Jill Kerby

PART ONE:  GETTING ON THAT LADDER HAS NEVER SEEMED SO HARD

The Taoiseach has been accused of revealing his middle class bias over his recent remarks about how getting a financial dig-out from one’s parents has always been a factor for many first-time buyers in the securing of a mortgage. 

He didn’t need one himself, he later said, but the fact that he secured an extravagant 100%, 40 year mortgage at the peak of the property boom reinforces just how stratified lending is, and continues to be here.

Back then pretty much anyone with a beating pulse could borrow substantial sums for over-valued property. But 40 year, no-downpayment loans on desperately over-priced apartments and houses were largely reserved for the professional rentier class, those with an apparently safe claim on steady, taxpayer-backed incomes and careers in areas like medicine, the law, accountancy (the State is a most welcome and steady customer for consultancy contracts) and in the higher civil and public service.  A well-paid high tech professional working for a foreign multi-national might also have been unfortunate to have snagged such a mortgage.

As a few of us pointed out at the time, these were dynamite-laden contracts, sure to blow up some day, even if they were variable rate trackers, like Leo’s. 

The ECB base rate, we noted ad nauseum back then, wasn’t going to remain at 3% for the next 40 years. It didn’t. It went up briefly to 3.25% in October 2008 and then dropped all the way to 0% by October 2016, where it remains today. 

Ten years down, 30 to go. But who would dare bet that the ECB rate (and Leo’s variable tracker repayment) won’t go up and down a few times over the next three decades? The US and Canadian base rates have both recently gone up by 0.25% to 1.5% and 1.25% respectively. Commentators say it is due to improved economic indicators like employment and wage growth, something the ECB says is finally happening in Europe.

Where US interest rates go, so do ECB ones…eventually. 

Forty year, 100% tracker loans no longer exist, yet the banks have some wriggle room beyond the strict 10% down, 3.5 times salary limits the Central Bank has set, but only for those borrowers with high paid, secured jobs, who probably also have access to parental cash gifts.

I have no idea when the borrowing environment is going to ease up for everyone else who is looking to get onto the affordable property ladder, or if the stream of new builds that the government is promising over the next few years will help ease price inflation for prospective owners and tenant-savers.

The reality is that so many factors are causing the housing shortage and price inflation. These are only a few: 

-       The mortgage debt legacy from 2008 and restricted lending;

-       The resilience of the land banks;

-       Government building costs and planning regulations;

-       Local authority bureaucracy and incompetency;

-       Massive imbalance of demand in Dublin and other cities;

-       Insufficient job security and income growth among this generation of prospective buyers.  

Endless politically motivated government intervention isn’t helping either, like the latest scheme to provide a limited number of 30 year fixed rate, 2.25% interest loans to 1,000 lower earners who have already been turned down by at least two lenders. As one market commentator put it, “this is just another way for people who should be renting, to get themselves into serious long-term debt by buying over-priced property.”

Is housing overpriced? Are prices in a bubble that’s just waiting for its pin? 

Probably not outside Dublin and other major cities. But rural Ireland is not where the jobs are or where younger people want to live.  And houses and apartments continue to be snapped up in the capital, even at what appear to be exorbitant prices.

The reality – unfortunately – is that there are no quick solutions here and in other high demand places – nearly all capital cities and other high growth urban locations around Europe, the US and Canada, Australia and New Zealand, where young people are being priced out of home ownership. Here the situation appears so much worse because of total collapse of the building market for over five years after the crash.

The Taoiseach, rather insensitively suggested temporary, tax free employment in the tax-free Gulf States as a way for an ambitious young couple to raise the €30-€40,000 needed to buy a city starter home. Or that they move back in with their parents for three or four years and save the rent they’ve avoided paying.

Good luck with that, murmur mums and dads around the country.

Next week: We look at other capital raising options and solutions. And we revisit an idea that should be every family’s priority:  How to build a Financial Ark.

The 2018 TAB Guide to Money Pensions & Tax is on sale in all good bookshops and on-line. See www.tab.ie for ebook edition.