I have been concerned about the accuracy of the statement that 50% of residential property purchases are for cash. This number is difficult to verify. To me it seems a little contraintuitive. For example, I bought a house about 18 months ago. While I could have done this without a mortgage, it suited me for a variety of reasons such as cashflow to have a relatively small mortgage of about 30% LTV.
One of the problems of any analysis is that much time and effort is required to merge poor quality and partial sources and prepare data for analysis rather than having one source of data that can be analysed.
There are three sources of property price information:
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IBF-PwC Residential Mortgage Data (ibf.ie/gns/publications/rese … arket.aspx) – this includes mortgages drawndown on residential properties for all the major lending institutions in operation. It includes about 95% of mortgages. The data is at a lag of a quarters so the data is only available up to Q1 2014. The data is available from Q1 2015 onwards.
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CSO Property Price Index – this is an index of residential property prices for which mortgages are registered. It does not include actual prices. The index is hedonic, that it, it attempts to classify property types (3 bed houses in Dublin, apartments in Cork) in order to compare like with like in order to create a valid index. Its source is nearly the same as the IBF data.
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Property Price Register – this includes almost all property purchases with a very small number of exceptions. It includes commercial and residential. The data quality is truly shocking. There is clearly no attempt to enforce any quality standards. The data is available from Jan 2010 onwards
Schematically, these overlapping data sources can be represented along the lines of:
From this incomplete data sources, you are trying to identify the subset of residential properties bought for cash:
There are multiple issues associated with comparing these data sources of which the greatest are:
• Matching times – they all contain data with dates but the dates may not match. So the date of a mortgage drawdown may not be the date when the purchase was registered.
• Identifying the subset of properties that are residential
IBF Residential Mortgage Data
This classifies mortgage amount drawdowns and mortgage average amounts by:
- First-time Buyer Purchaser (FTBP)
- Mover Purchaser (MP)
- Residential Investment Letting (RIL)
- Re-mortgage
- Top-up
For the purpose of this analysis, we are only interested in the first three. These (generally) give rise to property purchases. It may be that a re-mortgage or top-up give rise to a cash purchase of a second property but this is not known and making assumptions would not add value to the analysis. The value of mortgage drawdowns in these categories is small – around 5% of the total – and so any cash purchases they may give rise to can only be ignored. This current 5% of the total amount is very different from the peak of 39.9% they represented in the party times of Q1 2008.
In summary, the IBF numbers of mortgages in the three categories based on the average amounts and the total drawdowns are:
Quarter FTB MP RIL Total
Q1 2010 2,327 1,513 383 4,223
Q2 2010 2,971 1,691 281 4,943
Q3 2010 3,000 1,862 255 5,117
Q4 2010 2,317 1,469 238 4,024
Q1 2011 1,302 886 139 2,327
Q2 2011 1,504 998 144 2,646
Q3 2011 1,692 1,152 95 2,940
Q4 2011 1,890 1,204 131 3,225
Q1 2012 1,211 873 127 2,211
Q2 2012 1,644 1,055 132 2,832
Q3 2012 2,064 1,315 146 3,526
Q4 2012 3,722 1,679 179 5,580
Q1 2013 932 769 104 1,805
Q2 2013 1,599 1,155 105 2,858
Q3 2013 2,297 1,554 199 4,050
Q4 2013 2,706 1,863 194 4,763
Q1 2014 1,740 1,205 182 3,128Property Price Register
The challenge here is identifying what are residential and what are commercial properties. These have then been excluded from any comparison with IBF numbers.
