Sharp decline in investors using buy-to-let mortgages to fund investments

Property investors accounted for less than 1 per cent of all mortgage drawdowns in 2020, indicating a sharp move away from buy-to-let mortgages to fund investments. The year also saw a further decline in the level of activity of investors in the market, with the number of investors acquiring properties – with cash or otherwise – falling again.

According to the latest Housing Market Monitor for the fourth quarter of 2020, published by the by Banking & Payments Federation Ireland (BPFI), property investors accounted for less than 1 per cent of all those who completed the purchase of a property with a mortgage last year, down from a peak of 20 per cent of mortgage drawdowns back in 2006.

While buy-to-let mortgages are available in the market, they come with high rates (of about 5 per cent), while under Central Bank rules, borrowers must put up at least 30 per cent of the purchase price themselves.

Figures also show that investors accounted for just 10.6 per cent of market purchases last year. This is down from 12.1 per cent in 2019 and 20.6 per cent in 2014.

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However, stepping into the gap left by property investors are other non-household buyers, such as private companies, charitable organisations and State institutions. According to the BPFI figures, these now account for 23 per cent of all market transactions, up from 3 per cent in 2010.

Despite a challenging year in the face of the Covid-19 pandemic, the data from the BPFI shows that there were 35,617 mortgage drawdowns valued at €8.4 billion in 2020 and 43,151 mortgage approvals in the same period with the total value reaching €10.3 billion. Almost half of approvals (44 per cent) came in the last four months of the year.

First time buyers were the dominant force last year, accounting for about 53 per cent of mortgage drawdowns by value. This compares with just over 21 per cent in 2006 when mortgage drawdown activity was at its peak.

And the buoyancy seen in the last months of 2020 – at least in terms of approvals – looks set to continue into 2021. Mortgage approvals in the first quarter of the year rocketed ahead by 24 per cent when compared to the same period in 2020. However, drawdowns fell, with 105 fewer homeowners completing their house purchase, at a total of 12,154, in the first quarter of the year, when compared with 2020.

Outlook

While construction has been restricted due to the Covid-19 pandemic, the BPFI expects housing output in 2021 to be “at least similar” to levels observed in 2020 at around 21,000 units.

Nonetheless BPFI chief executive Brian Hayes said that demand is still likely to surpass supply. This could put more pressure on prices.

“Given supply disruptions in the residential construction sector in the first quarter of 2021 and the expected continued demand for housing from certain cohorts of income earners as well as the non-household sector, it is likely that the supply-demand imbalance in the Irish housing market will continue during 2021,” he said.