Buy-to Let properties hold the key to future residential property prices.
7,754 Buy-to-Let mortgages have payments in default of more than 3 years.
Most of these properties are in areas where there never was a real demand for rental properties in the first place.
However, there are buy-to-let mortgages in arrears in the greater Dublin area as well, but until now there seemed to be a marked reluctance on behalf of the banks to repossess and sell the investment properties that are in difficulty.
What does this mean?
Because the banks are not repossessing and selling those properties there is a shortage of properties for sale in certain areas of the country, mainly Dublin, Galway and to a lesser extent Cork.
This means that the small supply of housing stock available is too small to satisfy the weak demand for houses and as a consequence when supply cannot match demand, prices rise. The problem is that the housing market, in terms of both supply and demand, is being deliberately manipulated by the banks for their own advantage.
The longer they can maintain the situation where demand exceeds supply, the more house prices will rise.
What happens next?
They will shortly be in a position to further manipulate the market even further, by increasing the amount of funding for mortgages to increase the demand for residential property without increasing the supply. We will shortly be back in the same crazy situation that we were during the boom period because we have given all the power back to the men (and women) who got us in to this awful mess in the first place, and they are starting to do the same all over again.
So who is going to cry HALT? Our duly elected representatives in Dail Eireann???….you must be joking!
There are also a huge number of ordinary residential mortgages in difficulty.
182,000 mortgages in arrears – plus
55,000 mortgages “restructured”
If the banks repossessed properties in significant arrears, particularly buy-to-let mortgages, and put them back on the market, this supply by the banks would satisfy that demand and would prevent house prices in Dublin and Galway from rising.
At the moment the rise in property prices in the larger urban areas is a false rise because there is huge amount of properties being artificially held off the market (by the banks) thus creating a supply deficiency, which is artificially rising prices.
During the property boom, investors borrowed money on the assumption that rents would remain strong and that capital appreciation would continue.
Banks lent money to those borrowers knowing full well the criteria under which the investor was borrowing the money. Furthermore, those same banks actually encouraged the borrowing by lending huge amounts of money to developers to buy sites and to build the properties, and then, lent money in the form of mortgages to both investors and homeowners to buy those very same properties.
Banks made assumptions that rents would remain strong and that capital appreciation would continue. Investors made those same assumptions, encouraged to do so by the banks.
In making those assumptions the investors made some horrible mistakes, but the banks were party to those mistakes. In the United States, if the home owner takes a hit when he is forced to sell, the bank also shares the pain by taking a hit on the balance of what is owed versus what the property sells for.
Do we want to see house prices rise? Of course we do, but not because an artificial environment is being created and manipulated by the very people who stand to gain from that manipulation.
Let market forces dictate, not the highly over-paid executives who destroyed our economy in the first place.
Would regulation of rent solve the problem? Maybe, but that is not an ideal situation either.
Do we need to bring in a system like the U.S where foreclosure sales are rampant? I think not.
Will our Government have the courage to tackle this problem, unlike their now vilified predecessors? I wouldn’t hold my breath.
These are questions and debates for another day, but for now Let Market Forces Dictate.