buy-to-let properties at risk of repossession are two or three-bed apartments," said Dowling. "Apartment prices have already fallen by 60 per cent since the boom – and could fall by another 10 per cent if you've a glut of apartments put up for sale."
Owners of Dublin properties are more likely to see their properties repossessed than those that own property outside the capital, according to Philip O'Sullivan, chief economist with NCB.
"You will see a greater willingness among the banks to repossess properties in Dublin as they'd have more of an expectation of offloading Dublin properties," said O'Sullivan.
A report published by NCB last week said that although property prices were starting to stabilise in Ireland, any increase in repossessions could push prices down again.
"A significant potential overhang for the housing market is the banks' approach to buy-to-let properties, with the new personal insolvency regime, alongside policymakers' calls for stronger action on arrears in that space – posing the risk of repossessed units pushing down on prices and sentiment at a time when the market looks to be levelling off," said the NCB report.
Marie Hunt, director of research with the commercial real estate firm CBRE, believes that banks will only release repossessed property for sale "on a relatively controlled basis".
Some property experts believe that the price of typical family homes is unlikely to be affected by an increase in repossessions.
"Repossession doesn't always mean massive price drops," said Karl Deeter, compliance manager with the Irish Mortgage Brokers. "A lot of repossessed property that comes on the market may not be property which people want to buy. In cities, where there is a greater demand for property, prices could remain static."
Ronan Lyons, an economist for the property website Daft, said he expected banks would remain cautious about repossessions. If repossessions depress prices further, some Irish properties could sell well below their cost price.