Mortgage Market Update

The Financial Broker gives readers an overview on currently property prices and mortgage market conditions.

The Central Statistics Office published a report showing price inflation on property had increased 10.7% in the past year up to February. A similar report reveal how the number of newly build housing last year was 14,932 units when estimates denote a demand of up to 50,000 units. These numbers illustrate a problem in the current mortgage market, which this article pinpoints the causes of. The author laments about rising property prices, arguing that many potential home buyers have missed out on the prime time to purchase property, and are currently no long capable of affording the housing of their choice at an acceptable price.

The author attributes the current housing price and rent inflation in Ireland as consequences of a lack of supply in urban areas instead of lax macro-prudential regulations. In fact, she argues that current Central Bank regulations are too restrictive, and thus have prevented demanders from being able to locate and buy affordable housing. While the prudential regulations have lowered the default rate on mortgage loans, an unfortunate consequences is that they also stem opportunities for borrowing, preventing greater growth in the Irish economy. At the same time, these policies also  dissuading foreign lenders from opportunities in Ireland, which would slow down economic growth by putting downwards pressure on national interest rates. Anticipated future increases in the European Central Bank’s interest rate may even put upwards pressure on interest rates in Ireland.

For home-seekers who are not first time buyers, the current regulation requires a 20% deposit on loans, a stringent requirement for many of those still in negative equity on the property they currently own. To add to a home-seeker’s problems, most of the homes in the Dublin area are valued far beyond the affordable range for a household with combined income under €85,000 a year.

All in all, in order to increase home ownership, a significant assent contributing to household wealth, the author believes that problems with under supply of housing, restrictive mortgage regulations and rising interest rates must be solved.

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