Central Bank mortgage rule change: What it means for you

 

Central Bank rules on mortgage lending have been changed? I thought the rules were still new?

They sort of are. The Central Bank rolled out new rules restricting the amounts banks could lend to would-be homebuyers less than two years ago but said at the time that they would be up for review and that is what has happened.

Has anything major come out of this review?

Again, sort of. But it does depend on who you are and where you are on the property ladder or if you are on it at all.

What do you mean by that?

The big change has been for first-time buyers. From January of next year, the ceiling on the loan-to-value (LTV) ratio for all first-time buyers will be set at 90 per cent. The ceiling for first-time buyers now is 90 per cent for loans up to €220,000 and 80 per cent for the balance.

What does that mean in terms of hard cash?

A lot. Today, if a first-time buyer buys a house worth €400,000 they need a 10 per cent deposit on the first €220,000 – €22,000 – and a 20 per cent deposit on the remaining €180,000 – €36,000. That means a person buying a €400,000 house needs a total of €58,000.

On January 1st, the same buyer will need a deposit of €40,000, €18,000 less.

That is a big deal, what impact will it have?

It will allow more first-time buyers to get on the property ladder faster.

Where does the help-to-buy scheme fit in to all this?

Ah yes, the help-to-buy scheme, we nearly forgot the initiative to help first-time buyers announced by Michael Noonan in the budget.

Under it, the Government offers first-time buyers tax rebates of up to €20,000 on new homes valued up to €500,000.

From Irish Times 24 November

More Was Needed To Increase Rental Supply

Nationwide property group, Property Partners have welcomed the ‘Help to Buy’ scheme announced in Budget 2017 but have said that ‘an opportunity has been missed’ to address the perilously low supply of rental property which currently stands at only 3,500 units in a market that has a demand for a significantly higher number. According to Ronán Long, Chairman of Property Partners, “Residential rental values are spiraling out of control, especially in large urban areas with increases of up 40% experienced over the last three years. This simply is not sustainable and while the ‘Rebuilding Ireland’ initiative addresses future needs, the short term supply of properties to rent is not being adequately addressed. The increase in the relief from 75% to 100% over the next five years is to be welcomed however the affect will not be felt quickly enough”.

Barry Herterich of Property Partners Barry Herterich added “The supply of rental properties available currently at a local level can be counted on one hand. Additional incentives are need immediately to entice investors back to the rental market. Ultimately if this is not addressed it will be the first time buyer that will be worst affected as they will continue to be excluded from both the mortgage market, due to the onerous earning requirements and the rental market due to exorbitant rents. The expected reduction in VAT on new homes from 13.5% to 9% did not materialise and would have been of real assistance in the delivery of additional homes”

Property Partners is an independently owned nationwide group of auctioneers and estate agents. Established in 2000 the group has 30 offices nationwide. Many of its principals are long established in their locality and have experienced the extremes of the Irish property market. All are members of the SCSI or IPAV and cover all sectors of the market. The group’s offices are based both in the capital and throughout the regions

“There’s a huge demand for property in Tramore.”

Dermot Keyes, Muster Express

The lack of available property for sale in Tramore was made plain by Property Partners’ Barry Herterich during an interview with The Munster Express, in which he stated that ‘more and more people’ are expressing interest in relocating there.  

"For example, on (Thursday) September 8^th, if you did an online check for all the estates along the Ring Road in Tramore – Moonvoy Valley, Meadowbrook, Clarinwood, Westbrook, Ballycarnane Woods – guess how many houses from those estates, combined, were on sale that day? Three. Just three," said Mr Herterich.

"All of those estates that were built in the late 90s, and you’re talking about traditional starter homes in terms of those looking to enter the market, there were very, very few houses across those estates for sale, and that’s a problem for first time buyers looking to buy in Tramore.

He added: “The mood in Tramore is very upbeat and really positive The town is flying. More people want to live here, and having more people living here will inject more money into the town, but to make that happen, we need more houses."

