An influx of cash buyers and consistent housing demand are expected to fuel further property price increases, despite uncertainty over rising mortgage interest rates. While price growth slowed significantly to 2.4pc in recent months, the Institute of Professional Auctioneers and Valuers (IPAV) said it expected similar increases in the first half of 2023.
Prices rose by 9.2pc on average nationally last year, according to the latest residential property price barometer. This growth is partly fuelled by a huge number of cash buyers in the market.
New data from agents and valuers shows about 40pc of buyers are using cash. Many are buyers who previously sold properties or can draw on savings or are returning from abroad, IPAV chief executive Pat Davitt said. Normally, about 20pc of buyers use cash, he added.
The cash influx increases the risk of borrowers being gazumped in the market.
“Someone with a mortgage can only bid to a certain level and can be priced out of the market by someone who is not depending on a loan,” Mr Davitt said.
“Anybody who sold in Dublin for €500,000 or €600,000 is very likely to be able to afford to buy elsewhere without a mortgage.”
He said many of these buyers are also attracted by Dublin’s market showing signs of tapering while prices continue to rise at a higher rate in many areas outside the capital.
While many markets in Dublin saw small increases between July and December, two- and three-bed markets in key southside locations stalled.
Dublin 4 is still the most expensive place to buy, but prices for three-bed semis dropped by more than 2.3pc there in the second half of last year.
The IPAV sales data, based on completed deals rather than asking prices, shows affordability remains challenging in the capital, with large increases for four-bed homes in Dún Laoghaire, Killiney and Dalkey in the second half of last year, up almost 8pc. Malahide, Portmarnock, Skerries and Portrane were up 6.35pc.
Three-bedroom properties in Wicklow saw strong price growth in the latter half of last year (up 7.33pc) because of significant demand in and around Greystones. Similarly, the three-bed markets in Mayo and Longford also saw growth, of more than 6pc. Most other areas and markets saw smaller increases.
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“Many markets are still rising, but some people feel prices in Dublin might be settling and now is the time to get out of the market and look elsewhere. Once you leave Dublin and go beyond Maynooth, things are still a long way from where they previously peaked,” Mr Davitt said.
Some markets did experience falls in the latter half of last year. Mica has been cited for a 10pc average price drop in Donegal, while interest rates and job losses in the tech sector contributed to caution among some buyers.
Two-bedroom homes in south Co Dublin, Dublin 1, Dublin 18 and Kerry saw minor price drops, as did larger category homes in Roscommon, Meath, Kildare, Carlow, Cork city, Dublin 2 and Dublin 14. Co Galway also saw decreases in prices in the two- and four-bed markets.
Mr Davitt said increased interest rates since last July dampened sentiment, but prices remained high and would continue to rise this year because of demand.
“That certainly means, as a country, we will have to do things differently than before if we are going to succeed in reversing our declining home ownership figures, prevent enforced emigration and poverty in old age,” he said.
Mr Davitt said consideration should be given to 40-year and 50-year mortgages to enable younger borrowers to buy homes and give greater security than renting into old age.
Financial adviser Michael Dowling, of Dowling Financial, said someone borrowing €300,000 at 3.5pc interest for 35 years could expect to repay €1,240 a month and about €221,000 in interest. If the same amount was borrowed over 50 years, monthly repayments would come to €1,060 and but interest would rise to €336,000.
Mr Dowling said he believed buyers would rather take the short-term option, but some longer-term mortgages may be suited for lower earners, such as single borrowers earning less than €50,000 or a couple with an income of less than €70,000 if they can access a long-term fixed rate.
He and Mr Davitt said changes to mortgage lending rules introduced last month allowing buyers to borrow up to four times their annual salary have helped people access the market.
“I find most people do qualify to borrow four times their income despite the higher interest rates,” Mr Dowling said.
“Someone earning below €50,000 will struggle to borrow four times their income. A couple on €70,000 is unlikely to get four times their income, but would be likely to get more than three-and-a-half.
“Many people are qualifying, but a lot are not getting what they would hope to get.
“The new rules are helping, but supply is the big issue. We are not getting enough new homes, and not enough stock is changing hands each year. In a vibrant market, 4pc of stock should change hands each year, but we are struggling at 2pc.”
Mica scandal decimates Donegal house prices
Mortgage drawdowns hit highest levels since Celtic Tiger era, to the value of more than €14bn last year
Cheering on the rise in house prices is a peculiar, self-defeating madness