Covid savings worth €1bn driving steep increase in house prices

Pandemic savings are playing a huge role in pushing up house prices, with an additional €1bn pumped into property purchases.

A new report today reveals the full scale of the effect on the housing market of pent-up savings amassed during the Covid crisis.

It is likely to be adding around five percentage points to house price inflation, according to the latest KBC Bank consumer sentiment index. The research also found that consumer confidence has been hit by overall price pressures and the tensions over Ukraine.

Latest figures from the Central Statistics Office show that property prices shot up by 14.4pc nationally last year, and are now just 4pc off the Celtic Tiger peak.

A special set of questions asked as part of the KBC consumer sentiment index found that one in 10 respondents who built up pandemic savings will use the money to fund an investment in housing or education.

Meanwhile, a separate report today shows there has been an increase in the number of first-time buyers getting mortgage approval and a big rise in those switching their home-loan provider.

KBC Bank economist Austin Hughes said it seemed likely that a big chunk of the pandemic savings money was being held in bank accounts to be used as deposits for property purchases by would-be homebuyers.

“On fairly crude mechanical assumptions, the various elements of these responses might imply home-buying power has been boosted by something in the region of €1bn,” he said.

He said it could be inferred the additional savings realised during the pandemic could be adding around five percentage points cumulatively to Irish house prices.

A chronic shortage of both new and existing properties has been blamed for pushing up house prices. But the KBC survey is the first attempt to put figures on the affect of pandemic savings on house prices.

People who are able to work from home may have saved on childcare, commuting and other costs during the pandemic. These people have collectively saved around €15bn above what would be normally put aside.

However, the survey shows that a third of households did not build up additional savings during the pandemic.

Worries about the pandemic, Brexit, and the risk of full-scale military conflict in Europe have prompted 17pc of respondents to the survey to say they intend holding on to additional savings for ‘rainy day’ purposes.

Mr Hughes said the increased importance of precautionary savings may be a lasting legacy of the volatile economic environment of recent years.

The consumer sentiment survey shows that worries around the cost of living, the rapid rise in Irish property prices, and the situation in Ukraine have all conspired to drag down consumer confidence. This is despite optimism around the easing of Covid concerns.

The KBC Bank consumer sentiment index slipped to 77 in February from 81.9 in January. This reversed most, but not all, of the improvement seen last month.

Mr Hughes said consumers had been hit by so much lately that they had been largely defensive in their thinking. There was now a fear among consumers that price rises would persist, he said.

Separately, figures from the Banking and Payments Federation Ireland (BPFI) show the number of potential first-time buyers approved for a loan last month is at its highest since the data series began in 2011.

A total of 1,868 first-time buyers were approved for a mortgage in January, up 9.3pc on the same month last year. This represents almost 52pc of the total volume of approved mortgages in the month.

A total of 673 homeowners were approved for a switcher mortgage in January – a rise of 37.3pc on the same month last year.

Plans by KBC Bank and Ulster Bank to close are likely to be prompting people to move their mortgages, because they do not want to see their loans sold off.

A total of 3,621 mortgages were approved in January.

BPFI chief economist and head of prudential regulation Ali Ugur said the data pointed to a solid pipeline of drawdown activity for this year.

“The report also shows an increasing trend in the volume of switching, a trend that has been continuing for some time which is perhaps a reflection of competition in the market where customers are availing of different options,” he said.