Efforts to loosen credit standards for first-time buyers should be resisted as Dublin's housing market is in danger of overheating once again, according to the latest Irish Banking Federation (IBF) Housing Market Monitor.
The research, which draws on published data from a variety of sources, shows a number of recovering trends in the residential sector, including strong growth from a low base in both mortgage approvals and drawdowns.
However, in his commentary accompanying the study, Davy chief economist Conall Mac Coille, said the research reveals "an illiquid housing market starved of new supply."
Mr Mac Coille said the situation in the capital was particularly acute with the market “in the process of going from lukewarm to scalding hot.”
He suggested that a recent forecast issued by Daft.ie in which it said that property prices would rise by 20 per cent in the capital over the next five years, was conservative with prices likely to go beyond this.
He said the availability of mortgage credit is likely to increase over the next few years as households continue to pay down debt built up during the boom. He said that given the lack of available supply and concerns over affordability, the focus should be on developing a Help to Build scheme, rather than a Help to Buy one.
“In the past, expectations of elevated house price inflation have led to loosening credit standards as buyers chased prices ever upwards, with higher collateral values reassuring lenders. But tighter credit standards should ensure that affordability will be a credible anchor on Irish mortgage lending this time around. In this environment, policy should be focused on alleviating supply constraints on the construction sector while resisting efforts to loosen credit standards on mortgage lending to first-time buyers.”
Mr Mac Coille said the UK’s Help-to-Buy scheme was a “good example of what not to do” in terms of assisting first-time buyers. To ensure a new unsustainable property bubble does not emerge there, the Bank of England is seeking to implement new rules on affordability a year after the scheme began.
His comments come as new figures from the Central Statistics Office show property prices in Dublin are now 17.7 per cent higher than a year ago, having risen by 3.1 per cent month-on-month in April.
They also follow on from a similar warning from Friends First economist Jim Power, who warned on Tuesday that Government proposals for a mortgage insurance guarantee for first-time buyers should be resisted.
The proposal forms part of the Construction 2020 strategy, which Mr Mac Coille described as being short on concrete proposals to address the key issues of cost pressures and supply constraints.
The IBF Housing Market Monitor shows gross mortgage lending for house purchase totalled €2.4 billion in 2013, well below the mortgage approval rate of €3 billion. The figures show that 3,600 approved mortgages weren’t drawn down last year due to the lack of available properties to buy.
In addition, the research shows that cash buyers represented more than 50 per cent of transaction in early 2014 with many potential borrowers with approved mortgages unable to secure properties.
Mr Mac Coille noted that the lack of available properties was unlikely to be addressed over the short-term with housing completions in the first quarter of just 2,090. Although this is a 24 per cent increase over the last 12 months, it is still well below the estimated 20,000 annual completions needed to satisfy demand.
