mortgage draw-down rate 2014

Cash Buyers in Ireland for 2014, Likely to Dominate 48/49% of Property Market.

Cash Buyers
As most people would know in Ireland, cash buyers in the housing market have made up a significant proportion of the market in the last 3 and half years. In 2010 cash buyers consisted of only around 12% of the market for the year, when many potential cash buyers would probably have rightly seen that house prices had not yet bottomed, and so held out making their purchases until later. In 2011 cash buyers shot up to 39% of the market and rose further to consist of around 44% and 55% of the market in the years 2012 and 2013 respectively.
It could be argued that some cash buyers in 2013 were potential cash buyers in the previous 2 years but were still not convinced that prices had bottomed. As mentioned, cash buyers consisted of 55% of the market in 2013 but for the first 3 months of that year, cash buyers in fact consisted of 63% of the market! It turns out that period would probably been around the best time to buy for cash buyers, as according to the Central Statistics Office, home prices nationally increased by 12.5% in the year to June 2014 while Dublin house prices rose by around 25% in the same period.
The number of cash buyers is ascertained by comparing the number of home sales (according to the Property Price Register) with the figures for new mortgages from the Irish Banking Federation (excluding re-mortgages and top-ups).
For Q1 2010, there bizarrely appears to be 25 more new mortgages than the number of home sales that actually occurred in the same period. This could be attributed to new mortgage figures from the IBF being included in the previous quarter results, to when the home sales actually took place according to the register (as well as any errors in the register itself). Nonetheless, this indicates that there must have been little or no cash buyers in the first 3 months of 2010.
With cash buyers dominating the housing market in 2013, it has resulted in many people wondering where such a huge amount of cash buyers are coming from. While 55% of the market seems a lot with over 16,000 cash sales, the reality is that this is a small amount compared to the 110,000 new mortgages given out in 2006 (only 64,500 new mortgages given out in the 4.5 years to June 2014). Anecdotal evidence from home sellers appears to indicate that the cash buyers are mostly newly retired people who see a good annual yield to be made in property than having their savings with traditional investments, currently giving a much lower yield. So in short, it’s not so much that there are plenty of cash buyers out there, but a very depressed mortgage market – giving the illusion of a cash rich nation.
While the number of cash buyers in the first 6 months of 2014 has increased by nearly 28% compared to the same period last year, the good news is that 2013 should be the only year where cash buyers make up more than 50% of the market, as the number of new mortgages in the same period has increased by 60%.
Roughly 40% of the housing market activity occurs in the first 6 months of the year. For the first half of 2013, 37.3% of annual home sales occurred then, while 34.6% of the total new mortgages were given out in the same period.
There were 15,688 home sales and 7,463 new mortgages from Jan to June 2014. Assuming the number of home sales in this period consists of 37.3% of total annual activity, and the 7,463 new mortgages consists of 34.6% of total annual activity, just like last year, then total home sales for 2014 would be around 42,000 (15,688/37.3*100) and new mortgages will be around 21,500 (7,463/34.6*100). This would mean that there would be a total of around 20,500 (42,000-21,500) cash sales for 2014 giving an annual cash buyer rate of 48.8% based on these estimations.
This may seem more of a guesstimate but if the same type of calculations were made this time last year, the 2013 cash buyer rate of 55% would have been predicted with a 1% error.
According to the IBF there were 10,673 mortgage approvals in the first 6 months of 2014 which is an increase of 47.7% on the 7,226 mortgage approvals for the same period in 2013. The 7,463 new mortgages actually drawn down in the first half of 2014 therefore represents a draw-down rate of 69.9%. This suggests the remaining 3,210 (10,673-7,463) approved mortgages consist of people waiting until the next quarter to buy a home, unable to find a home or have changed their minds to buy a home. Therefore it could be argued that up to 30% of home seekers have been squeezed out of the market in the first half of 2014.
The mortgage draw-down rates for 2012 and 2013 were around 87% and 78% respectively which suggests that many people with mortgage approval were able to find a home. This information appears to contradict what estate agents have been saying in recent years in relation to people trying to look for a home but unable to find one. Also many people would have heard estate agents say that spring is a good time to sell your home. However, the Property Price Register contradicts such an assertion as less than 25% of home sales occur in the 3 months of spring (a good month to sell your home would be when home sales consist of more than 1/12th of annual activity).
Thanks to all this new information available from the IBF and Property Price Register, the potential home buyer has a much better picture of the true state of the housing market. With less than 25,000 new mortgages for 2014 mostly likely to happen, it is still a different housing market compared to 2006 with 110,000 mortgages (around 25% were buy to let which compares to a 4% rate for 2013).
Overall, there should be a cash buyer rate a bit below 50% for 2014, obviously lower than 2013 but still higher than the rate of 44% for 2012.