Will the Help to Buy dramatically increase prices of new houses?

[trasneoir]

My initial (naieve) reaction was that this would have an effect of raising the price of new builds by 5%.
This doesn't seem too bad - it might make new development more viable, while giving FTBs a slight advantage over existing property owners.

Then I realized that making this 5% part of the deposit has got a multiplier effect, allowing FTBs to access much more credit (if their LTI permits it).

Can somebody check my maths here please?
Before these rules, an FTB with 30k cash could buy a property priced at 260k.
Now an FTB with 30k cash can mortgage a new build priced @ 346k?

 

[Brendan Burgess]

Before these rules, an FTB with 30k cash could buy a property priced at 260k.
Now an FTB with 30k cash can mortgage a new build priced @ 346k?

Yes, your figures are correct. But they will have to meet the Loan to Income requirements as well.

 

[Brendan Burgess]

It will have another impact as well.

Let's say that there are 200 new houses for sale in Dublin at less than €300k i.e. suitable for first time buyers.

A buyer will need €38k as a deposit on these houses.

There were probably 100 First Time Buyers with the €38k ready to go to buy these. (investors and second time buyers will buy the rest.)

There are also 300 would-be First Time Buyers who are saving hard for the deposit, but only have say, €25k. Now the government is giving them €15k so suddenly they can bid for these houses. But they can bid for only these new houses. They can't bid for second hand houses. As they are anxious to get on the ladder as quickly as possible, they may well be prepared to pay €330k for them.

Deposit required for a €330k house
€220k@10% = €22k
€110k@20% = €22k
Total = €44k
Less Help to buy rebate: €16,500
Deposit required: €27,500

So it could push up prices by 10%.

Brendan

 

[phileasfogg]

Builders maintain they cannot currently build houses for profit at current market prices. Is this a valid position? If second time buyers are now priced out of the " new home" market will that increase prices of 2nd hand homes? That could lift some out of negative equity, thus freeing up their properties to be sold on the open market. However this might also allow a lot of 2nd hand " starter" homes on to a market heavy with trader uppers looking for larger homes so might not be the best fit. I would be very interested to know if there are many negative equity families sqeezed into inappropriately sized homes (as per the woman on with Pat Kenny this morning who got no sympathy or empathy from Leo varadker) or if it's a small minority. These homes when out of negative equity will be perfect for first time buyers who may now be looking elsewhere.

 

[Sarenco]

Looks like some builders are already jacking up their prices on foot on the budget announcement:-

http://www.thejournal.ie/budget-housing-3024449-Oct2016/

 

[phileasfogg]

But it won't matter if the biggest obstacle ( the deposit) has disappeared. I wager people will be happy to pay increased cost.

 

[cremeegg]

Not yet boomier, but definitely on the way. Wait till FF get both hands on the till(er).

 

[Sarenco]

Not yet boomier, but definitely on the way. Wait till FF get both hands on the till(er).

The gas thing is that FF are now complaining that the tax rebate will simply drive up the price of houses (which it will) even though they campaigned in the last GE for the re-introduction of a FTB grant (and more recently argued that this should be extended to second hand houses).

Does not compute...

 

[Sarenco]

But it won't matter if the biggest obstacle ( the deposit) has disappeared. I wager people will be happy to pay increased cost.

No doubt but they will end up with bigger mortgages than they would otherwise have had to endure.

This tax rebate is a subsidy to builders plain and simple - it won't benefit FTBs.

 

[phileasfogg]

Worse than that. It won't benefit anybody. But at least first time buyers can get in there first. 5% deposit versus 20% has suddenly totally distorted the playing field.

 

[Brendan Burgess]

The Indo reports that it has pushed up prices dramatically

New homes soar €45,000 in the hours after Budget

"Within hours of the Budget speech, a number of houses advertised on property websites jumped by between €17,000 and €45,000.

The Irish Independent identified three new homes, whose purchasers will qualify for the new scheme, which rose in price.

In one instance, a three-bed home in Dungarvan, in Co Waterford jumped by €38,000 to €210,000 on myhome.ie. A second house in the same development went up €21,000.

A house on the same website in Craughwell, Co Galway jumped by €20,000 to €195,000."

 

[moneybox]

It was expected prices would rise but increases outlined above so soon after the budget are nothing short of scandulous.

 

[Delboy]

The law of intended consequences

 

[trasneoir]

It was expected prices would rise but increases outlined above so soon after the budget are nothing short of scandulous.

Meh. If you don't ask, you don't get.

The dogs on the street (aka the market) were expecting that the result would be a price increase, the only unknown was how much. Right now developers have a chance to set expectations, so it would be in their best interest to set them as high as plausibly possible.

Meanwhile, I'd expect a round of gazumping for any new builds which are sale agreed but don't have contracts signed yet. If need be, agreements might be scrapped altogether to avoid media/legal attention.

 

[Brendan Burgess]

The Irish Times had an article today which claimed that the Indo article was mistaken.

They were comparing prices on an earlier stage of the development with the latest stage. In another case, the price was increased some time ago on the agent's website, but they just hadn't updated myhome.ie

As one example was for a new house in excess of €600k, I don't see how it would have been affected by the Budget.

Brendan

 

[allencat3]

In 1977 (nearly 40 years ago), around one week before we signed the contracts with the builders of an estate of 42 houses (not yet built), the price of the house went from £9,995 to £12,250, after the Budget announced the First-Time Buyers' Grant of £1,000. We still have the sales flyer with the old price crossed out and the new price written in! So that's nothing new ..... In the following year, after the General Election, the domestic rates were abolished - that saved us thousands till their return in the guise of "property tax".

 

[Purple]

..... In the following year, after the General Election, the domestic rates were abolished -

And that was a stupid decision, as populist as it was disastrous. Rates could have been used as a tool to control house prices and inflation, particularly years later after we joined the Euro. Stable non cyclical taxes which are not tied to work are an essential part of a balanced and broadly taxed tax system. Of course the populist idiots who opposed property taxes and water taxes don't understand that.