‘A bit of a dogfight’: Being a first-time buyer in 2017
Relaxation of lending rules has caused a spike in mortgage approvals and prices
Allie Cooke, who is moving out of her rental accommodation as it is being sold. “I can’t see myself buying in Dublin any more. I’ve seen prices jump from €170,000 to upwards of €220,000.” Photograph: Alan Betson
“There’s definitely a bubble,” says Damian Fitzgerald. Since he and his fiancée started house hunting, “things have gone up maybe 10 per cent in a few months in Bray alone. For a relatively nice semi you’ll have a bit of a dogfight.”
The would-be first-time buyers bid €320,000 for one property that had been listed at €305,000. “Later that evening it jumped €20,000. That’s the frightening thing. Suddenly your deposit figure shoots up.”
Fitzgerald (39) works in the pharmaceutical industry in Wicklow. The couple rent an apartment in Loughlinstown, south Co Dublin, for €1,600, and have been saving for two years to buy a house for up to €360,000 near where they live now.
“Anywhere near our asking price means you’re either talking a very fixer-upper house in Shankill, or moving to Bray.”
They found getting a mortgage straightforward and have a bid in on a property in Bray for €320,000.
“The mortgage repayments would be noticeably less than our rent at the minute. Fingers’ crossed. I know we’d be moving from Dublin 18 to Bray, but you’d have the bonus of not scrambling for a deposit any more.”
But the trouble is: the market itself appears to be rising almost by the week.
Allie Cooke also wants to buy her first home – a house or flat in Dublin – for between €180,000 and €220,000.
I thought trying to get the mortgage would be tough. Buying is much harder. I can’t see myself buying in Dublin any more.
In 2014, in her mid-30s, she moved to a houseshare to save for a deposit. Although she has a permanent university job, Bank of Ireland initially refused her a mortgage but, in 2015, she received approval from AIB, and KBC matched the amount. Several properties in her target areas of Kimmage and East Wall were affordable at the time.
Two years later, the only areas she can afford are Ballyfermot, Santry, Ballymun and west Dublin – far from her friends and family. “I thought trying to get the mortgage would be tough. Buying is much harder. I can’t see myself buying in Dublin any more. I’ve seen prices jump from €170,000 to upwards of €220,000.”
Before Christmas she offered €186,000 for a flat in Maynooth in a “very Celtic Tiger” sealed bids process. Cooke was delighted to secure the property, only to be advised by her solicitor to pull out, due to a problem with the property’s title.
Dissatisfied with other properties for sale, she has now decided to rent for another year.
When Ireland’s love affair with property left us broken-hearted and destitute almost exactly 10 years ago, we swore we would never fall under its spell again. But the current housing market is starting to look worryingly similar to the way it did during the Celtic Tiger.
There is double-digit price inflation year-on-year – more than 10 times the rate of general inflation. The cost of renting is 15 per cent higher than it was at the height of the boom. Mortgage approvals rose 42 per cent in the 12 months to the end of February.
Meanwhile, anecdotes fly: of weekend viewings attracting scores of would-be buyers with panic in their eyes; of estate agents nailing “similar required” panels on to “Sold” signs; of leaflets falling through letter boxes, boasting how many homes have sold in “your area” recently.
The average cost of a three-bed semi-detached house in Dublin is now over €400,000, according to a survey published by the Real Estate Alliance (REA) at the end of March. Focusing on the sale price of typical three-beds, the estate agency found prices in the capital climbed by €15,000, or 3.9 per cent, to €404,167 in the past three months, while nationally the same houses rose 3.5 per cent in the same period. Overall, the average house price across the State climbed by 10.9 per cent in a year.
The rise in mortgage approvals and prices have occurred largely because late last year the Central Bank eased restrictive mortgage-lending rules for first-time buyers.
This had “an immediate effect with a large rise in numbers at viewings and potential buyers with mortgage financing”, the agency said.
“There has been a recovery in bank lending, which has been reflected in the purchasing end, but the accelerated figures in the Dublin market particularly show that we are moving into a vendors’ marketplace,” REA spokesman Healy Hynes says.
Also, “many private vendors are now emerging from negative equity and can afford to make the move from the starter to the second home”.
In a separate housing report, Investec said prices and rents were likely to keep rising until the end of the decade because of a mismatch between supply and demand in both prices and rents. It has forecast house price inflation of 6 per cent this year and 5 per cent in 2018.
Folk memory works well for certain groups but it doesn’t work for everyone. Everyone needs to get their ass kicked in their own unique way to learn their lesson.
