Sunday 26 May 2019

Housing market bad on both sides of coin

Critics blame Cowen for failing to act on stamp duty earlier


IT'S been a bad week for house sellers and buyers as the credit crunch sinks its teeth into homeowners and potential house purchasers. Taoiseach Brian Cowen has been slammed for causing this crash and is being criticised for ignoring what is really going on. Some leading forecasters now say that many average homes will fall by as much as 25 per cent by the time the property recession is over.

On one hand, the credit crunch has led to a halving in the number of mortgage approvals for first-time buyers in the past 12 months, meaning many can't reap the reward of the price collapse

On the other hand, in what will make awfully uncomfortable reading for homeowners throughout Ireland, your house is now worth almost 10 per cent less than it was last year. Even worse the rate at which our houses are losing value is quickening and there appears to be no respite in store for at least a year.

For some of those seeking to buy a house, the slump in house prices is most welcome. For many first-timer buyers, a drop of 10 per cent and the absence of stamp duty means for their €500,000 or €600,000 they are now able to consider houses they could only dream of a year ago. But they are the lucky ones.

Many of those wanting to buy a house have had their hopes dashed by the ending of 100 per cent mortgages and have been forced to delay their plans and save for a deposit.

Crucially, the latest figures from the Irish Banking Federation show that in comparison with the first quarter of 2006, where first-time buyer approvals grew by more than 20 per cent, this year they are down by at least 45 per cent on the same period last year.

"First-time buyers have been hit and hit hard by the credit crunch, and so far our Government has done nothing to help them or intervene in the market," said Labour's finance spokeswoman Joan Burton.

"Cowen himself killed the property market stone dead by failing to act on stamp duty in December 2006 and now he and his Government are on auto-pilot," said Labour's deputy leader.

For mortgage holders, the news of house-price collapses means they are waking up this morning in negative equity. People are carrying mortgages on properties worth less than their borrowings, but many of those are in for the long haul and will survive the current crisis.

But at the extreme end of the collapsed housing sector is the increasing number of repossession orders being made to the High Court by financial institutions.

Last week alone saw a number of leading financial institutions, such as AIB and Bank of Ireland, take their place on the list beside the sub-prime lenders seeking to repossess properties from payment defaulters. Sub-prime lenders, which provide loans and mortgages to those with chequered credit histories, filled the lists at the courts last week. Two lenders -- Start mortgages and GE Capital -- accounted for most of the cases.

Worryingly, the number of possession applications this year remains at the same high level of 2007, which had jumped 50 per cent on 2006, showing the drastic impact of what happens when things go wrong.

Despite the claim by the Financial Regulator Pat Neary that relying on repossessions is the "final option", Dermot O'Leary of Goodbody Stockbrokers said that there was no doubt that throughout this year, consumers would see house repossessions increase. "They are the byproduct of a slowdown, and while they have been at a historic low, there is no doubt we will see the number of housing repossessions rise as the slowdown takes hold," he said.

In the face of the increasing number of banks taking back properties, the need now arises for establishing a State- backed mortgage relief fund beyond the current system set in place by the Department of Social Welfare.

Such a fund to help those remain in their homes is surely more humane than booting people out on the street. Two factors will continue to keep the house market depressed throughout this year and into 2009.

Firstly, credit is far less available than it was 12 or 24 months ago. Banks across the board have tightened up on their lending criteria, with the aforementioned death of 100 per cent mortgages.

Borrowers seeking mortgages have had to resort to saving deposits, forcing many to sit by and watch house prices tumble without being able to do anything about it.

Secondly, the ECB is now highly unlikely to reduce interest rates in 2008, despite previous indications that such a drop might happen. That means the squeeze on already stretched mortgage holders is not about to subside until sometime next year.

The latest ESRI/Permanent TSB figures that show house prices falling by 9.2 per cent in the 12 months to April will hit most homeowners hard.

Goodbody had initially said that the total price drop would be 15 per cent from peak to the expected trough in 2009, but Mr O'Leary said yesterday that will now be over 20 per cent. Confidence is already shaken, and with €30,000 wiped off the price of an average house the pressure on Mr Cowen and his Government to act is mounting steadily.

Economic growth will be doing well to make it to the 1 per cent the Davy report suggested last week, with many economists, including Alan Ahearne of NUI Galway, saying that it will more likely be in negative figures.

As a direct result of his stubborn inaction on stamp duty, the subsequent collapse in the housing market, which led to the wider economic slowdown, the Taoiseach's Government is now facing a budgetary crisis with his admission that the National Development Plan is under threat last week exposing his failure.

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