Advisors.ie

(see the article on the Independent.ie website)

Life doesn’t come with a set timetable, but the cycle of life can be reflected in the reasons for people buying and selling homes. They change jobs and move away, they have families and want bigger homes, they might grow older and downsize, or they die and it’s a probate sale.

At present the market is exceedingly difficult, and the issues are many. If you are thinking of trading up, down or otherwise in the property market, be ready for a range of issues.

Bank liquidity

Banks are short of funds and as a result, banks drip-feed loans to only the most credit -worthy of customers.

Negative equity

Negative equity arises for existing owners who want to move, but have a problem because the amount owed on mortgage is greater than the value of the property. Those who can get additional finance to move regularly decide to rent out their home because they can’t sell it.

Some banks have crazy criteria — for instance, AIB insist your current house is rented out for at least six months before they will consider you for a new mortgage. But AIB’s stance adds to the expense of the whole process.

Prospective buyers can’t move into a home they wish to purchase for at least six months, so they have to become tenants elsewhere while their rent payments eat into any rental income they can earn.

Furthermore, as most leases are for at least 12 months they might be forced to rent for longer than they need to.

Furthermore a range of taxes, including income tax, can arise from income earned from rentals.

Lending criteria

When calculating a home buyer’s capacity to save and repay loans, some banks, notably AIB and KBC, make certain assumptions regarding their customer’s personal expenditure.

Even if such assumptions do not apply to a particular borrower, the banks will still reduce the amount a person can borrow. This is sometimes just an excuse for refusing a loan to someone who doesn’t suit their cherry-picking criteria.

The high refusal rate for bank loans is not confined to mortgages. The recent lending figures for small and medium sized businesses tell the exact same story, as credit refusals are as high as 54pc and up from 48pc at the start of the year, according to Irish Small and Medium Enter- prise Association.

Other issues include the amount of the loan, and some towns are blacklisted because some lenders are only willing to advance funds in areas with a certain population.

Others will discriminate based on building type: If you want to buy an apartment in the countryside, then avoid EBS and Bank of Ireland — you’ll need a deposit of up to 40pc.

In return, customers can expect to be offered variable rates that will be revised upwards independently of what rates are set by the European Central Bank. Alternatively, a bank may offer an overpriced fixed rate.

The credit cycle in Ireland is becoming a perfect storm: higher taxes combine with wage cuts and rising finance costs to reduce incomes, which will play into the mortgage and property market.

Nevertheless, the ensuing price drops will actually get us to fairer asking market value more quickly, and in that respect it is a benediction.

Job security

Banks don’t publicly talk about their criteria for assessing the security of the applicant’s employment, but as it’s changed a bit it’s under constant review. I know some who have refused even doctors and teachers who have been in the same job for five years because they are not ‘permanent’.

Regulation

Every time a bank deviates from lending criteria by even a tiny amount, it must be reported to the Central Bank, and most of the banks have a policy whereby they are not going to write that report — by never straying from increasingly strict criteria. This is a vicious circle.

And yet amidst this there are some rays of hope.

Fine Gael are rowing back on the removal of Tax Relief at Source, which is a valuable tax saving worth obtaining if you are a buyer.

But the incentive might mean that first-time buyers will buy in 2011 or hold off for a long time.

Bargains below €400,000

Property prices have also fallen spectacularly, to the point that most of the heavy damage is over. Our outlook is that non-apartment secondhand properties in cities below €400,000 asking prices are a market worth considering.

When the worm turns

The mantra is to buy low and sell high, the difference between smart money and stupid money. The only problem is you have to spin the wheel and see where the ball lands to learn which you are.

Our outlook remains firmly focused on secondhand houses in cities in the sub- €400,000 range. When you see the number for sale regularly decrease and prices sitting still, then you’ll know the worm has turned.

Karl Deeter is operations manager at Irish Mortgage Brokers

– Karl Deeter