Property market grabs the headlines
Money Times by Jill Kerby
You just can't keep the property market out of the headlines: last week about 600,000 mortgage holders braced themselves for a 0.25% rise in their mortgage repayments this month when the ECB raised its base rate.
Then the latest Daft.ie survey was published, suggesting that property prices - in Dublin at least - could fall by at least another 25% from their 2007 high, while also in Dublin, hundreds of mainly cash-rich buyers successfully bid for 78 properties around the country, indifferent to either the risk of negative equity or falling rental yields once property tax and water charges are introduced.
Let's start with the auction. Is the fact that nearly all the properties were sold - just five were withdrawn - with sale prices above their guide prices, a sign that the moribund Irish property market has finally turned a corner?
Or is it that or the auctioneers, Allsop/Space, are finally guide-pricing them more accurately, in light of the earlier failed event in Cork where just two out of 64 properties were sold?
Most commentators believe the latter: the previously priced €10m mansion on Aylesbury Road in Dublin went for €2.325 million, €975,000 less than the guide price and certainly reflects how mad Dublin prices had become by 2007, the peak year for cheap credit.
But the fact that a very ordinary three bed semi in Naas sold for just €144,000, a small increase on its guide price, suggests that market reality is return.
Many of the buyers at the Dublin auction were investors with cash in their pockets and no need for to mortgage finance - which is just as well. They would have been seeking at least 7%-8% annual rental yields which also gel with many of the asking and selling prices that were achieved.
For example, the two bed maisonette apartment in Glasnevin which sold for €55,000 only has to be rented out at €321 per month to achieve a 7% yield; another, that sold for €120,000 can command a rent of €700 a month and produce a decent profit for the mortgage-free landlord who would otherwise struggle to find that kind of steady(ish) investment return from deposits or shares.
Anyone thinking of buying a property - assuming they are either a cash buyer or have snagged mortgage approval - will find the latest Daft.ie report quite useful in establishing their own guide prices subject to what Daft's economist Ronan Lyons and guest commentator Dr Constantin Gurdgiev note are average house prices below €200,000 and little prospect of normal lending before 2015.
Outside of Dublin, some of the biggest falls have been in Cork, Galway and Limerick cities, falling between 5% and 6%, while Waterford city saw falls of almost 9% on average. "Outside the main cities, many parts of the country - including Donegal, Cavan, Laois and Offaly - saw even steeper falls of up to 10%. The smallest falls, of less than 2%, were in Kerry and Mayo," states Daft.
With rental yields in main population centres holding up better than sale prices - the two have been converging since the bubble burst, despite the general overhang of empty properties - investors who choose carefully, and are patient - should be able to achieve modest to decent yields over the longer term even if property taxes and charges are introduced. A 10% yield is ideal to both cover taxes, costs and provide a 2-3% minimum reward for your investment risk, but most will probably happily settle for a 7%-8% yield, though it is doubtful that very high end properties, even with €2.325 million price tags will possibly achieve rental tags of c€15,500 a month, that is, an 8% annual yield.
Finally, the latest 0.25% hike in ECB rates, while well flagged, is still bad news for variable rate and tracker rate mortgage holders.
AIB and Bank of Ireland, which did not pass on the April 0.25% rise are expected to pass on this one, and some mortgage brokers think they could increase all repayments by 0.5% as they struggle to keep themselves capitalized in light of the steady fall or withdrawal of deposit funds.
Someone with a €300,000 mortgage will see their repayment rise by another €45 a month or €540. So far this year, their repayments are up €1,080 with perhaps another one or two more rate hikes by the end of the year. (In light of the probability of higher interest rates, if you can meet your repayments, you should nevertheless consider whether a fixed rate loan is affordable, despite the higher repayment.)
ECB rate hikes are clearly unsustainable for the estimated 100,000 homeowners who are in arrears and have sought the terms of the new Code of Conduct on Mortgage arrears or were able to secure restructured repayments before the Code was introduced. See www.centralbank.ie
Anyone who thinks they may fall into arrears in the near future should contact their lender immediately - prepare a detailed budget statement first - and ask for a meeting.
A new deal should be arranged for the next year, during which time the bank cannot take any legal action to pursue back payments. (They can't do this for at least a year after you fail to comply with the agreed new terms.) You can then at least use this breathing space to work out how feasible your mortgage really is over the long term.
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