Potential first-time homebuyers in Ireland can be forgiven for feeling hard done by. Every hopeful break they get seems to come laden with an unavoidable catch. Most recently, increased lending limits that gave them a glimmer of hope of keeping pace with rising prices came with the first rate hikes after years of historic lows.
Buyers may be able to borrow more, but their ability to pay it back will take a hit, thanks to increased monthly repayments. Overall, buyers’ purchasing power will decrease, as both banks and buyers look to build in “stress test” buffers against rates climbing when considering the amounts they are prepared to lend.
But if interest rates increase and affordability decreases, then surely house prices have to drop? That’s what conventional wisdom says. Unfortunately, the current Irish market isn’t exactly conventional, thanks partly to its well-documented lack of supply.
Average house prices in Canada were down by 12 per cent in year to December 2022, according to Canadian Real Estate Association data, the largest decline seen there in the post-crash decade.
In Sydney, a city plagued by housing shortages and average house prices of over €775,000, prices have dropped by just over 12 per cent, according to data collectors CoreLogic. However, December 2022 prices are still 8 per cent higher than pre-pandemic levels, so despite the recent dips, homebuyers are still paying more overall.
Meanwhile, in Dublin, average prices for a three-bed semi came down at the end of last year for the first time in three years but only by a paltry 0.34 per cent. To add insult to injury for homebuyers, that was only in the last quarter. Annually, prices went up by 6.3 per cent.
While reports from last year suggest the price rises have started to calm, it is unlikely we will see a big enough decline to cancel out higher interest rates just yet. But that doesn’t mean that those ready to move out of parents’ box rooms and into their first homes should give up completely.
The winds are changing, but the statistics are delayed; we won’t see what’s actually happening now for another while
There are more reasons for hope than the headlines might let on, particularly when it comes to timing, according to author and popular property influencer Ciaran Mulqueen.
“The winds are changing, but the statistics are delayed; we won’t see what’s actually happening now for another while,” he said.
Mulqueen cites CSO figures as an example, with the latest Residential Property Price index showing data only up to November 2022 which, he says, would not show fully what current higher interest rates are doing to prices.
While he might have started the Instagram site Crazy House Prices out of the frustrations he experienced hunting for his first home and with an eye on keeping agents accountable, Mulqueen often gives his 90,000-strong community of followers reason to believe there is light on the horizon helped by his new book due for release in March.
His well-documented strategy of securing a house off-market in a desirable part of Dublin 8 via a polite letter to the owner posted through the door inspired others to do the same with success stories regularly posted under the page’s “Good News” highlight.
But does the method of explaining in a letter that you’re a young couple with a baby hoping to buy locally into the area still work, when many other young local couples with a baby are doing the same thing?
“It does work and we are also seeing people use it in the bidding process, not just buying off market,” Mulqueen explained. “If it comes down to you and an investor and the people selling are already making a fair amount on the house, getting a letter via their estate agent might sway them.”
[ December 2022: House prices fall slightly in Dublin city but rise nationallyOpens in new window ]
However, if the bidding is between a group of first or second-time homebuyers all writing about their own heartfelt reasons for buying a house, a letter is less likely to win out over the highest bid.
Be warned that some estate agents don’t like it, said Mulqueen, especially if that estate agent has close ties to an investor and can benefit from managing the property as a future rental.
The letter method can also offer a glimmer of hope to those with an eye on a vacant house that an owner might offload for the right price without the hassle of putting it up on the market.
“Just log on to the Property Registration Authority’s website and you can find the owner of the address for a fiver,” advised Mulqueen.
If you have to deal with agents, it pays to “keep on their good side” says Mulqueen. That means having all documents ready to go, a mortgage underwritten and a sensible grasp of their available budget.
“Say you missed out on a house but the agent saw that you were organised and serious buyers, they’re more likely to show you new listings they haven’t put up yet,” said Mulqueen. “It takes the hassle out [of it] for them if you can agree on a good price without them having to advertise. Or they will come to you if a sale falls through. They often call this off market too.”
