Charlie Weston: ‘Central Bank put brakes on – helping some but hurting others’
The Central Bank introduced lending limits for people taking out a mortgage for a reason. Regulators were mainly concerned with ensuring bankers no longer hand out more and more credit as house prices rise, creating an unsustainable spiral that eventually leads to a bust. This we know about, to our cost.
Central Bank executives were also eager to ensure householders do not over-borrow in future, concerned we are still grappling with a mortgage arrears crisis a decade after the banks blew up.
So the Central Bank has good arguments for introducing the lending limits. But the limits are now starting to hit home with ordinary people.
The halt in house-price rises is evidence that the limits, known as micro-prudential measures in regulator-speak, are proving to be a strong influence on the market.
Property prices were static in the first three months of the year, according to estate agency Sherry FitzGerald. In Dublin prices were down in the first three months in the capital, the second consecutive quarter of declines. Prices are rising outside the capital, but at a slower rate than previously.
This chimes with the findings of the Central Statistics Office, which says that in the month of February prices fell by 0.1pc. It was the fourth month in a row of price drops.
This is either a good thing or bad thing, depending on your perspective. It is good if you hope to buy in the future and are saving furiously for a deposit. If you are an existing homeowner, are hoping to sell, or still in negative equity like some in parts of the country, you want prices to keep rising.
The lending limits are one of the main reason price rises have stalled. Prices have risen so much the restriction that buyers can borrow only three-and-a-half times their income is a real problem. And the other part of the micro-prudential measures, which means second-time buyers need a deposit of at least 20pc, are restricting mover-purchasers.
These are just some of the barriers potential buyers are hitting.
Demand is strong but the home-buying dreams of ordinary people are being restricted by a shortage of supply. House building is catching but not fast enough to meet strong demand. And buyers are also competing with the State and cuckoo funds which are snapping up vast quantities of what it built.
What all this means is that property prices will probably continue to rise this year, but the crazy double-digit rises we saw in the last few years are likely gone now.