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No recovery if the banks won't lend

FIVE years after the bubble burst the Irish housing market is looking distinctly odd.

The banks have virtually stopped lending and the number of transactions has shrivelled to virtually nothing. A very large proportion of the few deals that are taking place, at least a third, are for cash.

Unless you have a superb credit history, a big deposit and a "good" public sector job then you can forget about persuading your bank to lend you the mortgage you need to buy a home.

As a result over a third of all households in the Dublin are now renting.


The reverse of this increase in the proportion of households renting is that new mortgage lending is now at a 40-year low.

Only two banks, AIB and Bank of Ireland, are now willing to lend to first-time buyers under any circumstances. New mortgage lending fell by a third in the first quarter of 2012.

This means that, barring an unexpected turnaround, this year will be even worse than 2011, which was the worst year for mortgage lending since records began in the early 1970s.

The virtual unavailability of mortgages is throttling the housing market and making the crash even worse than it would otherwise have been.

The tiny 0.2pc price increase recorded in May, the first for almost five years, was reversed in June when prices fell by a further 1.1pc.

Nationally house prices have now fallen by 50pc since their 2007 peak while prices in the Dublin area have fallen by a massive 57pc. Even more disappointing was the fact that, after three consecutive monthly rises, Dublin prices fell by 1pc in June.

The good news from the capital, the one flickering bright spot in a gloomy housing market, has been snuffed out.

Even in Dublin the apparent increase in prices was based on a relatively small number of transactions in the better-established suburbs as buyers who had been waiting on the sidelines for family homes to become available at more available prices pounced.

Now it would appear that even this temporary boost has exhausted itself with most of those who wanted to buy and possessed the means to do so having taken the plunge.

With housing having traditionally played such an important role in the domestic economy, up to a quarter of all economic activity in 2006, the government has been desperately trying to kick-start the market.


Among the measures it has introduced has been very generous tax relief for buyers who purchase in 2012 and guaranteeing buyers who purchase homes from NAMA against further price falls. And guess what, none of these measures has had anything more than a very short-term effect.

Now that the relative handful of buyers who were in position to avail of these measures has been exhausted house prices have started falling once again.

And they will continue to fall until the banks, most of which we own, start lending again.

This is where the government should be concentrating its limited firepower if it is serious about a house price recovery.

The banks must be "encouraged" to start lending to homebuyers once again. Until this happens, house prices will just keep slip sliding away.