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INDOpinion

No country for first-time buyers

Wednesday, 17th October, 2018 4:22pm

By Sean Murphy, CEO of Simpler

 

There’s a generation of people that missed out on buying their own house.

Between 2011 and 2016 over 198,000 people came to Ireland. In the same period, a paltry 9,000 homes were built – a mere fraction of the volume truly needed.

With banks beginning to lend again for the first time

following the 2008 crash, available stock was quickly snapped up. Basic economics dictates that when demand outweighs supply, prices inevitably increase.

It’s clear that more new homes are desperately needed, but with a dormant construction sector that has lost a substantial volume of skilled labour, combatting a ten-year backlog of demand poses a difficult challenge. Like last time, this carries the risk of over-correcting and building too many houses.

But circumstances are different this time too. New Central Bank restrictions have eliminated the reckless lending that characterised the boom of the Celtic Tiger years.

With these regulations in place, 100 per cent mortgages and mortgages for second properties are no longer the problem. Instead, earnest first-time buyers hoping to buy a home in their local area are simply being priced out of the market.

With soaring property prices stacking the deck against them, first-time buyers also struggle to find the support that previous generations had in the property market.

Bank branches are mostly automated, meaning potential buyers can't just walk into a local branch for a chat. The days of personal relationships between banks and borrowers are certainly gone – if they ever really existed at all.

Another unusual aspect of the current market has been the reaction from mortgage brokers. Brokers are a valuable part of the financial ecosystem, offering independent advice and helping people with unusual or non-standard circumstances where banks might not.

For their services, brokers are typically paid a percentage commission from the lending bank. But with so few properties on offer, brokers now find themselves out of pocket when their clients – although approved for a loan – struggle to find a home.

With mortgages often taking up to five months to process, many brokers now charge upfront for advice to protect their profit margins.

For first-time buyers, this makes for an unappealing choice: either fork out for guidance, or spend time and effort dealing with a bank that could be relatively uninterested.

Instead, many people turn to their own personal network for financial advice, and base their decision on the opinions of family and friends. Too many are reluctant to enlist the support of professional and independent advisors before taking out a mortgage, usually the most important decision of their lives.

Despite the Central Bank’s best efforts, the industry remains as opaque as ever. Advertisements boasting the lowest variable rates may sound impressive, but do little to address the knowledge gap that afflicts average first-time buyers.

We hope that, as more homes are built, the market becomes healthier and prices become more reasonable.

But to become fully healthy, the market needs first-time buyers to have access to professional advice. With current debate fixated on cost, it’s important that this is not overlooked.

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