Given a shortage of housing, strong demand and behavioural changes arising from the Covid-19 pandemic, house prices could rise by between five and ten percent by the end of 2021, provided there is no setback to the economy, according to IPAV, the Institute of Professional Auctioneers and Valuers.
Pat Davitt, Chief Executive of IPAV says the pandemic is beginning to give rise to a “silver lining” for rural Ireland with people no longer having to be city based for work.
“It is now acceptable for many people to work from home, even if not on a full-time basis,” he said. “There are new options now and this will have a very beneficial effect on rural Ireland, bringing more people back to country areas, benefitting and invigorating rural communities and the rural economy.”
He said if the Covid-19 vaccine is successful in 2021 it will help boost property prices.
Mr Davitt said the after effects of the Brexit bump will be positive for the Irish property market.
“It won’t have the same severe impact as that experienced in 2008 because we have an undersupply of property and it is the supply and demand curve that determines prices, not wild predictions of falling prices by economists and others, such as those we saw earlier in 2020," Mr Davitt commented.
He said many purchasers are self-financed and buying without recourse to a mortgage; interest rates are as low as they have ever been and there is more competition in the mortgage market with longer term fixed interest rates, up to ten years, even if they are still well ahead of the euro area average.
“It is unfortunate, however, that many on average wages cannot benefit from these favourable factors for home ownership. In our view the Central Bank mortgage lending rules are too extreme and they are forcing young people to pay substantially more to rent a property than it would cost to service a mortgage on the very same property," he continued.
He pointed to the recent Daft.ie rental report for Q3 2020 which shows that a three-bedroom home in Westmeath costs €994 a month to rent. A mortgage repayment on the same home would typically be €559 a month.
“Even allowing for a two percent increase in the interest rate on the mortgage the repayment would be €709, still way below the cost of renting," he added.
Mr Davitt said home ownership acquired at an affordable price is the best way to grow personal wealth over the longer term.
“The tragedy is that many people have already been in this position for the best part of a decade and are now in their late thirties or even their forties and unless Governments into the future make major changes to our national pension policy, they will have to continue renting into pension age and then, potentially, face homelessness,” he said.
Mr Davitt also said the Government should review the terms of the Rebuilding Ireland Home Loan mortgage available from Local Authorities. Unlike mortgages subject to Central Bank rules which limit borrowing to 3.5 times salary, it allows joint borrowers, borrow up to five times income and single borrowers up to 4.5 times salary, provided they have not owned property previously.
He said IPAV members find there are many who have owned property in the past but lost out as a result of negative equity arising from the last deep recession. They now find themselves ineligible for this loan scheme which gives 25 or 30 year fixed mortgage rates at a very attractive interest rate of 2.99pc.
In terms of house building he welcomed the announcement that Home Building Finance Ireland (HBFI ) will give bigger loans to smaller developers having secured agreement from the European Investment Fund which will guarantee half the credit risk.
“However, interest rates of between six and nine percent are far too high and may not be attractive enough to lure enough SME builders, the traditional mainstay of the house building market, back into house building to make a quantifiable difference to housing supply shortage,” he warned.