Speaking in his Main Street office, Barry Herterich spoke about the growing demand that's being expressed from "people from Waterford city, along with people currently living out in the country".

Mr Herterich continued: "What I found, during the boom years, is that people from towns wanted to go out and build a big house out in the country. But that seems to have reversed now. Now the recession has been responsible for that to some extent in that people wanted to cut down on car costs, the maintenance of a bigger house, the maintenance of a bigger garden and so on, and they wanted to be able to walk to shops and to get their children into school with a little less hassle, as well as having amenities closer to hand."

Citing the relatively recent arrivals of Tesco and Lidl to Tramore, the building of new schools in the town "and the draw of the sea, which cannot be underestimated", Barry Herterich said the area "has so much going for it now from a prospective house buyer’s perspective.

"Be it people who want to retire in Tramore or young couples wishing to relocate here with their children, the quality of life here is hard to beat."

While S.E. East Construction (Kent) has attracted strong interest and initial phase of three and four-bedroom semi-detached and detached properties at Knockenduff, Barry Herterich added: "you're still talking small scale in terms of the numbers of houses being built - so supply remains a massive issue in Tramore."  

Barry Herterich explained the two-fold impact that's been catalysed by the shortage of stock. "I’ve come across a lot of people who want to sell with the intent of trading up, but there’s nothing there for them to buy, and as a result of that, they’re not putting their homes on the market. So, in effect, you’re talking about two sales not being made when you factor in both those instances, and there are lots and lots of people who are stuck in houses that they now feel are too small for them; they can afford the bigger house, but there’s just not enough out there."

"And because there’s not enough choice, they’re then afraid to put their house on the market and get a buyer given that they’ve got nothing to move on to, so the whole dynamic of the market is not functioning properly at all. And that is a major problem; there are a lot of people who are probably not in negative equity now, who can afford to trade up, but there’s nothing out there for them now."  

Delighted with the upturn in Tramore's economic fortunes, and its status as the county's most populated town, Mr Herterich said that "having so few houses being built at present, at a time when the town is becoming more prosperous, is a symptom of the problem in the market".

Reflecting on the costs of building, which appears to be putting developers off major residential projects, Barry Herterich stated: "Building regulations seem to be too onerous and too expensive to implement. The VAT on houses and all the taxes associated with new builds, including the development charges which are ultimately passed on to the purchaser – all these costs mean that the price to build a house at the moment effectively means the builder isn't in a position to make any money...They can’t justify the risk of getting diggers and earthmovers in on land that many of them bought for top dollar during the boom. The cost of building is simply too dear."  

Prices Continue to Rise

Residential property prices continued to rise in Tramore throughout 2015 and during the first two months of 2016. Prices rose by as much as 15% during 2015 for properties up to €200,000. At the higher end, for properties in the €300k + region, price growth has been lower, around 6%. This has been no doubt due to the impact of the Central Bank’s mortgage restrictions meaning that second time buyers must come up with 20% of a deposit. For the generation who are trying to trade up to a larger family home coming up with €60 to €70,000 deposit plus transaction fees is extremely difficult when in most cases these type of buyers either have very little positive equity or possibly negative equity in their existing home.

The popularity of Tramore as a place to live is continuing to soar with many people from outside the area wanting to move here for the quality of life we are lucky to enjoy. This is one of the reasons I expect prices to continue to grow during 2016, albeit at a slower pace than the previous two years. Supply issues and restrictive mortgage rules will continue to make the search for a dream home a frustrating experience for many buyers. Unfortunately nine years after the start of the property crash we still don’t have a properly functioning market.    

Nationally, residential property prices grew by 6.6% in 2015, significantly lower than the 16.3% recorded in 2014. The slowdown in price growth was caused by a cooling off in the Dublin market with prices there rising only 2.6% in the year. Excluding the Dublin market prices in the Rest of Ireland were 10.2% higher than in 2014.  By the end of 2015 the price of residential property in the Rest of Ireland was 35.4% lower than their highest level in September 2007.

Barry Herterich BA MIPAV REV