With Ireland in a fresh lockdown of indeterminate length, what are the prospects for the would-be house buyers and sellers of 2021? Stock levels, buyer numbers and prices, which continue to be shaped by the pandemic, will determine their fate.
To view or not to view
The first question is whether it's even possible to view a property right now. Up until earlier this week, you could, providing you had viewed it online first and, more pertinently, you could show proof of funds.
That has since changed. In consultation with the Department of Housing and the Property Services Regulatory Authority, and in the context of alarming coronavirus infections, the Institute of Professional Auctioneers and Valuers (IPAV) and the Society of Chartered Surveyors of Ireland (SCSI) have agreed new guidelines with immediate effect.
“You are only going to be able to view a property if the property is sale agreed and the contracts are drafted for the sale of the property – not signed and not exchanged, just drafted,” says IPAV chief executive, Pat Davitt. Estate agents can continue to list new properties on the market.
This means most buyers are faced with a return to the virtual viewings that characterised the housing market from March to June last year.
“Between March and June, there were no in-person viewings, and very little sales and because of that, it led to pent-up demand,” says Keith Lowe, chief executive of estate agent DNG. Few, apart from a less emotionally invested investor, will buy a home without crossing its threshold first. “The reality is property sales were down around 20,000 compared to the year before and it was simply over that three-month period,” says Lowe.
The current guidelines will be reviewed on January 31st, though current infection rates make a quick easing unlikely. When an easing does come, it will be gradual. It is likely to mean that those wishing to view a property in person must again show proof of funds. Any avalanche of viewings may be tempered by this.
Are there serious buyers out there right now? The answer is yes. Record numbers are seeking mortgage approval
“If someone comes to us and says ‘I haven’t sold my house, I have to sell my house first’, we can’t show it to you, it has to be someone who can prove they have the wherewithal to buy,” says Lowe.
“Somebody selling a house may have bridging finance and they can look at it, but if somebody says, I don’t have my loan approval yet, we say go off and get it and when you have it, we will show you the property. What we are trying to do is minimise the amount of viewing so that people aren’t looking at houses they couldn’t buy anyway.”
Ruling out the tyre-kickers would seem like every seller and estate agent’s dream. If every buyer through the door is a serious one, finance-approved and ready to move, sales are likely to be faster and more streamlined, decision-making less protracted.
But are there serious buyers out there right now? The answer is yes. Record numbers are seeking mortgage approval, figures show. A total of 5,198 mortgages were approved in November. That’s 25 per cent more than November 2019, according to the Banking and Payments Federation Ireland (BPFI) figures. In October, 5,207 mortgages were approved. Mortgage approval isn’t the same thing as draw down, of course, but it is an indicator of demand coming down the track.
Mortgage approval is valid for six months before expiration, indicating that those who sought it in the final quarter of last year hope to buy in the first six months of 2021. With in-person viewings now curtailed, some will be seeking an extension to their approval as the months tick down.
Who’s your competition?
So who is looking to buy? Of the mortgages approved in November, some 54 per cent were first-time buyers. Those looking to move house accounted for over 26 per cent of approvals. If you are looking to buy, that’s all of your competition right there.
Of course about 50 per cent of buyers purchase without a mortgage, says Davitt, so they will be in the mix too.
Those seeking mortgage approval are stronger coming to the table too, says Trevor Grant of Affinity Mortgages and chairman of the Association of Irish Mortgage Advisors. "They are typically public servants and people who haven't been impacted by Covid. They have had an opportunity to build up their savings because there is nothing to spend their money on."
The biggest challenge facing buyers this year will be stock. The big bottleneck is in new homes
So those in the first-time buyer price bracket can expect the most competition. Living through lockdown in a houseshare will have tested even the most cordial of housemates. Paying top dollar to rent in a city where everything was closed stopped making sense months ago. Many fledged and earning adults in their 20s and 30s left rented accommodation, returning to the nest. Six months with mum and dad has made them even more determined to get a place of their own, a move expedited by their savings.
