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News : Property Last Updated: May 14, 2014 - 12:04 PM


Irish Government leaks new bank guarantee plan; Promises 95% LTV mortgages
By Michael Hennigan, Finfacts founder and editor
May 13, 2014 - 2:14 PM

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Months after the departure of the international bailout Troika, the Irish Government through an authorised leak on Monday returned to an old electoral reliable for politicians in trouble; housing/ construction - - with a promise of a new bank guarantee and mortgages with a loan to value of up to 95%.

This may be hard to believe after the out-of-control property bubble and the huge damage of the recession with bust banks and the lives of hundreds of thousands wrecked.

With less than two weeks to the local and European elections, a government official authorised to leak with the likely approval from the highest level, told political correspondents of the mainstream media that the Government is planning to introduce a new scheme, whereby a portion of the mortgages to first-time buyers of new houses will be guaranteed by the State, in order to allow banks give out more loans.

The official said similar schemes are already in place in Canada, Australia and the UK - -  the leaker unlikely warned that the British “Help to Buy” scheme is widely viewed as spending on vote buying.

Sharing of the risk will be undertaken through a government mortgage insurance scheme and the plan will involve the State taking responsibility for 10–15% of a loan's value, the deposit covering approximately 5%, and the bank being liable for the remainder.

The bank will assess a candidate's suitability for a loan as normal, but the scheme may make 95% mortgages more widely available.

On the supply side the authorities are impotent an reform of the corrupt land rezoning system that makes development land scarce in a country that is about 4% urbanised, is a taboo issue as jellyfish politicians still insist on pandering to farmers.

During the bubble in Dublin, in some years, apartments accounted for more than 40% of completions while there was a shortage in houses for those who were trading up.

Site costs jumped from about 10 to 15% for apartments in central Dublin in the 1990s to 40 to 50% a decade later.

In 2006 a global real estate agency compared the cost of a single-family dwelling, 2,200 square feet (approximately) — four bedrooms, two and one-half baths, family room (or equivalent) and two-car garage in neighborhoods/zip codes within a market that is typical for corporate middle-management level families - - in 384 markets including 42 outside North America. It found that for the cost in Dublin of $1.4m (€1.1m), you could buy nine similar houses in Houston, Texas, three in Amsterdam, two in Sydney and almost two in Tokyo.

The biggest falls in prices after the crash were in the more expensive market while sales of poor standard apartments with limited storage space and no facilities are hardly meeting enthusiastic buyer interest.

So mortgage approvals this year on an annualized basis are at a 42-year low and Dublin is facing a housing shortage!

Finfacts today: Irish home mortgages paid in Q1 2014 at lowest since 1972 -- Prices rose in Dublin by 14.3% in the year to March 2014

This is from The Irish Independent in May 2000:

The strategic planning guidelines constitute a mandate for continuing urban sprawl which will create an ever expanding metropolis around Dublin at lower density than any comparable urban area in Europe, DKM Economic Consultants warns in its report.

According to Colm McCarthy, of Davy Kelleher McCarthy, the predicted number of new dwellings will require that development occurs over an area more than twice the size contained within the M25 around London, which has a population of eight million.

He maintains that suburban development at six units to the acre would accommodate the required 165,000 dwellings in an area of 118 sq kilometers, or seven miles square.

“The process of urban sprawl around Dublin has already spread throughout north and mid Leinster, beyond even the large area envisaged by the Strategic Planning Guidelines”, he warns. Due to speak at the Irish Homes Builders’ Association convention in Edinburgh this morning, Mr. McCarthy suggests an alternative policy by aggressively zoning and servicing all undeveloped land within ten miles of the city centre for housing and mixed-use development."

Ronan Lyons, a Trinity College economist who prepares the Daft.ie housing market reports, said today:

Shifting out demand to encourage supply seems to me to be like adding fuel to the fire in the hope that the fire brigade are more likely to turn up. The losers will be the very people the policy aims to help, first-time buyers who will be given more credit to bid against each other.

What is particularly disheartening is that it comes so soon after Ireland tried this before and it went so spectacularly wrong - while house price growth from 1995-2001 was driven by a combination of factors (including incomes growing faster than supply), house price growth 2001-2007 was driven almost exclusively by easy credit and that was where the damage was done."

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