‘Buy-to-lets will dampen recovery’

As the Government seeks to turbo-charge the recovery in the Irish property market, ratings agency Fitch is predicting that the arrears crisis will continue to grow as the buy-to-let sector fuels defaults and depresses prices outside of Dublin.

In a research note, the agency said it was expecting to see more robust action from the banks since the removal of the protection of the Justice Dunne ruling which had prohibited banks from foreclosing on properties.

Managing director at Fitch’s structured finance team, Andrew Currie, said it expects to see a rise in repossessions as arrears continue to reach new highs.

“There are signs that lenders are becoming more willing to consider taking properties into possession.

“As the legal process becomes more certain, lenders have begun to selectively enforce their security over properties. However, it is clearly still the last resort as the number of cases remains extremely low, especially relative to the amount of distress in the market,” Mr Currie said.

Fitch is predicting a fall in the value of properties outside of Dublin where supply continues to outstrip demand, and as a knock-on effect of the rise in repossessions

Even in Dublin the ratings agency is predicting that the current sharp spike in prices won’t last and will stop long before Celtic Tiger valuations are reached.

“Outside of Dublin, Fitch expects house price affordability to continue to improve as a direct consequence of oversupply, with forced sales further suppressing prices. Meanwhile, the recent rate of growth in house prices in Dublin, although unlikely to persist in the long run, is putting pressure on affordability.

“This trend is expected to be short term and is unlikely to reach levels seen at the peak of the market,” the report said.

Fitch’s predictions are at odds with the findings of an AIB/ESRI survey which found that prospective buyers believed that Dublin house prices will rise by an average of 4.3% while houses outside the capital would increase by 1.5%.

ESRI economist David Duffy said that those predictions of price increases had been hit by soft figures from the start of the year.

Even with increased powers to repossess homes, Fitch said it expects to see more banks cutting deals with homeowners.