Friday 19 January 2018

House prices 'to rise further' with easing of lending limits

House prices continue to soar out of the reach of many (Stock picture)
House prices continue to soar out of the reach of many (Stock picture)
Charlie Weston

Charlie Weston

Property prices will rise even further if the Central Bank loosens its mortgage lending rules, Davy Stockbrokers has warned.

The Central Bank is due to announce tomorrow its review of the mortgage lending rules, with speculation they will be eased up.

The expectation is that more exemptions from the deposit limits will be granted to banks.

First-time buyers may be able to borrow more money before they require a 20pc deposit.

At the moment, first-time buyers can borrow up to €220,000 with a 10pc deposit.

Amounts over that need a 20pc deposit.

The €220,000 threshold may be raised for new buyers.

Banks can exempt people from the strict deposit rule for 15pc of the proportion of mortgages they issue to owner occupiers, whether they are new or second-time buyers.

Recent data from the Central Bank shows that 13pc of mortgages issued had been granted an exemption.

This works out at around one in eight mortgages.

Banks are allowed to decide who gets an exemption, with these usually going to those with high incomes.

Experts now expect banks will be able to grant exemptions for 20pc of mortgages they issue when the Central Bank announces changes to the rules this week.

But Davy economist Conall Mac Coille said easing up on the rules would accelerate property price rises.

"If the rules are relaxed, it should help free up credit supply by raising average loan values, providing more impetus to Irish house price inflation," he said in a note to investors.

The latest figures from the Central Statistics Office show that property prices shot up by 7.3pc in the year to September.

The rate of increase has picked up since June. Prices outside Dublin have risen much more than in the capital. In the midlands, prices surged by 15pc. In the west, prices were up 12pc.

Already, economists are predicting that the Government's controversial help-to-buy scheme will create more demand for housing at a time when there is little supply.

The scheme offers first-time buyers a tax rebate of up to €20,000 when buying a new property. It is expected that this will fuel house price growth into the new year.

Meanwhile, Irish house prices were undervalued by close to 15pc last year, according to a report from the European Commission. It concluded there is scope for more house price rises here, despite recent increases.

The Commission report, on macroeconomic imbalances in EU member states. said property prices here were still recovering from under-valued levels.

Prices remained undervalued to the order of almost 15pc by the end of last year.

Ireland is one of seven countries with imbalances, alongside Germany, the Netherlands, Spain and Sweden.

Austin Hughes, economist with KBC Bank, said that while price gains since last December would have narrowed the imbalance, there was still room for price growth.

Irish Independent

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