How will the property market be affected by the Central Bank changes to lending?
Over the past 15 months there has been a steady increase in prices in all price ranges, and properties are selling quicker. There is a high level of enquiry from investors due to the current rental yields, CGT incentive relief and poor performance in other investment sectors like the share market. Dublin has seen an increase of circa 25% over the last 12 months.
The market is currently fuelled by cash buyers. Purchases by cash buyers accounts for approx 54% of all sales of which investors make up a sizeable portion of these buyers. It is expected that cash buyers will decrease in the market after the end of December due to the ending of the incentive relief from Capital Gains Tax. This theoretically would mean that buyers who have loan approvals in place would be in a better position to secure a property.
The affect of the recent announcement by the Central Bank in having a minimum of 20% deposit could be twofold. From January 2015 in order to purchase a property a 20% deposit will be required. This would mean a property at €400,000, which would be an average price for a 3 bedroom home in Shankill, a deposit of €80,000 would be needed. To facilitate the balance of €320,000 earnings of €92,000 would be needed to keep within the criteria of 3.5 times the salary. Therefore, where a buyer may had some opportunity to purchase with a decrease in investors after December 2013, the Central Bank will be making it more difficult particularly for first time buyers to get a foothold on the property ladder with having little or no flexibility on lending terms. The affect of buyers unable to purchase should see a heightened demand in the rental market. The possible consequence of this increase is that investors could stay in the market due to higher yields on their investment and this in turn may limit the affect removing the Capital Gains Tax incentive will have.
Nobody wants to see the market going back to 2006 when the lending criteria was far too flexible and as a consequent financial distress was widespread. Do I believe that Central Bank decision will slow down property price increase? NO. The real problem of supply and demand has not been addressed. When supply and demand is dealt with, the market should level out when more properties become available. The supply is not expected to catch up with demand for the next five years. I expect competitive bidding for properties will continue and it is highly probable that an increase in the range of 15% will be expected in Dublin over the next 12 months. To discuss any property related matters call Muriel Kelly at Mullen Kelly Estate Agents on 4003606 or email email@example.com. We’re here to help.