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.
The other major obstacle is negative equity. While the banks have indicated that they will offer negative-equity mortgages, which could see thousands of homeowners carry their debt with them to a new property, they don’t seem to go far enough.
Given that someone who bought in 2006 might be sitting on a loan-to-value of as much as 200 per cent, a product that will allow them to borrow 125 per cent of combined values is not going to offer much relief. “They (negative-equity mortgages) aren’t going to work, because they don’t fit the circumstances people are in,” says Dowling.
And negative equity is hitting buyers in other ways too. Take the example of a couple who successfully bid for a house, only to find out that the vendor’s bank had to give permission for the sale to go ahead as the sellers were in negative equity and were chancing their arm in trying to sell it.
The bank refused to do so and the deal fell through.
Executor sales are also causing buyers difficulties, as disagreement on the sale price between numerous siblings or lengthy probate can see buyers back away from properties.
Stock levels also remain an issue, with homeowners reluctant to sell in the current market meaning that there aren’t enough properties. In this respect, it’s not unusual to find three to four parties bidding on a property, says Martin Doyle, branch manager of Sherry FitzGerald in Drumcondra, Dublin, who adds that with more realistic asking prices, the gap between this price and the actual sale price is narrowing.
“Some will go a little bit over the asking price,” he says.
With the arrival of the price register however, it is hoped that some property owners who may have shied away from listing their property, as they feared it wouldn’t sell, might now take the plunge.
The price register is showing that demand is strong in particular areas and houses are selling.
Getting mortgage was easy but deeds confusion slowed receivership sale
A FEW MONTHS ago, Mark Walsh (pictured with his partner Jennifer Donnelly and their baby Millie) found himself in the somewhat unusual position of being approved for a mortgage by two banks – and he hadn't yet turned 24.
After the arrival of a new baby, he and Jennifer had started looking to buy their first home. Having got the go-ahead from the bank, they focused their search on second-hand homes in the Blanchardstown area where a three-bed house would set you back €150,000-€160,000.
In the end it was the finish of a new home that caught their eye however, and they opted to buy in a new estate in Ongar, Dublin 15, two months ago.
But while getting mortgage approval might have been straightforward, closing the sale was a little more complicated.
The house was a receivership sale, and while Mark was able to negotiate €5,000 off the price, confusion over the deeds to the property slowed down the process. In this regard, he would suggest that other people considering buying from a receiver should bear in mind that it might take a bit longer than they think.
While delighted with their new home, Walsh concedes that he did have some concerns about the stability of the euro and the future direction of prices, although he feels they are close to bottom.
"I know people say they might go a bit lower but I can't see them going too much lower.
"There is good value at the moment," he says, adding that they managed to secure their home for pretty much cost price.
Negative equity trying to move on
WHEN GILLIAN Hardy and her husband bought their three-bed semi-detached house in Dublin it was at the height of the boom. As she concedes, they spent a "stupid amount of money" buying it, and then spent more again on renovating it.
Two children later her family is finding it a tight squeeze. "The house is unsuitable; there is no space downstairs and we are falling over each other. Proximity and access to good schools has also become more important to us," she says.
So, trading-up to a bigger house in an area that has access to the schools they would like is the desired option but, as with many other homeowners who bought in the boom, Hardy and her husband are finding this difficult.
"Unfortunately we find ourselves saddled with negative equity of about €80,000," she says. "The lesson we've learned from it all is that we wished we had exercised more common sense."
With limited options, the couple is now hoping to get one of those much discussed, but seldom seen, negative-equity mortgages, through their lender Permanent TSB. This would allow them to sell their home and carry the outstanding debt to the mortgage on their new property.
It's proving to be a tricky process and Hardy is less than optimistic about their prospects, despite the fact that they are now earning considerably more than they were in 2006.
They have also approached another lender with a view to renting out their home and buying another, but the amount they were offered to borrow was too small.
It's a frustrating situation. As Hardy notes, they could now buy a four-bedroom house in their desired area for about €425,000, which is less than what they originally paid in 2006. But, so far, negative equity has held them back.
Another consideration is that as time moves on, they are getting older and will be constrained when it comes to the mortgage. "It's now or never when you look at the term of the mortgage a bank would give us," she says.
