Republican News · Thursday 14 August 2003

Speculators fuel house prices

Ó Caoláin calls for review of mortgage lending

BY ROBBIE SMYTH

What is really happening in the Irish housing market? Revealing financial statistics from Britain and a damning IMF report and have underpinned the perilous state of the housing market as new job losses and unemployment figures continue to rise.

First the financial data, British Mortgage bank Bradford and Bingley announced its results for the first six months of 2003 last week. The bank registered profits of £132 million. The most interesting aspect of its report was the significant increases in the amount of mortgages approved by B&B with new lending more than doubling in the first six months of 2003 compared to the same time last year.

B&B lent £4.6 billion in the first half of 2003. Half of this lending was to landlords and speculators who were entering the 'buy to let' market which now accounts for 30% of B&B's total business.

In the 26 Counties there has been considerable investment by landlords and other property speculators in the Irish housing market. Their activity in the housing market has been one of the significant contributing factors to rising house prices.

Building societies were started to help ordinary people purchase their own homes. In Ireland and Britain, building societies have been a significant factor in allowing hundreds of thousands of families buy homes. However, in the late 1980s and early 1990s, the deregulation of financial markets has also led to building societies moving away from their core business of being run in the interests of home buyers, who were the original shareholders in the societies, to being just focused on racking up short-term profits.

If the B&B figures are being replicated here, it means that Irish mortgage lending is being driven by speculators, driving prices out of reach of ordinary households? The latest Central Bank report found that house mortgage finance of €13.8 billion accounted for 60% of the increase in private sector lending in the 12 months to the end of March 2003.

Missing though, from the figures, was what percentage of this €13 billion was accounted for by landlords and speculators.

Sinn Féin TD and finance spokesperson Caoimhghín Ó Caoláin told An Phoblacht that he believes that all of this highlights already growing concerns about the housing market in the 26 Counties.

He said: "When you consider the increases in mortgage lending in the context of last week's IMF report, that showed house prices here are overvalued and that the property market is vulnerable to the current malaise gripping the Irish economy, there clearly are serious problems in how this market is operating. With house prices still rising uncontrollably, it is time for the Central Bank and department of Finance to review mortgage lending in the 26 Counties."

Ó Caoláin's concern is that if house prices are overvalued and prices do begin to fall, it will be the ordinary homeowner who will have to carry the costs of huge mortgages for assets declining in value. "It happened in Britain in the early 1990s and we need to learn from that experience," he said.

The coalition government will no doubt ignore the IMF report, preferring to focus on its calls for controlling wage growth. Why, though, do they never seem to want to control house price growth?