A person purchased a property at the peak of the boom in 2007 for €500k. They got a tracker mortgage of ECB + 60 bps, and a 100% mortgage. They were entitled to MIR. If they are on a 30 year term, their monthly repayments are now circa €1,690 (excluding MIR). The total payments on their mortgage will be circa €608k (again, excluding MIR).
Today, I could probably purchase that property for 300k. Assuming I get a 100% mortgage (I know this isn’t possible), on a 30 year term with a rate of 4.75%, my monthly repayments would be circa €1,565, with a total repayment of circa €563k.
So my monthly (and total) repayments are circa 7% lower (actually less if you allow for MIR). And if anything, the spread between the ECB rate and variable rate mortgages will probably increase in the near-term, meaning my monthly repayments will increase relative to person on tracker. So unless you are a cash buyer, property prices haven’t really fallen that much at all!
(Obviously, stamp duty in 2007 was higher)
What are peoples thoughts – other factors that need to be considered?
Fair enough - should have added the assumption that I’m talking about a family home here, and not looking to sell. Obviously, if somebody paid 500k for an apt, they are trapped in NE - clearly if they sell they have to realize loss. In my example there is nowhere near €250 of a difference between monthly payments (more like €20).
Anyway, I was really just trying to make a colleague that bought a house in 2007 feel better But when I saw the numbers, it actually made me a little mad, as my monthly costs will roughly be the same as his (assuming I don’t get a 200k inheritance anytime soon
I was speaking to Philip Sherry of Sherry Fitzgerald on Sunday at a dinner party and he was of the opinion that prices would rise by 10% this year and 10% next year. However he also said if you were thinking about selling that you would be better off holding out for another year. I would thought he would be encouraging potential sellers to advertise with them. Then again a slow drip feed is what the EAs want.
In order to be polite and not get into any argument I did not challenge him on either point.
Nationally? There wasn’t a dusting of white powder betwixt nostril and lip, by any chance?
Presumably this opinion issues from the same crystal ball that failed to inform him to get out at the top? When he, of all people, had the info available to conclude the sort of car crash his business was heading towards.
Seriously though, what possible qualification has he got to make such predications. He flogs property in market place now viewable to all and sundry. No more white coat syndrome.
To be fair to Sherry, he didn’t get out at the top because he probably likes his business. He makes his income from taking a slice of each transaction, not making equity investments, so his interests is in having as many transactions as possible. He doesn’t care who makes the loss or gain, he’s just trying to match sellers with buyers.
And what qualification would you want from someone who advises on property prices? An economics doctorate? Like this perhaps?
Ultimately an adviser will usually get business from clients who think they have more knowledge then them (the client), so they will try and sound intelligent, but not disagreeable. Sherry nor any other advisor will not want to offend prospective clients, which would cost potential fees. Most people don’t read the pin, and think prices will go up. Hence Sherry is playing a numbers game.
I’ve seen examples where it’s a marginal call between buying in 04/05 and not buying when you account for trackers, interest relief, security of tenure and relatively static rent levels since 04/05. If the property is fairly well located in Dublin and the outlay wasn’t big money even 50-60% price drop wouldn’t make a property purchase as late as 2005 in any way ludicrous. 2006, 2007 and 2008 were a different matter.
You haven’t taken three things into account, prices have dropped so people are getting 80% mortgages, the ECB rate will rise and the inter-bank lending rate for Irish banks should drop, trackers will rise more than SVR, also trackers tend to owe more. People have to live somewhere, do the sums on Rent V Buy. If I had a tracker I’d be stashing the cash at the best rate I could get then paying off lump sums to get it paid down as much a possible before rates go up.
The person purchasing, with a tracker, for €500k in 2007, when ECB rates were around 4.00% would have had repayments of approx. €2,531 per month. Those repayments have dropped to approx. €1,690 and become more affordable due to ECB rates tumbling.
If you had bought with an SVR for €500k in 2007, your repayments would also have been in the region of €2,500 (depends on bank). Buying today with an SVR for €300k your repayments are €1,565.
Your relative position isn’t that different as you can’t benefit from the tracker rate but that doesn’t change the fact that affordability has improved significantly for both of you (for the 2007 buyer because of falling interest rates and for you because of falling prices)
Debatable. While I agree that long-term, the only way ECB rate can go is higher (and a similar increase in tracker and SVR mortgage will obviously have a bigger impact on tracker monthly payments, as notional is higher), I’m not so confident the spread over the risk-free rate Irish banks are charging on SVR will decrease anytime soon…