Mortgage rules ‘will do nothing’ to slow prices

The Central Bank’s new rules on mortgage lending will do nothing to temper rising house prices but will increasingly open the market to investors at the expense of first-time buyers.

House price inflation will not be moderated by the restrictions introduced last month in a bid to quell demand and limit credit availability but will make the market increasingly attractive to investors, according to property experts, Savills.

The restrictions will fuel rental price growth and provide a solid demand platform in that market which will subsequently prove alluring to investment-focused buyers and increase competition for first-time buyers.

“By diverting demand into the rented sector the new rules will lead to stronger rental growth. In time, this will attract investors who will compete with everybody else to buy properties,” Savills director of research, John McCartney said.

“Therefore, the new measures will do nothing to soften house price growth by curtailing demand. They will simply increase the ratio of investors to first-time buyers.”

The restrictions on mortgage lending were tempered somewhat to allow first-time buyers 90% mortgages up to a limit of €220,000 following an initial backlash and political unease over its impact on that cohort of borrowers.

Added to the knock-on effect of the Central Bank measures, the ECB’s quantitative easing programme will drive down the return on deposits and further encourage investors to put their money to work in the property market.

Despite the expiry of significant Capital Gains Tax incentives last December which helped fuel investment activity, the dual effects of the national and European central banks will more than sustain demand in the sector and have a “game-changing impact”, according to Savills director of residential, Graham Murray.

“We are really seeing a changing of the guard. On one hand, the recovery in house prices has provided the opportunity for many of the ‘accidental’ boom-time investors to exit the market and, reflecting this, investors were our second biggest seller group last year.

“At the same time, a new breed of more professional, yield-driven landlords is flooding into the market — in fact this new generation of investors represented our biggest single group of buyers last year,” Mr Murray said.

Savills expects that house prices will continue to rise, albeit at a somewhat lesser pace, due to the lack of available housing — particularly in the capital.

Development activity has been hampered by a range of factors including planning requirements that make development inviable at current exit prices; prohibitive local authority levies; the 13.5% Vat rate on new homes and concentrated ownership of sites in Dublin.

Insufficient supply in the market is the single biggest impediment to the proper functioning of the residential housing market, the report finds, with completions hitting an all-time low in 2013 but recovering somewhat last year with a 32% uplift.

Elsewhere in the report, Savills notes that declining affordability in Dublin, combined with demographic trends, will lead to increased demand and sharper house price growth in commuter counties such as Wicklow, Kildare and Meath.

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