First Time Buyer Mirage

Watching the self-pity of a couple of 20-somethings on tv, one a final-year nursing student, as they bemoaned their inability to get on the housing ladder in Dublin, I wondered if the country has been suffering from some form of national amnesia.

There seems to be a widely held belief that, “in those good old days when summers were just endless sunny days“, first-time buyers had no problem getting on the property ladder.

The reality is that in the 60’s, 70’s & 80’s, before the big banks became active in the mortgage market, the parents of today's tiger cubs had to have their 10% on deposit with a building society for 12 months before they would even entertain a mortgage application. Sometimes that stretched to 24 months when liquidity got a bit tight.

You either saved jointly for a mortgage deposit for several years before getting married, or else you rented for several years after you got married. (note the "married") It was a home you were buying, not an investment.

Then having bought your house, you lived in it with only the bare essential items of second-hand furniture, slowly completing the furnishing process over a period of several years.

Mobile phones didn't exist and you didn't have a landline phone for at least 3 years - a compulsory cost saving courtesy of P&T.

You probably didn’t own a car for several years and relied on public transport - mainly the bus. If you had a car it was several years old and almost no family, young or old, had a second car.

Your social life was limited to a trip to the pub, the cinema or the occasional play or show. You very rarely ate out or entertained at home. You didn't spend money on take-aways or pre-prepared meals - pizzas didn‘t even exist. You bought the raw materials and prepared and cooked your own meals - healthier but also a lot cheaper.

You had one holiday a year, if you could afford it. Usually to Courtown, Tramore or to the family homestead somewhere down the country. If you were lucky enough to be able to afford to "go foreign", you might have a two-week package holiday in somewhere exotic like Torremolinos or Benidorm.

Designer labels didn’t exist. Labels were something you found on the inside of your clothes and they often read “St Bernard”.

You didn’t have credit cards, overdrafts, multiple loans. You had a mortgage and you were often “to the pin of your collar” to make the monthly payment. Until the late 1990’s, mortgage interest rates were never less than double those which have prevailed since we joined the Euro. In fact, they were often 3, 4 or even 5 times that rate.

You scrimped and saved, if you didn’t have the money for something then you simply didn’t get it.

Somehow, all this pain has been airbrushed from the collective memory.

The current generation of young celtic tiger cubs have become used to enjoying instant gratification. They want it all and they want it now. Because they’re worth it, or so they think.

Perhaps they’d actually be better off if they accepted that the norm would be to buy a house in your 30’s, that it would probably entail some painful saving and cutting back on your social life for several years before and after you get the house.

Because what they have done, by all chasing the same property dream, is to create an artificial demand which has only served to push up the cost of houses, out of all proportion to the actual building cost. They have created the builder/developer multi-millionaire - several dozen of them.

The timing of such a move might just be about right as interest rates in the Eurozone have risen in the past year and are set to rise further in the coming year. The ultra-cheap mortgage finance, available since we moved to German-style rates in the late 90’s, simply served to increase the amount of money people could afford to borrow and, as if by market magic, the cost of houses expanded to meet the extra funds available.

All that’s needed is a significant slowing down in the rate of increase in house prices or, better still, some slight reversal. The immediate impact of this will be to slow demand through (a) reduced confidence in residential property as an investment vehicle and/or (b) a reduced sense of urgency in getting on the housing ladder if property values are not actually accelerating away from prospective buyers at a rate they can’t seem to keep up with.

It’s time we reminded ourselves, and them, that buying your first home was never that easy or painless.