Wednesday 13 December 2017

Banks' loan plans could hit recovery in regions

Donal Buckley

It's in everyone's interest that all borrowers and all properties are assessed on their long-term merits

The banks are in serious danger of shooting themselves in the foot and undermining the regional housing market as well as the economic development of the regions. These disasters could result from their plans to favour major urban areas when it comes to deciding which home buyers to favour with mortgages.

Recently mortgage adviser Karl Deeter warned that when banks increase their lending levels later this year they are expected to favour lending for properties in cities.

He said a number of lenders had indicated they would favour mortgage applications from those buyers who are based in more populous areas.

This discrimination has already begun to be reflected in the way that banks are demanding that those buyers seeking loans for apartments outside of the main cities of Dublin, Cork and Galway should pay a larger portion of the property price from their own savings.

Mr Deeter believes that banks will find it safer to lend for properties in the major urban areas.

"There is more competition for properties and more transactions in cities -- they are a better bet," he says.

The banks appear to be basing their evidence on a simplistic reading of the Central Statistics Office house price index which shows that prices for properties outside Dublin continued to fall in the first four months of this year. In contrast the price of houses and apartments in Dublin increased for a second month in a row in April.

However the CSO figures also show that house prices in Dublin are now down 55pc from their peak whereas prices outside the capital have fallen by 47pc.

Now there are some people who would argue that surely these contrasting figures show that regional prices are a safer bet as they did not rise as much and therefore have not fallen as sharply as their Dublin counterparts.

But the banks appear to be allowing speculative thinking by economists to influence their mortgage selection process.

The latest rental survey points to increases in rents in the urban areas of Dublin and Cork, while rents elsewhere continued to fall. This is treated as further proof as to why banks can offer mortgages for Dublin and Cork investment properties.

But some letting agents believe that apartment rents in Dublin are showing only marginal increases at best.

Furthermore the CSO figures should be read in the context of recent buyer activity as reflected at auctions.

In the six Allsop Space auctions up to May this year as many as 58pc of the buyers were from parts of Ireland outside Dublin with Dubliners buying less than one third of the properties. Dublin residential properties accounted for 47pc of the properties sold and 66pc of the value of the sales.

This shows that regional buyers are much more active and are buying in the capital.

By the banks favouring such buying activity there is a risk that this will further exacerbate the gap between the two markets and keep regional markets in the doldrums for even longer.

Indeed discriminatory bank lending can become a self-fulfilling prophecy as it will encourage price rises in the cities and lack of finance will further undermine prices in weaker regions. Furthermore it would also weaken the value of the banks' own loans for regional properties. Recently an Economic and Social Research Institute report showed that the Government's regional development policy was a failure. Yet another report showed that the highest levels of vacant homes are located in the regions. Meanwhile banks are offering to sell properties to some customers in off market deals. Such moves do nothing to restore faith in the banks or in the transparency of the markets. Furthermore they combine to exacerbate the vulnerability of our rural communities and economies.

It's in everyone's interest that all borrowers and all properties are assessed on their long-term merits and not the basis of short-term prognostications on which area of the country may win the race to recovery.

The Government, which owns key banks, needs to ensure that the banks tread carefully and also that the seeds of recovery are spread evenly and transparently.

Indo Property

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