Investec said the Central Bank’s mortgage lending restrictions, introduced in February 2015, may have been overstated. They had merely “deferred demand” as prospective buyers saved more to meet stringent requirements limiting the amount they could borrow.
“In any event, the recent introduction of [the Government’s] Help to Buy [scheme] and modest relaxation of the CBI rules have served to give an added kicker to prices.”
Should we be scared of another bubble, or will everything be alright this time round? Mortgage broker Karl Deeter has conducted an extensive survey of Irish house-price data spanning three centuries and numerous property cycles. He is not convinced our collective memory of the post-2007 crash will offer any protection against another bubble.
“Folk memory works well for certain groups but it doesn’t work for everyone,” he says. “When teenagers have their first love they think it is the real one. They don’t heed any of the lessons [of older people] and they make the same mistakes in love and in life as you made. Everyone needs to get their ass kicked in their own unique way to learn their lesson.
“My generation was kicked in the head and got over it and moved on, so we won’t be prone making the mistakes that we made.” But today’s first-time buyers don’t have the same memories.
“Just look at the UK,” says Deeter. “It had a massive crash in the early 1990s and everyone said it could never happen again.” Fifteen years later, it did.
Deeter says history suggests that, when it comes to property, people have a great capacity to distance themselves from what has happened to others and what is happening in the wider market.
“You also have to put yourself in the shoes of a renter paying €1,900 who can buy a place with a mortgage costing €1,700 a month. How do you tell them not to do it because the price they are paying for the house is too high when they don’t understand interest-rate risk; because, for the adult life of anyone born in the 1990s, interest rates have never gone over 4.5 per cent? Folk memory only works for certain folks.”
High rents are a huge factor for first-time buyers, making it both desirable and difficult to buy. Rebecca Ganly (34) lives in Dublin with her fiancé Dave O’Kane, originally from Waterford. They hope to get a mortgage for €420,000 for a new-build house, so that they can get 5 per cent of the house value off the deposit. They live with her father to help save money for a deposit, and are looking at houses in Knocklyon.
“I’d like to think we’ll be able to get something but you never know,” Ganly says. “In one development they have a three-bed going for €385,000. Across the road there is a smaller three-bed development [where they are] €420,000 each.”
Both of them work in advertising and have saved between €1,500 and €2,000 a month since April 2016. They may have to seek a loan from Ganly’s father for the €42,000 deposit, however.
“To get €42,000 of a deposit, it would take most couples four years. I think it’s impossible to get a house without help. Imagine paying €1,400 a month – which is the lowest most couples pay for an apartment – and also saving €1,600 a month?”
“There’s a lot of pressure there,” she says.
Economist Ronan Lyons has been poring over housing data for property website daft.ie for more than 10 years and has seen good times and bad. When he started out, virtually all the talk from estate agents, economists, developers, civil servants, politicians and newspapers, was about a soft landing and a recovery in a market that was then starting to look shaky.
He hesitates when asked if we are seeing another bubble. No-one wants to say everything is “grand now”, or at least no one with any memory of saying everything was grand before wants to say so again.
Instead, Lyons points to differences between now and then. “When you look back at the mortgages given out in the bubble years, the banks were less than rigorous when checking paperwork, while they are much more assiduous now.”
Pricing data due out next week from Daft will show significant increases across the board, echoing the news at the end of March but, Lyons argues, it is not simply a case of “here we go again”.
We are building around 15,000 homes a year when we need three times that number.
“How we view property has changed. I think if you asked most people today if they would be happy to buy a one-bedroom apartment just to get on the property ladder, you would get a very different answer than if you had posed the question 15 years ago. Back then, getting on property ladder was all important but people would be very reluctant to buy those kinds of properties now.”
He says supply issues remains at the core of a largely dysfunctional market. “We are building around 15,000 homes a year when we need three times that number. The real challenge is getting supply at the right level, in the right place, and at the right time.”
To address supply, Lyons believes key questions need to be answered not least why it costs so much more to build in Dublin or Cork than then in Belfast or Copenhagen? “I don’t think the Government knows the answer to that question and if the Government doesn’t know how else can anyone know? Is it developers’ profit margins? Builders’ wages or the price of nails? Or something else entirely? Until we figure that out we have a problem.”
Lyons also believes regulations aimed at ensuring developers built apartments to much higher standards than in the boom have had unintended negative consequences on the wider market and stymied good developers from building decent accommodation.
He says an “us against them” mindset has developed in local authorities and a belief has taken hold that if “something is good for a developer then it must be bad for a city”. That does not have to be the case, he says.
