October 7th, marks the first anniversary of CP87 – the consultation document which led to the Central Bank’s new mortgage lending restrictions. Twelve months on Dr. John McCartney, Director of Research at Savills, considers how these rules have affected the market.
“In simple terms the new rules have made it harder for mortgage financed buyers to purchase their own homes, particularly in Dublin. This has undoubtedly led to a cooling of house price growth in Dublin.”
McCartney identifies three different strategies that have been adopted by buyers who have been frozen out of the Dublin market.
“Some people have gone back to the family home. However this is generally not a long term solution. Others have widened their search and bought in the commuter belt. This displacement of demand has contributed to faster house price growth outside Dublin where inflation is now running at 10.8% per annum. Finally, many have chosen to stay in Dublin and rent. This has fed into sharply rising rents – the current rate of rental inflation in the capital is over 9% per annum.”
Looking to the longer term McCartney says;
“While the new rules have been temporarily effective in slowing house price growth in Dublin, higher rents have led to rising yields which now look very attractive compared with deposit rates. This is attracting buy-to-let investors who are likely to drive a second round of price growth. Arguably the only long-term effect of the rules will be to change the mix of buyers with more investors and fewer home owners.”