Monday 22 January 2018

One-in-three houses sold below Central Bank threshold

Paul Melia

Paul Melia

JUST one-in-three homes in Dublin were sold for less than €220,000 last year, meaning buyers in the capital will face an uphill struggle to secure a property under tough new lending rules.

An Irish Independent analysis of property sales shows that people hoping to buy will be forced to save tens of thousands of euro before banks will approve a home loan.

This is because the Central Bank has decided that first-time buyers will be required to provide a deposit based on 10pc of the value of the property up to a limit of €220,000, and 20pc for amounts above this threshold.

But an analysis of the Property Price Register, which records selling prices, shows a paucity of properties selling in the capital, Wicklow and Kildare for under the €220,000 threshold.

The shortage of properties will force buyers to save more before securing a mortgage. For a house costing €300,000, the deposit will come to €38,000 for first-time buyers and €60,000 for existing homeowners, who will have to find 20pc.

The Central Bank rules are designed to prevent a repeat of the property collapse which devastated the economy, and have been largely welcomed.

But a lack of new homes coming on stream will place upward pressure on prices, meaning many people will be unable to buy in the medium-term.

A report on the housing market from Goodbody also warns that it may take until the end of the decade before housing supply returns to 'normal levels' - and suggests that prices will rise by 7pc this year and 5pc in 2016, placing further pressure on buyers.

This is largely because just 11,000 units were built in 2014, when 30,000 homes every year are needed to meet demand because of our young population.

"It may take until the end of the decade for supply to match expected household demand, given development and planning lags, construction sector capacity constraints and limited financing," the 'Irish House Market' report says. "The supply shortages are most acute in the Greater Dublin Area."

Property prices have rocketed by as much as 50pc in the capital since 2012, following the economic collapse. They have risen by 14pc nationally in the same period, Goodbody says.

But the Property Price Register shows that while nationally some 67pc of all homes sold are below the €220,000 threshold, in the Greater Dublin Area, Cork and Galway there are fewer homes available under this amount.

It shows:

• Between January 2014 and January this year, some 12,691 homes were sold in Dublin. This figure excludes sales of multiple units in one transaction, and those sold for less than the full market price.

• Of the total, just 4,664 fell below the €220,000 threshold, or 36.75pc. A further 29pc cost between €220,001 and €350,000, with the remainder above €350,001.

• In Wicklow, just under half of all homes sold below the threshold, with a corresponding figure of 54pc in Kildare.

• The situation is less acute in Meath, where two-thirds of sales would have involved sourcing a deposit of 10pc.

• While the problem is less profound in other counties, one-in-four homes sold in Cork and Galway fetched more than €220,000. These two counties are considered to be areas of high demand.

• Nationally, some 40,679 homes were sold. Of these, 27,596 (67pc) fell under the threshold.

• Just 2,615 cost more than €500,001, a national average of 6.4pc but rising to three times this figure in the capital.

One of the country's main mortgage lenders, Bank of Ireland, has warned the Central Bank that it will take the 'average' first-time borrower four-and-a-half years to save a 10pc deposit under the new rules.

While banks have no problem with the regulator's plan to limit to three-and-a-half times gross income the amount that can be loaned, this will severely limit the amount of money that can be borrowed.

If implemented in full, this rule will reduce the amount a couple on a combined €75,000 income can borrow by around €100,000.

The Property Price Register shows that the rules will not affect people living in predominantly rural counties, particularly those with large numbers of ghost estates - less than 3pc of properties in Roscommon, Leitrim and Longford sold for more than €220,000 during the period analysed.

The Goodbody report says that the housing market is two years into what it describes as a "sustainable recovery", and that the first stage of this recovery is illustrated by rising prices, led by market conditions in Dublin.

It also says demand has is growing as labour market conditions, confidence and the banking system have recovered "in the context of the fastest-growing economy in the euro area" and due to our young population.

Irish Independent

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