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Warning over 'microwave' housing market

First time buyers are being forced out of the market and need to beware of taking on too much debt.

Image: Mark Stedman/Photocall Ireland

First published 14.40

THE IRISH HOUSING market is going from luke-warm to scalding hot in record time, with shortages of supply now a major cause for concern.

That’s the warning issued today by Davy chief economist Conall Mac Coille in the Irish Banking Federation’s first quarterly housing market monitor of the year.

The report said that with house prices in Dublin forecast to rise 20 per cent in the next year, first time buyers are in danger of getting in over their heads in pursuit of property.

The danger (is) that first-time buyers will desperately stretch their finances unsustainably, competing for a small pool of available property.

The Government should focus its policy efforts on alleviating supply constraints – that is, building more houses and freeing up some of the existing stock – rather than loosening credit standards by allowing buyers access to bigger mortgages.

A new plan to allow first-time buyers to borrow up to 95 per cent of the value of a new home, backed by the Government, was leaked in the run up to last week’s elections.

Warning

However, the report warns that such a policy is likely lead to higher levels of indebtedness as prices for a limited supply of houses are driven to nosebleed levels by competition.

Mac Coille cites the experience of the UK, where a help-to-buy scheme was announced last year to allow buyers more credit when purchasing homes, and loan-to-value rates have climbed as high as they were during the boom.

First-time-buyers are struggling to compete against cash buyers, who made up 50 per cent of transactions in the early part of this year.

Investors are being “enticed” back into the market by capital gains tax exemptions, again competing against FTBs, the report finds.

While there has been a 24 per cent rise in house completions in the first quarter of the year, the total of 2,090 new houses is still some way short of the 20,000 annual completions necessary to keep a lid on demand, the report finds.

While the Government’s Construction 2020 strategy is “welcome”, Mac Coille argues that the document is “short on concrete proposals to address the key issues, namely cost pressures and supply constraints in the sector.”

He warns that it must be a priority to resist any efforts to loosen credit standards on lending to first time buyers.

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Price rise

Separately, new figures from the Central Statistics Office found that house prices climbed by 8.5 per cent in the year to April.

This compares to an increase of 7.8 per cent in March.

In Dublin, prices climbed by 17.8 per cent compared to a year ago, with a 3.1 per cent increase during April alone. Apartment prices climbed by 17.5 per cent in the capital.

Despite the recent increases in Dublin, prices are still 48.5 per cent lower than the peak of the housing market in 2007, with apartment prices lower still at 54.2 per cent.

In the rest of the country, prices are 47.4 per cent lower than their highest level.

Updated 14.51

Column: Damien Kiberd: This government’s housing policy will – literally – put people on the streets>

Summing up: How much more will it cost you to live in Dublin>

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About the author:

Jack Horgan-Jones

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