Never a worse time to trade down in our biggest cities

CASH-WIELDING downsizers had an advantage until a year or two ago when the banks were tight on mortgage lending.

But now there has never been a worse time to buy a property if you’re a baby boomer looking to downsize in a city.

A perfect storm of adversarial conditions in the market for down trading means older couples with big empty nests, who fancy moving to a smaller, more manageable home, have many obstacles placed in their way.

First of all, achieving that empty nest at all has become a less likely prospect because their offspring won’t exit. The average age of a first-time buyer has risen to 34 as rents are at record levels and we have the worst home shortage in memory in our cities. Thirty-somethings are more likely to be found living at home with mum and dad than their predecessors.

Meanwhile, boomers have far more competition for their target property if they want to trade down.

The Central Bank’s mortgage lending restrictions mean that smaller city homes like two-bedroom apartments, cottages and two-bed terraces – traditionally the target properties for downsizers – are now being hotly contested by young buyers.

There are proportionally far more first-time buyers about today with the ability to buy smaller family homes.

And downsizers must of course compete with others like themselves, also scouring a smaller pool of smaller homes. It means there has never been more competition.

The Central Bank’s 3.5 times income borrowing limit also means that it has become increasingly difficult to find a buyer for that larger home downsizers must first sell, particularly if it needs modernisation. Banks are still generally not lending freely for combined purchase and upgrade.

This makes selling a larger home in less-than-perfect condition a more difficult and less rewarding prospect than it has been historically.

Smaller city homes are now increasing in value rapidly while larger homes are not increasing in value as fast. So the trade down gain has been diminishing.

For example, figures published this week by KBC Bank show that apartments in Ireland have increased in value by 14.5pc in the past year, while houses increased by 12.3pc. So downsizers to apartments get less bang for their buck.

Another issue is the near non-availability of affordable smaller new homes in many areas.

In the decades before the property crash, the new homes market was the prime source of downsizer homes, particularly apartments. Just before the crash, one in three properties sold in Dublin was a new home and more than 40pc of new homes were apartments.

In particular, apartment building has stagnated since the crash due to the high cost of providing underground car parking and ticking the boxes for building regulations. It is hoped that the recent relaxation of restrictions on apartments will help kick start this market again.

But now it looks likely that, given runaway rents here, many developers will be investment outfits.

Finally, in a rising market, those who sell a big property and don’t buy fast will see the purchasing power of their banked lump sum shrink rapidly.

Home prices have been rising at between a half per cent to one per cent per month, which is €1,500 to €3,000 extra on a €300,000 property.

This in turn has lead to a real fear among potential downsizers of repeatedly losing out in the competition for smaller properties.

It means that many couples would simply rather stay put than take that risk.