First-timer’s home help
THE end of the tunnel may not yet be in sight for the Irish property market, but the offer of 25% mortgage relief to first-time buyers (FTBs) next year has shed a little light in a gloomy place.
Designed to stimulate the market, and increase first-time buyer activity, the mortgage relief measure has been welcomed. Commentators say the budget didn’t free up credit from the banks, which is what is most needed to stimulate the housing market.
But amidst all the economic gloom, the looming Euro crisis, and the fallout from a punitive budget, this availability of 25% relief is good news for young couples and singles who want a home of their own.
Also encouraging is the fact that mortgage rates have come down.
But the main positive for potential buyers is that house prices have continued to fall.
The third-quarter figures from the Central Statistics Office show that house prices have fallen by 45% since their highest level in 2007. These figures show a decrease of 53% in Dublin prices and a 42% decrease in the rest of the country during this period. The CSO records a 15% decrease in house prices nationally for the first three quarters of this year just ending.
Sherry FitzGerald report an even steeper fall and say that prices have fallen back to 2001 levels. At the end of the third quarter, they reported that houses prices had fallen nationally by 57.5%, and by 62.3 % in Dublin since 2006.
They say that between October, 2010 and October, 2011 house prices have fallen by 16.9% nationally. Their figure for Dublin is 18% and 12.9% for Cork.
The EBS/DKM affordability index figures released in November showed that the cost of funding a mortgage on a new home for the average FTB working couple stood at 12.4% of joint income. This has come down from a figure of 26.4% in 2006.
According to this report, the average house price in September this year was €178,400 nationally, and for FTBs was €148,000.
But the key difficulty for many FTBs is that they are unable to take advantage of falling house prices, simply because they cannot get credit from the banks.
This is clearly shown by the latest figures from the Irish Banking Federation, with mortgage loans drawn down for the third quarter this year just 50% on the third quarter last year (from €1.24bn to €623m). In 2010, the total figure for mortgages was €4.75bn, while the figure for the first three quarters of this year was €1.82bn.
In this contracting mortgage market, first-time buyers have been increasing their share. In the third quarter this year, they accounted for 47% of all mortgages approved, which Irish Banking Federation say is their highest share yet since current records started in 2005.
Savills Cork director, Catherine McAuliffe, reports an increase in cash buyers this year and says their sales to first-time buyers in Cork accounted for 40% of the market, while they put the figure nationally at 35%, up on 30% in 2010.
“We did see an increase in first-time buyer activity before the budget and we are now expecting an increase in the new year because of new mortgage interest relief,” she says.
Given that first-time buyers are taking the major share of mortgages, it might have been expected that they were increasing their share of house purchases. However, in its third-quarter report Sherry FitzGerald says the FTB share of purchases has dropped, due to an increase in activity of other owner-occupiers who are both trading up and down. This increase is mainly due to the reduction in stamp duty in the previous year’s budget.
“First-time buyers are still the most active cohort, but have decreased from 51% last year to 38%, while in Dublin the figure is 27%,” says Sherry FitzGerald’s chief economist, Marian Finnegan.
She says that there has been an increase in cash buyers and that 28% of active buyers registered with Sherry FitzGerald now have cash. Given the decline in the level of mortgage approval, it might have been expected that overall sales would be down, but because of the increase in cash buyers, Finnegan says Sherry FitzGerald has not found this to be the case.
“Overall sales are largely on par with 2010, and in Cork sales are forecast to be up 15% on 2010 by the year end,” she says.
While welcoming the new mortgage interest relief measures for first-time buyers, Finnegan has been critical of the Government for not using the budget to introduce specific residential lending targets for the banks.
She says that this is the way to restore the market to normality, which she says has now over-corrected. “The banks have been recapitalised, they should be able to lend,” she says.
Given that prices are still falling, commentators have mostly given up predicting when the market will bottom out, but most say it will be difficult for this to happen until the freeze on mortgage lending ends.
For 2012, FTBs with mortgage approval can take advantage of the reduced prices and increased mortgage interest relief.
Meanwhile, would-be FTBs who are waiting either for mortgage approval, or for the market to bottom out, will be watching very carefully.
Building and sales have continued in schemes like Manor Farm in Lehenaghbeg in Cork.
Opportunities and value all over the country for first time buyers.
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