Saturday 7 December 2019

Property market revival haunted by nightmare of negative equity

ARE rising house prices a good or a bad thing? Well that depends on a range of factors, such as whether you're buying or selling, are in negative equity or in the enviable position of having only a small mortgage or being mortgage free altogether.

Bank of Ireland’s Richie Boucher believes the recent rise in house prices reflects confidence among buyers that the economy is growing again
Bank of Ireland’s Richie Boucher believes the recent rise in house prices reflects confidence among buyers that the economy is growing again
The upturn in house prices has received a modest welcome

Ronald Quinlan and Joanna Kiernan

Given the havoc our national obsession with home ownership has wreaked on all our lives over the past decade, it's hardly surprising that the return of rising house prices has received something of a guarded welcome from those surveyed for the Sunday Independent/Millward Brown poll.

When asked if they welcomed the recent increases in the price of houses, 46 per cent of respondents said they did, while 13 per cent said their support for rising prices was conditional.

Some 34 per cent of respondents, meanwhile, were clear that the recent resumption of house price rises has been an unwelcome development; while seven per cent of those polled said they didn't know if rising house prices were welcome or not.

Significantly, the age of those polled would appear to inform their opinion in relation to the resurgence of the property market.

Indeed, of the 46 per cent who welcomed the recent rise in prices, support was higher among those aged between 45 and 54, at 52 per cent; while 51 per cent of those aged 55 and above favoured the price rise trend.

Given their respective age groups, one could reasonably surmise that a large proportion of these respondents bought their homes before the country was caught up in a property buying frenzy.

Any increase in property prices, therefore, would translate into an increase on the equity these respondents would have in their homes.

For those respondents in their mid-40s who may have bought their homes in the early stages of the bubble, the recent rise in house prices may have been sufficient to lift them out or alleviate the burden of negative equity.

But while those who've paid their mortgages off or at least paid them down substantially are happy to see the value of their homes on the way up again, others who might be thinking about taking that first step on to the so-called property ladder are understandably less than thrilled that prices are rising.

Some 41 per cent of respondents aged between 18 to 24 and 39 per cent of those aged between 25 and 34 don't welcome the return to house price growth, according to the findings of today's poll.

But where public opinion might be divided on the subject of rising house prices, those with a professional interest in the property market are clear that it's a welcome indicator of the country's economic recovery.

Asked by the Sunday Independent if he welcomed rising house prices, Bank of Ireland (BoI) CEO Richie Boucher said: "I think what we're seeing is confidence coming back into the market and that's a reflection of confidence in the economy. We see employment numbers increasing and that's going to be reflected in house prices, some of which are coming off very depressed values anyway."

Asked if he agreed with Finance Minister Michael Noonan's recent assertion that there was no need for concern as house prices were still a long way from the peak they had hit during the boom, the BoI chief added: "I think house prices are a reflection of the economy as a whole, and they're a reflection of affordability factors and the funding and liquidity that's available. It's hard to predict or say what's the right price for property. Affordability is the main thing."

Clearly mindful that interest rates are at historic lows, Mr Boucher made it clear that the BoI would be careful to assess the capacity of mortgage customers to withstand future rate increases.

"Interest rates are likely to stay low for a period of time. When we assess a mortgage, we assume there could be rises in interest rates. It's [the level of mortgage] an income multiple," he said.

Responding to recent criticism of his bank's effort to attract new mortgage customers by offering to pay their stamp duty, Mr Boucher said: "It doesn't impact on the loan assessment. The key [when giving mortgages] is affordability. We look at something [like stamp duty] which is an expensive item and we see [paying] it as something that can attract customers.

"It's a commercial proposition. We're not in the broker market so we don't pay broker fees, which can be up to one per cent as well."

But while Mr Boucher and his BoI colleagues may be keen to give out new mortgages, the ongoing fallout of Ireland's property crash would appear to be hampering the normal functioning of the housing market.

"You have a huge amount of people living in family homes who can't sell because of their negative equity," Robert Hoban, director of auctions at Allsop Space told the Sunday Independent.

"Normally, in a functioning market you would have thousands of properties coming to the market which would be sold in the normal course of life – when you trade up, when you move jobs, when you get married, when you move out of your family home – all of these things would usually involve a house coming to the market, but they're all trapped.

"So the normal flow of properties is not coming to the market," he said.

For this situation to change, Mr Hoban believes that house prices will either need to rise to meet the value of home-owners mortgages, or some mechanism which allows people to sell their homes and carry their negative equity with them will need to be introduced.

Asked what kind of properties were in demand, he said: "There's a huge demand for family homes. Generally that's a house, but it could also be a town house or a large duplex, so when anything like that comes up we'll get multiple bidders and they generally go for a strong price."

According to Hoban there are very few family-friendly homes on the market, particularly in Dublin and other urban areas. Despite the lack of appropriate family homes, Hoban says he has noticed an increase in the confidence of Irish property buyers as well as a larger number of private sellers who use the auction room to sell their homes 'transparently' and without any of the 'smoke and mirrors' that can often be involved in private sales.

"In our auction rooms, the domestic buyer has strengthened," Hoban explained. "In 2011 and 2012 we were selling 20 per cent of properties to overseas buyers and they were a mixture of Irish abroad and foreign investors."

"Interestingly, the number of overseas bidders has increased since, but the number of successful overseas bidders has decreased," he added. "At our last auction in February, 94pc of the properties were bought by people in Ireland.

"So even though there is talk of overseas funds coming in and buying up half of Ireland, that's not necessarily the case in the auction room."

Michael Grehan , the managing director of Sherry FitzGerald Residential in Dublin, says he has noticed an increase in people buying investment properties – something which he believes is down to the sharp increase in rents.

"Property is back on people's investment agenda again," he told the Sunday Independent.

According to Grehan the number of prospective buyers, who are actively looking for properties to purchase in the current Irish market has increased by approximately 40 per cent. However, the supply has not increased accordingly.

Sherry Fitzgerald has also noticed a small increase in the number of people buying second homes and in those who are choosing to move out of rental accommodation and on to the property ladder.

"There has been a lot of talk about apartments being unsellable over the last five to seven years but apartments are very saleable at the moment, for both investors and downsizers," Grehan added.

Carol Tallon, the author of the Irish Property Buyers Handbook, believes that first-time-buyers and those eager to move are creating another 'mini property bubble' in many urban areas around Ireland.

"There is very little new stock coming to market, especially in Dublin, so the chronic shortage is very real and buyers are having to fight in some areas over family homes that are coming up," she said.

Tallon believes that while first-time buyers might be in a better position than those who bought property during the boom, they could be in danger of making the same mistakes if they buy out of desperation.

"The average age group has gone from mid-20s back to people buying for the first time in their mid- to late-30s now," she said.

"Now many first-time buyers are in a much better position with maybe up to 30 per cent deposits, which would have been unheard of during the boom. But first-time-buyers at the minute are paying more for properties than investors and if the recovery slows down at all, the people who bought in the last year could be in danger of negative equity still."

Tallon advises that first-time buyers looking for property in urban areas wait two years until more houses become available.

Sunday Independent

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