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House prices slide on back of plan to limit mortgage lending

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House prices easing. Photo: Rui Vieira/PA Wire

House prices easing. Photo: Rui Vieira/PA Wire

PA

House prices easing. Photo: Rui Vieira/PA Wire

House prices have fallen for the first time in 18 months, in the clearest sign yet that the huge growth in the market may be cooling off.

Asking prices fell by 1pc in the last three months of the year, reported property website Daft.ie.

This is the first time prices have slid over a three-month period since the middle of 2013.

Experts are linking the downturn with Central Bank plans to limit mortgage lending.

Competitor Myhome.ie also said asking prices eased in the last three months of the year, and warned any increases will be moderate in the coming months.

The dip in asking prices was not confined to one area, with prices dropping across the country.

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Daft.ie house price survey

Daft.ie house price survey

Daft.ie house price survey

Daft said asking prices in Dublin fell by 0.7pc between September and December - the first time Daft recorded a reduction in the capital since 2012.

In Cork and Galway, prices fell 1pc compared to the end of September, while Limerick and Waterford recorded dips of 3pc and 4pc respectively.

The Daft survey tracks asking prices, rather than the final sale price of property around the country.

Asking prices are seen as a strong indicator of sentiment in the market. In some cases can show movement ahead of sale prices themselves.

While asking prices are down quarter on quarter, they are still far higher then they were this time a year ago.

Significant increases in Dublin earlier in the year mean that prices remain about a fifth higher than a year previously.

However, the 20pc year-on-year increase is still a slower rate of growth than earlier in 2014, when prices were gaining at a rate of 25pc per year.

Outside the main cities, the average asking price across the country fell by 1.3pc, but asking prices remain some 7.6pc higher than they were at the start of last year.

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myhome.ie property barometer

myhome.ie property barometer

myhome.ie property barometer

Elsewhere, myhome.ie also found that asking prices eased in the last three months of the year, while still higher than the end of 2013

It estimates some 40,000 properties were bought during the year, up almost 40pc.

While average asking prices in Dublin were up 2.2pc since the end of 2013, the rate of increase was down on the previous two quarters when asking prices grew by 3pc and 4.5pc.

While it found average asking prices increased by 2.6pc nationally to €194,000 over the year, MyHome.ie also warned new guidelines from the Central Bank mortgage lending will limit the rate of price increases seen in recent times.

Caroline Kelleher, from DKM Economic Consultants, said uncertainty over a number of new developments in the market is also likely to dampen the rate of price increase in the coming year.

“The Central Bank’s new guidelines on mortgage lending which are expected to introduce a Loan to Value limit of 80pc for new lending along with separate proposals to restrict any residential mortgage to 3.5 times gross annual income have the potential to limit the rate of price increases seen in recent times,” Ms Kelleher said.

The reports comes on the back of the most recent report on house prices from the Central Statistics Office, which a fortnight ago said property prices in Dublin fell for the first time since February.

Economist Ronan Lyons, who compiled the Daft report, said the numbers showed that Central Bank plans to significantly tighten rules for how the banks dispensed mortgages were already having an effect on the market, even before they were implemented.

The Central Bank wants to cap loan-to-value ratios at 80pc and limit lending to three-and-a-half times a borrower's salary.

While sources do not expect that plan to be implemented in its current form, the drop in asking prices appears to show that it is already having a strong effect on market sentiment.

"The intention of the proposed Central Bank limits on mortgage lending is to limit increases in house prices by affecting both buyer expectations and the credit available to them," said Dr Lyons.

"It seems that, even though the limits have not yet come into force, they have already had some impact. For example, when asked what they expected will happen Dublin house prices over the coming 12 months, survey respondents in September expected an increase of 12pc. In December, however, that figure had fallen to 5pc," he said.

"Restricting the amount lent to each household is a necessary first step to ensuring a stable housing market.

"The second step is addressing the cost base, to ensure an adequate supply of housing. With fewer than 30,000 properties on the market currently - and just 3,500 of those in Dublin - this is the challenge for policymakers as we move into 2015," Dr Lyons said.

The survey results will raise questions if the market has peaked in its current cycle.

Despite the strong growth over the past two years, prices are still far below than the peaks witnessed during the credit-fuelled boom of the last decade.

Daft claims that the average asking price nationwide is now €193,000, 12.8pc higher than the value of €171,000 recorded at the start of 2014.

That puts current prices at just over 51pc of the record asking price of €378,000 that was posted in 2007.

Irish Independent