On the move: Back in the market for the most ‘toxic financial asset’ in the world

Wed, Aug 28, 2013, 12:57

New homes schemes may offer perks such as an onsite service for car sharing, but nowadays it seems bells and whistles aren’t required to sell – even in this tough economy.

Viewers were out in force recently at Belmont in Stepaside, a development that sprung up in the blink of an eye in the foothills of the Dublin mountains. It had all the signs of a new launch: the smell of freshly thrown bark; hastily laid grass; “staged” showhouses with no detail left unturned, down to the carefully placed Margaret Atwood books on the bedside tables. It even had the signs of a successful launch too: some 400 people; brochures running out early in the day; agents scurrying from house to house; and, most importantly, booking deposits.

Looking to get in ahead of the autumn selling season, properties were “priced to sell”, as one of the sales agents said, and sell they did, starting at €260,000 for a two-bed house, and rising to €390,000 for a four-bed.

Apparently on the first day of viewing, as many as 15 deposits were taken for just 20 houses that were on sale. With 150 homes to be built on the site, there should be plenty of choice for anyone disappointed this time around. However given the level of interest, it’s likely that prices might be higher when the developers bring the next round of houses to market – indeed the prices for the development were not advertised online when it was first launched.

So who was buying?

Agents said it was a mixed bag of people, and based on the profiles of those who turned up to view the properties, it would seem that your typical first-time buyer is no more.

Gone are the days of twentysomething couples looking for a first foot on the property ladder (after all, many are still looking for a first job). Now it seems to be couples with small children looking for a home. Developers have picked up on the apparent shortage of family homes in south Dublin, with the brochure for the development pitched at this audience.

In another change from years gone by, the smallest property in the development is not an apartment, but a two-bed house, although the scheme is quite dense nonetheless.

As I was leaving I saw a happy couple, smiles stretched across their faces, getting their picture taken outside a house – presumably their new home. While much has been made of people giving up on buying property due to the difficulties of recent years (not to mind the difficulty in getting a mortgage) I wonder if this is just a temporary blip, and if for many, such as this couple, there’s still nothing quite like owning your own home. Or at least being under the illusion that it is you, and not the bank, who owns it.


***

If you’re looking for a house, don’t forget to factor in the cost of financing.

While prices might have risen substantially over the past year interest rates are also on the rise. Take the example of Bank of Ireland: in March 2012, its standard variable rate was 2.99 per cent; now it’s 4.5 per cent. Today, the cheapest variable rate on the market for a mortgage with a loan-to-value of more than 80 per cent is a hefty 4.45 per cent, offered by both EBS (owned by Permanent TSB) and AIB. On a 30-year mortgage of €300,000, the extra 1.5 per cent or so would cost an extra €257 a month – or a staggering €100,000 over the life of the mortgage – if rates were to stay the same.

These days the only way to reduce the cost of funding is to borrow less – so the news that South African bank Investec is said to be considering a foray into the mortgage market must be good news for competition.


***

If you are on the fence when it comes to buying property, you might be inclined to err on the side of caution if you agree with Faisal Islam, economics editor with Channel 4. In his new book, The Default Line, he posits the view that a mortgage – derived from the French for “death contract” – is the most “dangerous, toxic financial asset” in the world.

He argues that the ready lending of the past decade (his premise is based on the UK experience but could equally apply to the Irish situation) has condemned a generation to paying absurd prices for what is a basic human need. The alternative, he suggests, could be the stable house prices and secure rental tenure that characterises the German market.

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