With the Central Banks’ surprise announcement that there will be a serious crack down on mortgage lending from January 2015, it is anticipated that the next ten weeks will see a stampede of new applicants seeking mortgage approval.
Last week the Central Bank announced that from the 1st January 2015 the vast majority of home buyers will need a 20 % deposit before obtaining a mortgage, which is up from the standard 8-10%. This is just one of the new rules introduced by the Central Bank in an attempt to prevent another property bubble. This means that from the 1st January if you are looking to buy a property for €250,000, for example, you will be required to have a deposit of €50,000.
From next year, banks will also have to restrict the number of mortgages they issue where buyers use a high multiple of their income to calculate how much they can borrow. Most new buyers will be restricted to using 3.5 times their income to assess how much they qualify to borrow.
Although these new rules are undoubtedly unpopular amongst new buyers and indeed bankers, they are all the same very necessary. The property market in Dublin has picked up significantly in the past year and has become a sellers’ market compared with last year when I would have said it was a purchasers’ market. This is simply because the demand for property in Dublin is greater than the supply and with that comes a steady increase in property prices. Let’s not forget this is precisely how the last bubble occurred and we all know how that ended.
According to recent figures published by the Central Statistics Office, in Dublin prices shot up 23.4% since 2013 and by 2.5% for September 2014. Dublin apartment prices were 35% higher when compared with prices in September 2013. Outside of Dublin property prices have increased by 7% in the past year.
In the past year in Dublin there has been a very significant surge in property sales. I am on average closing two sales every week whereas this time last year, two closings in the month was more the norm. This is notwithstanding the fact that property prices have increased considerably since last year and yet again we see the banks offering mortgages to buyers for 90% and indeed more. Competition between the banks is rife at the moment and certain banks are even offering to pay stamp duty. The property market needs to cool down now before we enter into another credit fuelled market where buyers are taking on the maximum debt they qualify for in order to buy a property that has an increased value based simply on “demand”.
Although these new rules may appear draconian to many, I am of the view that they are necessary and for once the Central Bank is stepping in and taking steps to prevent another bubble. I also believe that these new rules will cool the market down before it overheats yet again.
I would be very interested in hearing your views on the Central Bank’s new lending rules.
Catriona Sharkey
No comments:
Post a Comment