Central Bank

Cash Buyers In Ireland for 2014 – Nearly 53% of Property Market

New statistics suggest that there were 22,511 cash buyers in 2014 which is an increase of 38% from the 16,346 cash buyers in 2013.

The number of cash buyers is determined by comparing new mortgages figures, according to the Banking and Payments Federation of Ireland, to the total amount of home sales, according to the Property Price Register.

The number of new mortgages increased by 49.6 % from 13,472 in 2013 to 20,155 new mortgages in 2014(excluding re-mortgages and top-ups which do not reflect home buying activity).

Meanwhile, home sales for 2014 rose to 42,666 which is an increase of 43.1% from the 29,818 home sales registered for 2013.

These statistics mean that, while the number of cash buyers increased in 2014, they represented 52.8% of total home sales which is a marginal decrease from the 54.8% cash buyer rate for 2013. This highlights that the level of mortgage lending did not increase at the expected rate for July to Dec 2014 and that there were more cash buyers than expected. Also the announcement by the Central Bank in October that mortgage limits would be restricted in 2015, did not result in a surge in mortgage applications in a similar way to Q4 2012 when there was a significant increase due to mortgage interest relief being scrapped from 2013 onwards.

Nevertheless, the cash buyer rate is still significant and it is still higher than the cash buyer rates of 39% and 44% for the years 2011 and 2012 respectively.

The issue of cash buyers still dominating around half of the market is a symptom of a depressed mortgage market – 20,155 new mortgages in 2014 is a fraction of the 110,790 home buyer mortgages given out in 2006. It will be clearer in 6 months time whether cash buyers will be less dominant than they were in 2011.

On a quarterly basis, the cash buyer rates for Q1 2014 was 54.0% while the rates for Q2 and Q3 were 52.2% and 49.3% respectively. The cash buyer rate for Q4 2014 was 55.2%, the highest rate since Q4 2013 (55.4%).

The cash buyer rate for all of 2010 was 12%, however it is not known what the cash buyer rate was before that in the boom years as the number of home sales before 2010 are not available.

New mortgage statistics have been available since 2005 and the peak year of 2006 reveals that out of the grand total 203,953 new mortgages, 37,064 were for First Time Buyers (18.2%), 45,585 were for Mover Purchases (22.4%), 28,141 were Buy-to-Let mortgages (13.8%), 26,565 Re-Mortgages (13.0%) and 66,598 Top-Ups (32.7%).

The 2014 mortgage market paints a completely different picture with a grand total of only 22,119 new mortgages, of which 11,476 (51.9%) were for First Time Buyers, 7,649 were for Mover Purchases (34.6%), 1,030 were Buy-to-Let mortgages (4.7%), 503 Re-Mortgages (2.3%) and 1,461 Top-Ups (6.6%).

The cash buyer rate of nearly 53% for 2014 may come as a surprise to many people who have been led to believe that cash buyers constituted only around one third of the market in 2014. One body who is responsible for misleading the public is the Society of Chartered Surveyors Ireland (SCSI) who published a housing market report for Q2 2014 which said that cash buyers were significantly less dominant, with ‘cash purchases accounting for about 35% of the transactions in Q2.’ Clearly the real cash buyer rate for Q2 2014 was over 50% and the reason for this discrepancy is that the report notes that their 35% rate is obtained from data ‘based on 336 properties given by 46 individuals.’ (These 336 properties only represent 3.7% of all home sales in that quarter). While the report states that the report is ‘new and due caution must be exercised when interpreting the results given the low response rates for some questions particularly until the dataset is further developed over the coming quarter.’, the damage was already done as this report was then quoted by the mainstream press without mentioning the low sample number used for the findings.

What makes things worse is that you then have chief economist, Alan McQuaid from Merrion Capital, quoted in the Irish Times on 29th January 2015 as saying: ‘Although cash sales are not as high now compared with the start of 2014, they are still significant, accounting for roughly one in three of every transaction.’

Suggesting that cash buyers are dominating less of the market than in reality implies that there is a mortgage market significantly improving, when the best statistics available are suggesting otherwise.

Cash Buyers 2010 to 2014

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Irish Banks Account for 62% of Ireland’s Mortgage Market

At the time of the banking crisis in 2008 which badly affected Ireland, there were 6 Irish banks in existence. Two of those banks later merged together to form IBRC, and began liquidation proceedings over 4 years later, while the largest bank AIB bought the smallest bank EBS.

Clearly this leaves only 3 Irish banks left with AIB Group having the largest mortgage book with a value of €37.3 billion at the end of June 2014 which accounts for 27.5% of the total country’s mortgages by comparing these figures to Central Bank statistics for June 2014. Bank of Ireland had mortgages in the country totalling €26.3 billion during the same month (19.4% of the market) while at the same time, Permanent TSB had a mortgage book with a value of €20.3 billion (15% market share)

These 3 banks therefore have a combined share of 61.9% as at June 2014.

The next main mortgage player is Ulster Bank (owned by British bank RBS Group) which has a similar sized share of the market to Permanent TSB with a mortgage book in the Republic of Ireland worth €20.2 billion as at December 2013.

Danske Bank which bought the Irish bank NIB a few years before the banking crisis hit, had a mortgage book in Ireland worth €3.2 billion, according to the Accounts in Dec 2012 (in the unlikely event it has the same value today in a decreasing mortgage market, it would command 2.4% of the market) which has since been sold on to other lenders, some of which would not have been familiar to most people.

IBRC, the bank which announced liquidation in February 2013, had a mortgage book value of only €1.8 billion (concerning 13,000 customers as it was mostly a developer’s bank) according to its accounts for the second half of 2012, which would only give a market share of 1.3% based on June 2014 figures. These mortgages were sold off in tranches to the highest bidders, just like the Danske Banks mortgages.

In addition there are sub-prime mortgages worth around €3.3 billion (2.4% of market) which affect 18,000 customers, according to a parliamentary answer to TD Michael McGrath last summer.

The total of the mortgages book values mentioned, account for 83% of the Irish market. Other foreign owned banks would clearly account for the remaining 17%, such as KBC bank or any of the European and US banks with a banking license in this country who may not specifically advertise their mortgages to the Irish market.

The Central Bank mortgage statistics, used to determine the banks’ exposure to the mortgage market, as at June 2014, had a book value of €135.4 billion (906,762 mortgages), of which around 78% of the value concerned principal private dwellings and the reaming 22% involved Buy-To- Let mortgages.