Figures just released by estate agents Douglas Newman Good suggest an annual house-price increase of just under 10 per cent with double-digit increases in the apartment sector. But the firm’s managing director Keith Lowe plays down talk of a bubble.
A cynic might say “well, he would say that wouldn’t he?” and, while he is quick to acknowledge he is an interested party, he insists that we are not inflating a bubble this time round. The market, he says, remains fractured and is not “normal”.
His thesis is supported by the Property Price Register which shows 47,000 houses and apartments sold last year. Around 100,000 transactions would have occurred if the market was working as it used to, he says.
And, according to the register, around 6,500 newly built homes were sold last year. At the height of the boom 80,000 new-builds were sold in one year, and in a normal market more than 40,000 new homes are required each year. “I think we are a million miles away from the normal functioning market,” Lowe says.
He also suggests banks, the institutions whose lax lending practices did so much to fuel the last bubble, “are now actually protecting the wider economy”. “They are absolutely rigorous, and that is a huge change and will protect the economy going forward,” Lowe says.
“They are being absolutely forensic with applicants, and anyone applying for a mortgage has to tick every single box. In the past, banks were lending indiscriminately and people could walk in off the street and get a 100 per cent mortgage paying interest only. That caused huge problems.”
Also, he says, the Central Bank is watching the market “like a hawk”.
Karl Deeter agrees to a point. From the crash in 2007 until around four years ago, access to credit all but dried up. At that point, he says, “we started to see good responsible lending from the banks. In a strange way, the banks are due thanks for keeping variable rates artificially high.
“They were probably doing more to suppress property prices than the Central Bank because they have made the cost of credit high.”
The Central Bank’s restrictions on lending in 2015 “kept first-time buyers in the rental sector while driving up prices”. The Central Bank’s recent relaxation of the rules means those first-time buyers “are now coming into a higher price environment”.
Every time Britain gets it in the neck, it lifts our boat. When Brexit occurs we are going to see more companies looking to locate here
And what does that environment look like from an estate agent’s point of view? Lowe says firms are “not seeing what you think we are seeing. We don’t have queues out the door. What we are seeing is normal viewing patterns, and steady viewings and steady sales. You read the headlines and think we are in a very different place to where we are but that is not the case. Fewer houses were sold last year than in 2015, and the market is still very much in a state of recovery.”
Deeter is certain a bubble is on the way, although not yet. He predicts that prices will climb for at least five years – not least because of a post-Brexit bounce. Historical precedent suggests that Britain’s difficulties are frequently Ireland’s opportunities, he says.
“During the Napoleonic wars, Irish property prices went through the roof. During World War I we had a boom, as we had in World War II. Every time Britain gets it in the neck, it lifts our boat. When Brexit occurs we are going to see more companies looking to locate here, and our property market will feel an uplift.”
Rent is also a huge factor. He says people are “facing into wild rents that are higher than they were at the peak. Any time you can buy house more cheaply than renting you have demand. Either rents have to collapse or the price of ownership needs to go up, to restore balance. To me that is a signal that house price inflation will be persistent.
“I would say we are back where we were in 2000,” says Deeter. “Back then there were big price rises and an undersupply, and people struggled to get loans so they weren’t able to get what they wanted.”
Meanwhile, despite mortgage approvals rising, that “prudence” by lenders is still pricing many people out of the market.
Shane Murphy owns Lavender Landscapes, a design and construction business outside Cork City. For the past four years he has had a salary of around €50,000, but has been offered a mortgage of just €132,000. Three-bed semis in the Cork commuter belt sell for around €350,000. He currently commutes from Macroom, and lives in a converted office pod he built on family land.
Friends of mine who went to Australia in their late 20s are coming back buying investment properties. We’re the missed generation, those who stayed.
“I’ve had a saving capacity, or a mortgage-paying capacity, to buy a €300,000 house for nearly four years. As I’m self-employed, they deduct my company’s loans for equipment from my earnings, and offered me a mortgage of €132,000 over 30 years. But I could actually save the same amount in seven years.”
The bank has told Murphy to use €75,000 of capital he keeps to offset any downturn in business. He feels he is being punished for his prudence. He applied for 4.5 times the earning figure calculated by the bank, for a €175,000 mortgage. He was refused.
“They won’t invest in me as a risk. But I’ve proven over four years there is no risk. I paid myself back out of the recession. The name of the game is don’t spend all your capital.
“Friends of mine who went to Australia in their late 20s are coming back buying investment properties. We’re the missed generation, those who stayed.”
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