Path to purchase does not run smooth
The rise in some home prices and the new property price register have brought a fillip to the market but there are still hurdles for buyers, writes FIONA REDDAN
IT’S FIVE years since the bottom fell out of the property market, but finally there are signs emerging of the first, tentative green shoots. Last month the Central Statistics Office reported the highest price rise since 2007, while the new Property Price Register offers putative purchasers much-needed transparency and those looking to sell, some confidence of the sale price their property might achieve.
But while there may be significant pent-up demand from buyers, can they overcome the challenges they face to finally turn the key in their new home?
Or will a combination of negative equity, lack of financing, and low levels of properties for sale and fear stymie their efforts?
For now, the biggest obstacle to a fully functioning property market remains the lack of credit.
“One of the biggest problems we’ve got is that there isn’t sufficient credit available for the number of buyers that are out there. I’ve never experienced a situation where it’s as difficult as it is now to get mortgage finance,” says Michael Dowling, spokesman for the Independent Mortgage Advisers Federation (IMAF).
Kevin McNerney, a director of The Financial Planning Company agrees. “About two or three months agothe majority of applicants were approved. But since then the banks seem to have tightened up again,” he says, adding that you might now be offered 10-15 per cent less by the bank than previously.
Indeed Dowling finds that stress-testing by the banks of between 6-6.5 per cent is restricting a lot of potential buyers because, while they might have a track record of paying rent, it’s typically not at a high enough level to match the stress-tested repayments. And this is what the banks are looking for.
To illustrate his point, he cites a recent example of a couple, who had sold their home for €400,000, and were looking to trade up to a property worth €550,000.
With €300,000 in savings, and a gross income of €140,000, the couple were confident of getting a mortgage of €250,000 to fill the gap to buy their new home.
However, they were turned down by their bank, because the stressed repayments on the new property were far greater than what they had previously been paying.
It may not make sense but given that one in three mortgage applications were turned down last year, it’s not unusual.
Yet as the banks slowly return to some form of equilibrium, it is hoped that this might start to change. Earlier this month Bank of Ireland launched a €2 billion mortgage fund to help first-time buyers and movers to buy a home in the remainder of 2012 and throughout 2013, up from the €1.5 billion it made available last year.