Glut of repossessed houses could depress prices ‘by up to 25%’

stevedublin

gaius c wrote: »

What makes you think STV's are seriously inflated?

They are much larger than tracker or ECB rates.

gaius c wrote: »

It's not like you're going to lose the house if you stop paying

we'll see.

McDook

When will the day come when you can get insurance or loans anywhere in Europe.
This country is too small for proper competition.

Tea drinker

Villa05 wrote: »

Just 1 of the elephants in the room!
Are we not 1 of the most indebted nations in the world both public and private debt. We have the highest level of arrears in mortgage and commercial loans. Ignoring the elephants only works for so long! You do not want to be in the firing line when those elephants need their own space

6 years into this crisis, surely that's 6 years off the mortgage. They can perhaps restructure to compensate for the increased gov take of their slaaries if it becomes necessary. Or as already mentioned, just stop paying if they feel it's beneath them.

makeorbrake

gaius c wrote: »

What makes you think STV's are seriously inflated?
It's not like you're going to lose the house if you stop paying so they should really be credit-card level rates.

I'm referring to the series of interest rates increases that the irish banks have imposed on standard variable rate mortgages over the last couple of years - at a time when the ecb rate is at an all time low.

The expectation cannot be that the ecb rate will remain at such a level continuously. In the short term - it certainly looks like it will - but the same cannot be said of the medium term. When those increases come - irish mortgage holders will not be a consideration. The main european economies will.

On that basis, I believe that to be relevant. Particularly so - when you had people complaining about the bank imposed increases. How are those same people going to cope when the ecb rate increases come? And following on from that, what effect will that have on property prices?

Piriz

makeorbrake wrote: »

I'm referring to the series of interest rates increases that the irish banks have imposed on standard variable rate mortgages over the last couple of years - at a time when the ecb rate is at an all time low.

The expectation cannot be that the ecb rate will remain at such a level continuously. In the short term - it certainly looks like it will - but the same cannot be said of the medium term. When those increases come - irish mortgage holders will not be a consideration. The main european economies will.

On that basis, I believe that to be relevant. Particularly so - when you had people complaining about the bank imposed increases. How are those same people going to cope when the ecb rate increases come? And following on from that, what effect will that have on property prices?

Much of property prices outside of cash sales is based on mortgages and the ability to service the mortgage i.e. affordability of monthly repayments. We need to ask are lenders stress testing mortgage applicants on the basis of such interest rate rises.
When rates rise this will effect affordability; the E500,000 mortgage etc. will be more expensive to service thus ruling out a portion of the demand for such properties...this will effect demand and prices will adjust as a result...

It is very likely that we will see this but who knows when... it will definitely be a significant downward pressure on property prices when it does occur.

cookie1977

Piriz wrote: »

Much of property prices outside of cash sales is based on mortgages and the ability to service the mortgage i.e. affordability of monthly repayments. We need to ask are lenders stress testing mortgage applicants on the basis of such interest rate rises.
When rates rise this will effect affordability; the E500,000 mortgage etc. will be more expensive to service thus ruling out a portion of the demand for such properties...this will effect demand and prices will adjust as a result...

It is very likely that we will see this but who knows when... it will definitely be a significant downward pressure on property prices when it does occur.

Except new mortgage rates are already high.

OMD

cookie1977 wrote: »

Except new mortgage rates are already high.

Mortgage rates are not high. You can get a variable rate mortgage for about 4.5% and a 10 year fixed rate of 6%, that is not high.
http://personalbanking.bankofireland.com/borrow/mortgages/first-time-buyers-package/

Based on historic levels our current rates are extremely low.

http://www.moneyguideireland.com/history-of-mortgage-rates-in-ireland.html

cookie1977

OMD wrote: »

Mortgage rates are not high. You can get a variable rate mortgage for about 4.5% and a 10 year fixed rate of 6%, that is not high.
http://personalbanking.bankofireland.com/borrow/mortgages/first-time-buyers-package/

Based on historic levels our current rates are extremely low.

http://www.moneyguideireland.com/history-of-mortgage-rates-in-ireland.html

I'm on 1.75% at present while someone else getting a mortgage rate today can get between 4 and 6% variable. Mortgage rates are high. Are they as high as the 1970's? No of course not. Could they go higher? Yes they could. Do people who are getting mortgages today pay higher then before? Yes they do. Are mortgages rates high? Yes they are.

OMD

cookie1977 wrote: »

I'm on 1.75% at present while someone else getting a mortgage rate today can get between 4 and 6% variable. Mortgage rates are high. Are they as high as the 1970's? No of course not. Could they go higher? Yes they could. Do people who are getting mortgages today pay higher then before? Yes they do. Are mortgages rates high? Yes they are.

That is non sensical. Rates are low. End of story. Yes they were lower before but that does not change the fact that they are still low. Lower than any time in the last 40 years except 2004 and 2005. Rates from your figures are between 4-4.5%. Investors pay more. 4-4.5% is extraordinarily low.

cookie1977

OMD wrote: »

That is non sensical. Rates are low. End of story. Yes they were lower before but that does not change the fact that they are still low. Rates from your figures are between 4-4.5%. Investors pay more. 4-4.5% is extraordinarily low.

