When I started my career selling homes in 1999, most properties were sold by public auction. It was a four-week process whereby the property was marketed over a period of three weeks, with the auction taking place in the fourth week.
Interested buyers arranged a survey before the auction date and directed a lawyer to check the title.
The successful buyer signed unconditionally binding contracts on the date of the auction, with the closing date and the keys being handed over approximately six weeks later.
Overall, the whole process took two to three months and was relatively simple.
So, why does it take at least five to six months to buy a home now?
I remember a conversation early in my career with a more experienced colleague who explained how auctions worked in the 1980s. Potential buyers will participate in the auction and only after successfully bidding for the home of their choice will they finalize their mortgage and take steps to put their home on the market.
Shocked to hear this? so was I. At that time, if you managed to get a verbal agreement with the bank to buy a property, it was relatively easy to buy.
Lenders also offer bridging finance – a short-term mortgage allowing a homeowner to purchase a property before selling their home, after the sale has paid off the loan in full.
Fast forward to today and we find ourselves dealing with an entirely different process in mortgage and property purchases.
Following the asset price crash between 2007 and 2011, restrictions were placed on lending and borrowing through central bank regulations as well as internal regulations in financial institutions.
Lenders, which were approving 100 per cent mortgages, are now implementing a stringent process for those seeking financial assistance to buy a home.
By the end of 2015, the central bank formalized tighter lending ratios because they feared that the large increase in average asset values ​​between 2013 and 2014 was a repeat of the trend experienced before the crash.
These restrictions were not subsequently eased, despite property values ​​returning to levels last seen in 2005 and 2006 and buyers were able to offer larger deposits.
The annual increase in property values ​​during the Celtic Tiger was unprecedented and driven entirely by the ease of securing credit, so it is understandable why the Central Bank extended the sanctions.
However, now we find ourselves in another useless market. This time, the rise in property prices is not due to ease of credit, but due to lack of supply to meet the critical demand.
The submission process for mortgage approval is currently extremely disciplined and challenging.
Large deposits are required, and if buyers must identify the work the home requires, they need to fund renovation costs on the deposit, as financial institutions are wary about the risk of rising building costs.
Once a property is identified and a sale is agreed upon, the transfer process begins – a process that has become equally laborious.
There has been a dramatic increase in the intensity of title scrutiny by purchasing solicitors for qualifying financial institutions, which often slows down the prospect of completing a sale immediately.
While there are many homeowners who want to sell, and are confident that their homes will sell, they are reluctant to put their home on the market until a new property is secured. Why? Because they are worried that if they don’t find a suitable property after selling their home, how fast the prices are going up, they will be kicked out of the market. It is a vicious cycle.
So what can help?
The simple solution to reintroduce bridging finance would certainly be a step in the right direction.
Bridging loans from Irish banks are generally unavailable, due to the fact that Ireland implemented the EU Mortgage Credit Directive in 2016, which required lenders to explain the product’s features and risks in much greater detail . Most chose to stop providing finance instead.
While it may not be wise to offer bridging finance at the same levels as 15 years ago, when credit was virtually unlimited, it may be prudent to allow it in certain circumstances, especially for buyers whose current home is mortgage-free or has less debt. – Price Ratio.
This will help reduce buyer leverage and prevent buyers from going overboard. This would make finance essentially inaccessible to speculators or house-flippers.
Having such a financial facility available would mean that homeowners – especially those looking to make less and have their mortgages fully approved – reduce the risk of being out of the market in the middle of the buying process. Can secure a new home. They can then sell their existing property, secure in the knowledge that they have a home to live in.
This option will also remove the fear of being forced into the short-term rental market, which comes with its own insecurities, scarcity and pricing challenges.
As a result, more family homes will come on the market, helping to alleviate supply shortages, especially in the secondary market.
If we do not find ways to change the system for the better, the housing market will remain a very tense and depressing environment.
Michelle Kelly Lisney is the Divisional Director of International Realty at Sotheby’s
