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* The Irish housing market is going through a period of self correction as the demand for house purchases and mortgage loans responds to the impact of higher interest rates.
* The Review also acknowledges that the fall in house prices has affected consumer confidence and triggered a significant supply response.
* The change in mortgage demand is most evident in the secondary market, with the value of new mortgages for those moving house declining by 28% in the year to the third quarter against a 20% decline from buy-to-let investors and a 15% fall in first time buyers.
* The demand for re-mortgaging, in contrast, has picked up and is rising by 13%, but the total value of gross mortgage lending in 2007 is likely to emerge at €34.5bn, against €40bn in 2006. The deceleration in the growth of outstanding mortgages reflects this fall and is likely to end the year at +13% year on year growth from +24% growth in 2006.”
* The building sector has responded to this change in demand by curbing supply, with completions set to decline to 78,000 units this year, from a record high of 88,000 in 2006. Moreover, a further fall is anticipated for 2008 with an expected 58,000 completions, which would reduce the annual growth in the housing stock to 3.2%.
* Rents show an annual growth in excess of 12%. The marginal buyer is currently a renter, who is dissuaded from purchasing by affordability concerns and uncertainty about the outlook for the broader economy and house prices.
· Affordability looks set to improve in 2008 for the average borrower; incomes will rise and the rate cycle appears to have peaked. Dr. Dan McLaughlin expects rates to fall by half a point in 2008, adding to this expected decline in the repayment burden on an average new mortgage. Moreover, first-time buyers will see a substantial boost to their affordability by virtue of the generous tax relief now provided, with €20,000 of interest claimable against the standard tax rate for a couple. Investors too, may also be attracted by the recent rise in yields, with the average across the country now around 4%.”
* For the commercial property market, the Irish Property Review’s forecast for a 12% return in 2007 looks to be confirmed. The cyclical slowdown will continue into 2008 with returns of 4%, before a recovery in 2009.
Bank of Ireland’s Irish Property Review is published by Bank of Ireland Mortgages and the Economic Research Unit of Bank of Ireland Global Markets and is led by Dr. Dan McLaughlin
- If you wish to read the report please click here (PDF 360kb).
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