Irish Journalisim: Just Another Vested Interest

The bankers reassure us that “new lending continues to moderate in a mortgage market that is still growing in overall terms.”
Translated, this means that people, mostly young people seeking their first home, are flocking to buy houses at prices they regard as realistic. (Irish Independent editorial, 14 February, 2008)

So. The spinning continues.

The above quote comes from one of three pieces in today´s Irish Independent (14 Feb 2008), all of which carry the same message: the good times in housing are just around the corner. The editorial, entitled “Outbreak of common sense“, concludes that “common sense on all sides will see us safe.” It argues that there has been a readjustment in the housing market, one expected by all reasonable analysists, and cool heads and steady nerves will see us through this little blip.

The reason for the editor´s optimism is the mortgage market profile quarterly report, Q4 2007, issued by the Irish Banking Federation on 13 February 2008. The report forms the basis of two articles by Charlie Weston, the Indo´s personal finance editor. The first, entitled “First-time buyers breathe new life into property sector” is contained in the national news section, and opens with the line: “The worst could be over for the housing market.”

He goes on to say that

Now the Irish Banking Federation has joined a host of other economists and analysts in predicting that the property market is about to pick-up again, although not at the high octane rate it did up to recently.”

The report, however, says nothing of the sort.

Not only that, the report highlights the importance of top-up loans, remortgages, and residential investment letting (buying to rent) to the mortgage market. In another article, “housing becoming more affordable as confidence rises” – also contained in the national news section – Charlie Weston goes on to say that the first-time buyer market remains the shock-troops for confidence in the market.

HUGE numbers of first-time buyers are continuing to purchase homes, spearheading hopes of an upturn in the flagging property market. Despite a 20pc drop last year in the overall value of mortgages taken out, first-time buyers took out one-in-five new mortgages last year, driving forward the possibility of a property revival.”

Charlie neglects to mention that in 2005, first-time buyers made up 23.2% of the mortgage market, now thay constitute 20.1%. A drop in 2% translates as “property revival” in Charlie´s dictionary. Simarily, mover purchase mortgages are down from 29.6% of the mortage market in 2005, to 24.6% in the last quarter of 2007. Top-up loans have also dropped, from 13.8% in 2005, to 12.9% in Q4, 2007.

Two areas of the mortgage market have grown in the past two years. The first is the re-mortgage market, the other is the purchase-to-let market.

Re-mortgages stood at €1.481 billion in the fourth quarter of 2005, or 14.3% of the mortgage market. In the fourth quarter of 2007, they rose to €1.904 billion, or 23% of the mortgage market. Re-mortgages now stand at their highest level snce the Irish Banking Federation began their series of quarterly reports (see page three of the report).

The residential investment letting (RIL) market also fell in the past two years. However, unlike the first-time buyer and mover purchase morgages, RILs´share of the mortgage market actually increased – from 19.1% in Q4, 2005, to 19.4% in Q4, 2007. This is due in part to the fact that RILs have the highest average loan size – €326,300. The average first-time mortgage in Q4 2007 was €243,232, while the average re-mortgage was €259,700. The average top-up loan was €96,210.

The reasons behind buying a house as a home, and buying a house as an investment, are quite different. Confidence in the housing market plays a role in the decision or otherwise of first-time buyers to commit to a purchase. However, confidence plays a huge role in the decision or otherwise of “buy-to-rent”. The argument that first-time buyers are spearheading a rivival in the housing market is simply toss. However, confidence is important in order for investors to keep on taking out those €326,000 mortgages. The same goes for the media-led spin that buying to rent remains a good “buy”. Investors need to hear that prices are being kept afloat by other purchasers. Once they realise that investors, and not home-buyers, are keeping prices afloat, they´ll freeze up.

The banks, government, and media, already know all of this. All three, however, have a vested interest in keeping the mortgage market pumped up with unrealistic expectations. So much for common sense.