Banks tell families --no loans for homes
Mortgage approval plummets by 90% as banks hoard bailout cash
A RECOVERY in the property market is being stopped dead in its tracks by the banks, which are turning down at least half of all mortgage applications -- mostly from people who are highly creditworthy.
With many experts now convinced that the market has gone below bottom, the difficulty in accessing credit for even high-quality applicants has reached crisis point.
Banks are continuing to reject applications for credit and 2011 looks like posting the worst mortgage-origination figures in four decades.
On Friday AIB, which is to merge with Educational Building Society, won conditional approval from the European Commission for yet another capital injection -- this time of up to €13.1bn. It is part of more than €19bn that was approved after the latest bank stress tests and comes on top of billions in taxpayers' money that has already been pumped into the banking sector but not passed on to the customer.
The claim that banks have stymied recovery in the property market comes as Charles Gallagher, founder of Ireland's only remaining publicly listed housebuilder, Abbey PLC, insisted that there could be a "healthy rebound in the housing market" here if mortgage-lending conditions were to improve.
Instead, it looks likely that only 11,000 mortgages will be approved this year -- down from 111,253 at the height of the boom in 2006.
Broker Kevin McNerney of the Trusted Advisor Group said there were thousands of potential buyers out there who believe that the market has finally bottomed out.
But for many of them affordability was either not the issue or was only secondary to the problem of getting access to credit.
"In the last few months, there has been a steady increase in the level of activity in the market," said Mr McNerney. The numbers of people turning up at showhouses and contacting estate agents is increasing. More importantly, the number of genuinely interested people has definitely escalated.
"However, a major hurdle to the rejuvenation of Ireland's property market is not the lack of interested buyers but rather the number of mortgage applications submitted to the banks, compared to the number of applications that are declined. My estimation is that at least half are being turned down."
Mr McNerney said that from his own personal experience there was an increase in the number and quality of applications being received.
"Unfortunately, this is not translating into an increase in the number of mortgage approvals from lenders.
"The majority of people I speak to at present would be looking to buy in the Greater Dublin area and most would be of the opinion that the prices have pretty much gone as low as they will go, or at least are certainly at a level now that makes it much more feasible for these people to buy rather than stay renting.
"Unfortunately, though, the banks are still being very tight in certain areas where I feel they could use some leniency. I am not saying they should go back to the lending practices of three years ago but a bit of common sense would not go astray."
Last week, Frank Conway of moneycoach.ie said that the banking sector was continuing to focus on improving bank capital, which can only be done by bringing money in, not lending it out.
"Anecdotally, individual cases may be approved but this is not for the masses, especially not for those who are in negative equity or who now regret their investment decisions," said Mr Conway.
The latest EBS/DKM affordability index shows that property is now more affordable than at any time in the past 25 years. Funding a mortgage on a new home will cost the average first-time-buyer couple just 13 per cent of their joint income today -- down from 26.4 per cent in 2006.
Nationally, the net income needed to fund a mortgage for the average working couple is expected to fall to just 12.9 per cent (15.6 per cent in Dublin) by September -- creating the most affordable house-purchase scenario since the mid-Eighties.
House prices keep falling -- by 12.2 per cent in the year to the end of May -- but new mortgage lending remains low. According to the Irish Banking Federation (IBF), the number of mortgage loans issued continued to decline.
Just over 3,000 mortgages were issued in the first three months of this year, according to figures from the IBF. That is the lowest level of mortgages since records began.