12 months after the introduction of tighter mortgage lending regulations, property consultants Savills say that negative outcomes appear to be prevailing.

Focusing on how the new rules have affected buyers, Dr. John McCartney, Director of Research at Savills, says that they have contributed to inequality and the return of a commuter culture.

“Even before the new rules came in, first-time-buyers were facing significant challenges. Continued house price growth meant that the deposit they needed was rising naturally. Moreover, in the post Global Financial Crisis world, home buyers could no longer expect the real value of mortgage debt to be quickly eroded by inflation. Adding the new macro-prudential rules to these factors has led to increased inequality as first-time-buyers with access to family wealth have been handed a distinct advantage.”

Reflecting this, Savills notes that first-time-buyers now account for an unprecedented 15% of cash sales which, in themselves, account for 47% of all sales in the market.

In addition, Savills says that the lending restrictions have displaced housing demand from Dublin to more affordable commuter locations. This has led to the return of longer commutes. Moreover, and contrary to claims that the rules would assist buyers by dampening price growth, it has precipitated rapid house price inflation in locations like Meath (+22.9%), Kildare (+18.7%) and Laois (+18.9%).

To the extent that the rules prevent households from taking-on unsustainable debt, these downsides are arguably offset by improvements to the stability of the financial system. However, according to John McCartney, this cannot be assumed.

In addition to displacing buyers into the commuter belt, the lending restrictions have channelled frustrated owner-occupiers into the rented sector. This has driven the number of rented households up from 458,000 at the end of 2014 to 461,000 six months later. Given that average rented household size has remained constant, this implies that the number of buy-to-let landlords supplying the market has also increased.

“In the UK the Governor of the Bank of England has repeatedly warned that, if the private rented sector gets too big, there is a danger that a stampede of investors could sell their properties at the same time in response to a hiccup in the market. This is contrary to the objective of financial stability as it could lead to a sudden drop in prices creating negative equity in the mainstream housing market.”

McCartney continued;

“At present the inflow of investors is being partially offset by an outflow of boom-time landlords that are being forced to sell. However, with rents rising and average yields vastly outstripping the returns that are available on deposits, the buy-to-let sector has the potential to grow very rapidly, and this needs careful monitoring.”