With the cost of living crisis and surging power bills, Mulqueen said it is more important than ever to consider energy ratings on a house you might have your heart set on, especially if it is a romantic rescue of an old cottage.
“That’s why we have seen turnkey houses go up the most,” said Mulqueen, who advises buyers to make sure they have enough put aside to cover higher bills and retrofitting costs if they have to.
First-time buyers in particular are often encouraged to purchase property smaller than they need, and in areas they do not want to live in, in order to “get a foot on the property ladder”.
Horror stories of frenzied buyers snapping up starter homes in the Celtic Tiger only to find themselves stranded in suburbs far away from family, friends and public transport, trapped by negative equity still linger in the memories of many in Ireland. But when faced with paying more than €1,000 a month for a room in a shared house, will some buyers be better off getting out of the crippling rental market and into their own home, even if it is a stop-gap?
I understand why people would be leaning towards, say a one-bed apartment, even if they do tend to lose their value more in a crash
“Personally, I would be looking at something long term, something you would want to stay in for 10-15 years at minimum, but that’s easier said than done when you’re paying off your landlord’s mortgage every month. So I do understand why people would be leaning towards, say a one-bed apartment, even if they do tend to lose their value more in a crash,” said Mulqueen.
Renters have long felt they are at the sharp end of the Irish property market, frustrated by having to hand over significant sums every month that could be used as a housing deposit to get them out of the cycle.
Many have bemoaned the fact that rental records can’t be used to offset deposits, but what some don’t realise is that paying all that money hasn’t been for nothing. Daragh Cassidy from Bonkers.ie, a comparison website and broker, points out that it can actually help you look to get your home loan.
“Rent counts towards proving repayment capacity and it absolutely gets taken into account, because the banks know [that because] the rents are so high, it’s getting more difficult to save on top,” he said. “If you need to prove that you can pay a mortgage that will come to €1,100 a month and your rent is €700 a month, you would only need to [show you can] save €500 a month, not the full €1,100 on top of your rent.”
According to Cassidy, banks like to see first-time buyers save at least half the deposits themselves, which is where that hypothetical €500 a month in the example above does a double duty: it provides a proof you can save and adds to the deposit.
A 1 per cent increase might look small, but it can mean hundreds [euro] more on the monthly repayment
However, with increased interest rates pushing repayments up, it is likely banks will now be scrutinising applicants closely to see whether they can ride out any future hikes.
“Stress testing is a big thing. A 1 per cent increase might look small, but it can mean hundreds [euro] more on the monthly repayment,” said Cassidy. Bonkers.ie is one of a number of sites that compares loans at different rates to give buyers a sense of what repayments could look like.
Mulqueen suggests aspiring homeowners use the Competition and Consumer Protection website to see if they will be able to pay their mortgages if the interest rates rose by 1.5 per cent to 2 per cent tomorrow.
Lastly, Cassidy stresses that banks don’t expect first homebuyers to live like monks in the months leading up to taking out a mortgage. “You’re allowed to enjoy yourself as long as you live within your means,” he explained.
Managing direct debits is extremely important, as regularly overdrawn current accounts aren’t looked upon favourably. “Make sure they come out after payday. Even if you had money in another account, forgetting to transfer money into an account and returning a direct debit is a red flag,” Cassidy said. So is withdrawing large amounts of money to try to subvert the bank’s oversight in their spending, because it often makes them more suspicious.
People may be concerned about unpaid bills and past defaults ruining their dreams of home ownership. Cassidy advises buyers to get their credit records checked, instead of assuming that they cannot borrow at all. Some records can clear after a certain amount of time, he says, and there are avenues of appeal for people who believe their record contains an error. It’s one area that aspiring buyers should sort out before they head off to the bank.
While the experts we spoke to agreed that house prices in Ireland are likely to be propped up a little longer by the lack of supply, they both say it isn’t quite as impossible out there for first-home buyers as many people would have you think.
