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First time buyers can cherry pick property

written by Naomi_Richardson
19.11.09 Posted in Finance 1 0

It's not all depressing news on the property front. First time buyers (FTB) have the world at their feet. Once they have a mortgage in the bag (no mean feat in itself), they quite literally have their pick of the properties. And there are plenty of bargains out there. Reports this week that buyers in 2007 forked out €332,000 for a 65sqm apartment in one development...

Sooner or later that bubble had to burstSooner or later that bubble had to burst

... in Co Kildare would have been depressing enough back then (65sqm?) considering the repayments, but it's worse now, because the same apartments are being sold off for €110,000. Forking out €351.97 every month for a 92pc mortgage is not bad. But anyone who jumped in for a 92pc mortgage in 2007 is spending €1030.31 every month.

Yes, the first time buyer is back in town and is typically looking at properties in the €250,000 to €300,000 range (or snapping up the above for a song).

Negative equity

The biggest problem with the market is the percentage of people who bought apartments around seven years ago or houses around 2004, according to Tim McDonald of McDonald and company auctioneers in Dublin. He estimates that are large majority of these buyers are now in negative equity particularly if they took out 100pc mortgages.

"They can't move because the majority of them are in negative equity and a massive amount of them would have been FTB at the time. The market has stalled for them because they can't go off and upgrade to a bigger property, which is causing a big drag on the market.
Another problem is that they can't get money out of the bank. There are only two lenders at the moment, Bank of Ireland and AIB. But if you're not in a secure job, you can't get the money, even if you're a FTB and don't have to sell on a property," says Tim.

And then there are the few people in between who would have considered moving to a bigger property but won't now because they feel they won't get the price for their own house.

As for those of us trying to sell a home, Tim has this advice.

"Sellers have to become realistic if they want to move. They won't get any viewers if the property is priced too high.
"People have to take the viewpoint that if they take have to take a discount on their own property then they will probably get a bigger discount elsewhere."

Location, location, location

And it all comes back to location, location, location, he adds.

Any house that is in a bad location or marginal location is suffering on the double. People trying to sell in these areas are having a hard time since their value has plummeted and better houses, for marginally more money, in better areas, are selling ahead of them.

Tim cites one case where a person was trying to sell at house in 2006 for €385,000. They had an offer in of €365,000 but decided to hold out for more. They are now looking to sell it for €325,000 and still aren't having any success.

But are estate agents being realistic with their clients?

Yes, he says.

Realistic sellers

"No one wants to show a house over and over again for a year which is eventually taken off the market or given to another agent. It's just a waste of time. They have to be realistic, especially down the country.

"Take any provincial town.... there are the people who always had money, the bank manager, the architect, the publican, the solicitor. These were all solid people in the community but now these people are not making the money they used to, some may be in trouble and some may be in danger of losing their job. In a small town there might be only 30-40 potential buyers at the best of times."

Being inside the commuter belt won't help either he says, the demand is completely gone.

So renting is the new buying it seems

"What some people are doing now is renting.... they're going from a three bed semi in Cavan for the five bed detached in the same area for around €650 a month. They're living like kings for that and they don't have to worry if the washing machine breaks down," says Tim.

There are plenty out there who still have money but are holding out for a deal. But he feels houses are pretty much at the bottom or at least of the first trough if the double dip doomsayers are to be believed. This time next year he feels the major economies will be actively growing again and that will have an impact on us.

Talk to the bank

However, it could be 10-15 years before houses in the country ever come back to the kind of values we saw at the height of the boom. You can't even put a floor on house prices down the country, he says. The country is full of people in negative equity, bought in bad locations, stuck with ground floor apartments and these people can't even pay the interest on their property/properties. There is no NAMA for those boys, he says.

He advises though talking to the bank.

"The bank will talk to you, they won't give you a Christmas hamper, but they will talk to you," he says.

The reality is the banks don't want houses.
Unfortunately the human reaction to these type of situations is to panic, to bury their head in the sand. And it can be a matter of pride too.

Repossession mostly occurs where people have paid nothing and they don't know how to deal with it. They may not have had many dealings with the banks up to this - but if they talk to the banks, they can always come out of it, says Tim.


Naomi Richardson lives in Meath with her family close to an UNESCO world heritage site. This is great for tourism but little else. When she's not cracking the editorial whip she enjoys eating chocolate and will keep doing so until her metabolism packs in.

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