This is done in a number of ways:
Properties that are obviously commercial such as:
• Mc Donnells Pub, Graveyard St., Ballinakill
• Apts 11 12 13 23 24 38 48, 58 59 65 66 & 67 The Waterfront, Hanover Quay – this is a purchase of multiple units logged as a single purchase
• 08/11/2012 Units in Sandford Lodge, Sandford Close – again this is a purchase of multiple units logged as a single purchase
• Where multiple units with similar names are logged as purchased on the same day, such as:
04/01/2010 No. 11, Charlotte Quay
04/01/2010 No. 12, Charlotte Quay
04/01/2010 No. 13, Charlotte Quay
04/01/2010 No. 18, Charlotte Quay
This table shows the value of property purchases from the register and the IBF:
Quarter Purchase Value Value Excl. Commercial IBF Drawdown Residential % of IBF
Q12010 1,087,187,522 1,024,523,308 1,220,000,000 83.98%
Q22010 1,296,778,750 1,205,220,016 1,305,000,000 92.35%
Q32010 1,441,143,173 1,396,986,527 1,239,000,000 112.75%
Q42010 1,264,082,409 1,201,037,653 982,000,000 122.31%
Q12011 816,078,396 763,016,447 577,000,000 132.24%
Q22011 883,757,342 851,340,292 624,000,000 136.43%
Q32011 1,077,529,429 1,020,706,336 623,000,000 163.84%
Q42011 1,171,051,491 1,085,563,702 639,000,000 169.88%
Q12012 820,347,842 776,222,345 450,000,000 172.49%
Q22012 990,619,148 916,951,222 524,000,000 174.99%
Q32012 1,285,999,888 1,243,495,633 663,000,000 187.56%
Q42012 1,786,422,739 1,656,801,863 999,000,000 165.85%
Q12013 890,204,166 827,451,178 331,000,000 249.99%
Q22013 1,241,414,397 1,115,111,923 518,000,000 215.27%
Q32013 1,720,114,784 1,549,366,729 750,000,000 206.58%
Q42013 2,272,547,293 2,009,211,730 896,000,000 224.24%
Q12014 1,333,953,125 1,203,558,349 568,000,000 211.89%
Q22014 1,792,336,837 1,661,250,778
Q32014 670,207,905 541,489,307The columns are:
• Quarter – the quarter
• Purchase Value – the total value of all property purchases in the register for the quarter
• Value Excl. Commercial –the estimated total value of all residential property purchases in the register for the quarter
• IBF Drawdown – the IBF residential mortgage drawdown amount
• Residential % of IBF – the proportion of residential properties in the register purchased in a quarter as a proportion of the number of properties in the same quarter from the IBF mortgage data
This table shows the number of property purchases in the register and estimates the number of commercial.
Quarter # Purchases Commercial Residential IBF Residential Residential % of IBF
Q12010 4,218 212 4,006 4,223 94.85%
Q22010 5,147 212 4,935 4,943 99.83%
Q32010 5,943 224 5,719 5,117 111.75%
Q42010 5,596 334 5,262 4,024 130.78%
Q12011 3,489 230 3,259 2,327 140.03%
Q22011 4,104 197 3,907 2,646 147.66%
Q32011 4,957 256 4,701 2,940 159.91%
Q42011 5,780 372 5,408 3,225 167.68%
Q12012 4,249 193 4,056 2,211 183.44%
Q22012 5,346 414 4,932 2,832 174.18%
Q32012 6,379 269 6,110 3,526 173.29%
Q42012 9,195 447 8,748 5,580 156.76%
Q12013 4,865 249 4,616 1,805 255.79%
Q22013 6,223 265 5,958 2,858 208.44%
Q32013 7,957 324 7,633 4,050 188.48%
Q42013 10,664 1161 9,503 4,763 199.51%
Q12014 6,709 492 6,217 3,128 198.77%
Q22014 8,726 694 8,032
Q32014 2,882 335 2,547The columns are:
• Quarter – the quarter
• # Purchases – the number of purchases in the register
• Commercial – the estimated number of commercial purchases. Where the purchase of multiple properties is recorded as a single entry in the register, this is recorded here also as one purchase.
• Residential – the estimated number of residential properties
• IBF Residential – the number of residential purchases from the IBF mortgage data
• Residential % of IBF – the proportion of residential property total value in the register purchased in a quarter as a proportion of the IBF amount of properties in the same quarter
While quarters are not directly comparable because of lags, the current average number of residential properties bought without mortgages from IBF member banks is around 50%.
To me this seems non-intuitive. But there it is.
The steady decline from all or almost all residential properties being bought with a mortgage to the current position of roughly half is, in my opinion, quite astonishing.
The IBF data is lagging behind the data in the price register. More recent IBF data will indicate if the trend is continuing or diminishing.
Clearly the 50% figure is gross and does not contain any details or market segmentation: what types of properties are being bought for cash. But the second table above shows that the proportion of the total amount being paid for residential property is around half of the amount being provided by IBF member lending institutions.
The surplus spend on residential property over the residential mortgage IBF drawdown amounts are:
Quarter Surplus Over IBF
Q12010 -195,476,692
Q22010 -99,779,984
Q32010 157,986,527
Q42010 219,037,653
Q12011 186,016,447
Q22011 227,340,292
Q32011 397,706,336
Q42011 446,563,702
Q12012 326,222,345
Q22012 392,951,222
Q32012 580,495,633
Q42012 657,801,863
Q12013 496,451,178
Q22013 597,111,923
Q32013 799,366,729
Q42013 1,113,211,730
Q12014 635,558,349
Q22014
Q32014The total surplus is actually quite small - 6,938,565,251 – for the 17 quarters listed above . This is almost exactly the same amount as was lent at the peak of lending in Q2 2016.
It could be that non-IBF financial institutions are lending a greater proportion than the IBF estimate. It could be that commercial purchase of property is higher than I have estimated. It could be that the number of individuals from outside Ireland buying property is high. It could also be that there really is a lot individuals buying property for cash.
