‘Reluctant landlords’ should offer budgetary lesson

As Michael Noonan and Paschal Donohue put together next month’s budget, they will attempt to do something for first-time buyers.

The clamour to get eager young people onto the property ladder has been growing over recent months.

Such campaigning has been bolstered in the past week with the publication by the CSO of its new and improved Property Price Register.

In 2010, according to the statisticians, over 50% of property purchases were made by first-time-buyers.

By last year, in a market flooded with wealthy cash-buyers and institutional players, the figure had fallen below 25%.

Dáil deputies have been left in no doubt by angry constituents that those blasted Central Bank mortgage rules are keeping young Johnny and Jane from buying their home sweet home. 

So, something will have to be done.

Let’s, for a moment, put to one side the debate about whether a first-time buyer’s incentive will work or not, and spare a thought, this budget day, for an oft-forgotten group of people.

The story of Ireland’s ‘reluctant landlords’ provides a salutary lesson.

Despite what you may have read or heard, rising house prices have not yet slain the negative equity dragon. Tens of thousands of people, most of them in their 30s and 40s, are still burdened with Celtic Tiger millstones.

Many are forced to seek larger properties, most commonly due to the challenges presented by growing families, but find that they cannot sell up. This creates two problems.

First, they must rent out their properties. Second, no-one is going to offer them an additional mortgage — and they are now at the mercies of Ireland’s soaraway rented sector.

Many reluctant landlords aren’t clearing the mortgage on their properties. They’re topping them up after rent.

Then there are the costs and the inevitable work that comes with being a landlord. At the end of the year, tax must be paid on the rental income. Charged at the marginal rate, only 75% of mortgage interest can be written off.

As for the almost mythical ‘negative equity mortgage’ — they’re rarer than hen’s teeth. The banks have been offering mortgages that enable owners to sell their home and then transfer the outstanding negative equity onto a new, more expensive property.

These mortgages exist outside the Central Bank’s lending restrictions — so, in theory, the 20% deposit is not required. In practice, though, there has been barely a trickle in take-up.

Either the banks haven’t been selling the message loud enough — or the qualifying criteria is not as clear-cut as we’re led to believe.

Yes, for those in significant negative equity there has been mortgage interest relief for many years now. However, interest relief has its limits — it only applies to those who are owner-occupiers.

Once the reluctant landlord moves out — they kiss interest relief goodbye. We won’t hear much about this group of homeowners over the next month or so — but perhaps we should. They, too, were once encouraged and incentivised by Government and very vocal vested interests.

Rent was ‘dead money’ — home ownership was deemed by most as the only way to go. Now, this group of people find their ability to spend or save severely constrained.

Instead of going out and splashing a bit of cash on consumer goods or services they are ploughing it into accommodation costs. Everybody needs to take a pause right now.

Should the Government go down the road of a tax rebate scheme for new home-buyers, or a deposit top-up scheme, it runs the risk of driving up house prices further. There is no need to supplement the demand for property. The problem is on the supply side.

The Central Bank lending restrictions have, undoubtedly, prevented the housing market from running away with itself again. The new rules have played a vital role in averting another bubble scenario, but clearly there is a legitimate argument for them to be tempered or adjusted slightly.

By all means tackle the under-supply of new homes. When it comes to putting more money in home-buyers’ pockets however, think of our generation of ‘reluctant landlords’ and think twice.

Paul Colgan is economics editor with Ireland Live News on UTV Ireland.

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