BUYING A HOUSE AFTER COVID-19

Seven steps to get yourself mortgage ready,

THE Covid-19 crisis could knock tens of thousands or more off Irish house prices and make the coming months the cheapest time in years to buy property — if you can afford to. The Economic and Social Research Institute warned last week that property prices could fall by 12pc by the end of next year as a result of the Covid-19 pandemic. The Belgian bank KBC said recently that it expected Irish house prices to fall by 12pc this year — followed by a rise of 8pc next year. In its worst-case scenario, the bank said prices could fall by 20pc this year.

As almost 600,000 people have lost their jobs since the coronavirus crisis hit, many are not in a position to buy a home. Banks are expecting a big collapse in the demand for mortgages as a result. However, for those whose jobs and pay have not been affected by the current emergency, the coming months could be the ideal time to buy. So if you’re in a position to buy and want to take advantage of falling prices, what should you know?

÷ YOU NEED TO TIME IT RIGHT

For a house-hunter eager to buy when house prices are cheapest, getting the timing right — and striking a deal before any recovery sets in — will be key. In the last recession — which ran from 2008 to late 2013 — the cheapest time to buy property was late 2012 and early 2013.

The ESRI said last week that Irish house prices could fall over the next year-and-a-half as a result of the Covid-19 downturn. House prices are likely to recover swiftly when the economy starts to get back on its feet again after the Covid-19 crisis, according to Kieran McQuinn, head of research with the ESRI. “You can see the housing marketbeing impacted by the Covid-19 crisis right through this crisis — until recovery sets in. Once the economy gets back, I’d be quite confident the housing market will recover and grow quite strongly — that would lead to a fairly quick pick-up in house prices.”

Some believe that house prices could fall for the next year or two as a result of the Covid-19 crisis; some fear that Ireland is heading into a more prolonged recession, with the slump in the housing market set to last a few years too. It all depends on the severity of the impact of the Covid-19 crisis on the Irish economy and if Ireland sees a second surge of the virus.

The danger of buying at the start of a downward trend in house prices is that you could end up in negative equity — where you owe more on your mortgage than you would get by selling your home. It may therefore be wiser to wait until this autumn before making a decision on whether or not to buy — as we should have a better idea then of the likely impact of the Covid-19 crisis on the economy. How long you intend to make the property your home should come into play too: if you plan to live in the property for 10 years or more, hopefully it will have recovered from any price drops by the time you move on.

÷ HOUSING CRISIS MAY CURB PRICE FALLS

It has been widely estimated that the Covid-19 crisis could trigger house price falls of between 5pc and 10pc. “The major determinant of housing demand is what people can afford,” said McQuinn. “The drop in incomes [as a result of the Covid-19 crisis] will have an impact on what people can afford — that will hit demand and put downward pressure on house prices. There’s also considerable uncertainty in the market and that too will have a downward impact on house prices — as will the slowdown in activity in the market.”

House prices may not be affected by the Covid-19 crisis as much as people think, according to Michael Dowling, managing director of Dowling Financial. “There will be less property on the market for buyers to compete for,” said Dowling. “I don’t think you’ll see house price falls of 20pc [as a result of the Covid-19 emergency] — because of the limited housing stock.”

Indeed, the Covid-19 crisis has probably compounded Ireland’s chronic housing shortage. “Already it is evident that the lockdown will see fewer houses built in 2020 [than planned],” said McQuinn.

÷ BEING MORTGAGE-READY SHOULD PAY OFF

House-hunters unscathed by the emergency should get their mortgage application in soon and get it approved, advised Dowling. “Banks will treat your application in the normal fashion — and operate normal due diligence — if you’re not impacted by the Covid-19 crisis,” said Dowling. “If you get loan approval, it should be valid for between six and 12 months. The key thing is to get yourself ready to buy for when a house comes up.”

The people best placed to get a mortgage today are those who are still in a job — and who haven’t seen any dip in their pay since the Covid-19 crisis hit. When applying for a mortgage, you need to prove that your income and job have not been affected by the current emergency.

Those who are still in their jobs — but on reduced incomes and expected to get their full incomes restored after the crisis — could still be in the running for a mortgage, according to Dowling. “Banks are taking applications based on pre-Covid 19 income — but on the basis that it’s restored to pre-Covid income by the time the mortgage is drawn down,” said Dowling.

÷ EXPECT LENDERS TO BE TIGHT-FISTED

Even if you can get a mortgage, you may not be able to borrow as much as would have been the case before the Covid-19 crisis. You may struggle to get an exemption to the Central Bank’s lending rules today. As these exemptions allow you to borrow more than the lending rules stipulate, failure to get one could price you out of certain areas. Banks expect to tighten their lending criteria under the current emergency even more than they did at the height of the financial crisis of more than a decade ago, according to a recent Central Bank report.

÷ EXPECT TO RUN INTO PRACTICAL HITCHES

It’s important to visit and physically view a

property before deciding whether or not to buy it — yet it could be June 8 (the second phase of the lockdown exit) before this can happen and even this date is uncertain. “We feel it’s likely that physical house viewings for second-hand homes will fall into the second phase on June 8 — provided it is deemed safe to do so with very strict protocols in place,” said Jill O’Neill, communications director with Sherry FitzGerald.

Many estate agents — including Sherry FitzGerald, Douglas Newman Good and Savills — offer virtual viewings of a range of their properties. While such viewings can give a feel for a property, they are no substitute for physically viewing and inspecting a property.

Hiring a surveyor to check a house for structural defects before you buy is also a must. (A snagging survey — an inspection which checks for problems in newly built homes — may be sufficient for a new build.) Under current Covid-19 restrictions, surveys cannot be carried out. So house-hunters will have to wait until the restrictions around viewings and surveys are lifted before seriously pursuing a property.

÷ YOU CAN’T BE SHY ABOUT RENEGOTIATING

“Everyone has been renegotiating prices since the lockdown — and most vendors are willing to come down in price to get the sale over the line,” said Dowling. “We’ve seen cases where between €5,000 and €10,000 — and even €25,000 — has

been knocked off the sale price. Since lockdown, any perspective buyer who is not looking for a price reduction is not doing themselves justice. As long as you have not yet signed the contract for a house purchase, you can seek a reduction.”

÷ YOU NEED A GOOD SOLICITOR

Under Central Bank rules, lenders must ensure that borrowers can afford the loans they take out. So your bank may withdraw its mortgage offer even when contracts have been signed and deposits paid — if you lose your job or get a big pay cut just before the sale is due to close. In these cases, the seller may not have to return the deposit — leaving you seriously out of pocket.

“How a deposit is dealt with in a property transaction is a matter for the solicitors involved,” according to a statement from the Banking Payment Federation of Ireland. “Since June 2009, the Law Society recommends that a contract includes a special condition that the loan approval of the lender is in place at the date of completion of the contract and for an amount that will allow a purchaser to complete the purchase. If a contract includes this special condition, the buyer can rely on it to ensure that he or she can proceed to complete the purchase. If the loan approval changes, a buyer is entitled to a refund of the deposit, if this special condition had been included in the contract.”

As always, buyer beware.