Indeed, mortgage-approval values among this cohort is the highest since BPFI records began in January 2011. Mortgages approved in November were valued at €1.281 billion of which first-time buyers accounted for €692 million or 54 per cent of the money being sought.
The help-to-buy scheme has focused the minds of first-time buyers too, with a record number of them applying for it last year. According to figures from Revenue, some 16,412 applications were received from potential first-time buyers from January to November 2020, an increase of 31 per cent on the same period in 2019 and 73 per cent on the 11 months in 2018.
The incentive offers a rebate on taxes paid of up to €30,000, or 10 per cent of the purchase price of a property up to a ceiling of €500,000, to help fund a deposit on the purchase of a new home. The incentive is restricted to both first-time buyers and new homes. A first-time buyer can now buy a new home worth €300,000 without having to save anything for a deposit. A home worth €400,000 will only require savings of €10,000.
November saw the most approvals ever since the scheme was introduced in 2017, at 836 for a record-high value of approvals at €20.3 million.
The biggest challenge facing buyers this year will be stock. The big bottleneck is in new homes. The help-to-buy scheme applies to new homes only, but with construction halted for some months last year and again now, meeting the demand will be a challenge.
At between 19,000 and 20,000 units last year, the supply of new homes remains well below housing needs, estimated by the Economic and Social Research Institute at 28,000 a year. That means more people clamouring for fewer houses.
Stock is an issue in the second-hand homes market too. "The only thing we are talking about at the moment is getting stock on the books," says Marian Finnegan, chief economist with Sherry FitzGerald. "There is huge appetite.
“Not everybody will bring their property to market during a lockdown, although it might be the wise decision to do that to get ahead of the posse. Stock will be very tight for the first couple of weeks of the year.”
Sellers, and perhaps older downsizers in particular, are unlikely to want to move on or open up their homes to viewings until they feel it’s safer to do so. This may slow the flow of second-hand stock.
Given that home-building will remain impaired, with banks seeking lending opportunities, too much cash is chasing too few homes
“The high coronavirus numbers mean people who are older won’t be putting their properties for sale until they feel much safer,” says Keith Lowe. “There will be less going for sale but there are lots of buyers. A lot of people have a lot of money on deposit. For the first time ever, they are being charged interest by the banks. Quite a few of those are deciding to buy an investment property.”
Back in March, as we grappled with the first lockdown, some predicted dramatic price falls. They didn’t materialise. In fact, despite economic uncertainty, rocketing unemployment and lockdowns that compressed the selling season, house prices held up.
“For the past couple of years, with Brexit uncertainty and the very strict macro-prudential rules, people couldn’t borrow excessively and that really contained prices. Flat or falling is the best way to describe them up until now, particularly at the upper end,” says Finnegan.
Prices in October, however, were up 0.5 per cent on the previous month – the largest monthly rise since July 2019 – and were down just 0.4 per cent on the same month in 2019, according to Central Statistics Office figures.
Nor is a softening likely to happen this year, says Finnegan. “Demand is greater than supply and supply is very constrained. We are not going to see price inflation of anything over one or two per cent [this year], but that again is a massive improvement to where we were two years ago”
MyHome.ie's latest report found that annual asking-price inflation nationally rose 6.3 per cent in the fourth-quarter of last year and 4.8 per cent in Dublin. The report's author, Davy chief economist Conall Mac Coille, said that house-price increases are likely in 2021.
“Home buyers have saved additional funds to purchase homes, with sentiment helped by the likely recovery in the economy as vaccines are disbursed,” said Mac Coille. “Given that home-building will remain impaired, with banks seeking lending opportunities, too much cash is chasing too few homes – which can only push prices higher.”
An opening up of the construction sector may help. “We see a very strong level of first-time buyer demand, that’s really why we need to see construction levels go up,” says Finnegan. “The Government are backing first-time buyers, we just really need the construction industry to deliver the property so that we don’t have pent-up demand. I think that’s where you will see it the most.”