In your opinion.

OMD

cookie1977 wrote: »

In your opinion.

It is not an opinion it is a fact. I have shown the evidence. The rate is lower than the average mortgage rate in 38 of last 40 years. Your opinion is that this should be described as high.

cookie1977

OMD wrote: »

It is not an opinion it is a fact. I have shown the evidence. The rate is lower than the average mortgage rate in 38 of last 40 years. Your opinion is that this should be described as high.

Tell you what, go ask someone taking out a mortgage and ask them do they think the rates are high or not. Then come back to me.

OMD

cookie1977 wrote: »

Tell you what, go ask someone taking out a mortgage and ask them do they think the rates are high or not. Then come back to me.

Stupid comment. Rates are low. No reasonable person could describe rates as high.

cookie1977

A previous post said...

When rates rise this will effect affordability; the E500,000 mortgage etc. will be more expensive to service thus ruling out a portion of the demand for such properties...this will effect demand and prices will adjust as a result...

It is very likely that we will see this but who knows when... it will definitely be a significant downward pressure on property prices when it does occur.

Rates have already risen. They are high. I stand by that despite what others think or say. And the higher rates have not deterred those buying and taking out mortgages to purchase in Dublin. It has not brought down prices. That was the basis for my point that rates are high.

OMD

cookie1977 wrote: »

A previous post said...



Rates have already risen. They are high. I stand by that despite what others think or say. And the higher rates have not deterred those buying and taking out mortgages to purchase in Dublin. It has not brought down prices. That was the basis for my point that rates are high.

The only time rates were lower was around peak of the boom. It is now generally accepted that those rates were too low and contributed to the boom significantly. If we were in control of our own interest rates they may well have risen in this period.
Rates are currently very very low and will almost certainly rise significantly.

cookie1977

Of course they did. No disagreement with the trackers there at all. Rates are not low when you see that the ECB rate is 0.25%. Look at other European countries where you can get 20 year mortgages fixed at 3-4%. Then compare that to our rates. While on average, as the CSO figures show, rates are low, that is due to the large number of trackers in the country. Take them out of the equation (particularly as they are not available to new mortgages) then rates would be a lot higher. And again rates for new mortgages are very high. High, here, being relative.

Villa05

cookie1977 wrote: »

Of course they did. No disagreement with the trackers there at all. Rates are not low when you see that the ECB rate is 0.25%. Look at other European countries where you can get 20 year mortgages fixed at 3-4%. Then compare that to our rates. While on average, as the CSO figures show, rates are low, that is due to the large number of trackers in the country. Take them out of the equation (particularly as they are not available to new mortgages) then rates would be a lot higher. And again rates for new mortgages are very high. High, here, being relative.

Completely with OMD on this one. Mortgage rates are at emergency low rates.

4.5% is ridiculously low rate for a mortgage. People taking out a mortgage may complain about current interest rates. That is not the problem. The problem is the amount they have to borrow to buy a property.

Other European countries may well have rates of 3-4%, but in those countries, if you cant/wont pay you loose the property (No BS).

If I could get a rate of 5 to 6% for the duration of the mortgage, I would buy in the morning. The current variable rate system leaves me exposed to stupidity of our banking, financial and political system.

Variable rates were the root of the problem in the US, therefore this is one of the many lessons of the crisis that Ireland has failed to learn and why we are doomed to repeat the errors of our past.

30-Year Fixed Rate Mortgage Average in the United States
http://research.stlouisfed.org/fred2/graph/?id=MORTGAGE30US

cookie1977

Villa05 wrote: »

Completely with OMD on this one. Mortgage rates are at emergency low rates.

4.5% is ridiculously low rate for a mortgage. People taking out a mortgage may complain about current interest rates. That is not the problem. The problem is the amount they have to borrow to buy a property.

Other European countries may well have rates of 3-4%, but in those countries, if you cant/wont pay you loose the property (No BS).

If I could get a rate of 5 to 6% for the duration of the mortgage, I would buy in the morning. The current variable rate system leaves me exposed to stupidity of our banking, financial and political system.

Variable rates were the root of the problem in the US, therefore this is one of the many lessons of the crisis that Ireland has failed to learn and why we are doomed to repeat the errors of our past.

30-Year Fixed Rate Mortgage Average in the United States
http://research.stlouisfed.org/fred2/graph/?id=MORTGAGE30US

Changes to the mortgage system to make it more a european style I would see as very welcome if it ever happened. But you're agreeing with me that mortgage rates are high purely because of the situation we're in. As you say it is easier to loose a property in europe if you dont keep up with repayments. But it is also easier to exit from a catastrophy like loosing your home unlike it is in Ireland. Reform of the mortgage system together with reform of bankruptcy would both be welcome here in my mind.

The US (since you linked to it) have non recourse mortgages too, something which is also not available to Irish people.

The_Conductor

makeorbrake wrote: »

I'm referring to the series of interest rates increases that the irish banks have imposed on standard variable rate mortgages over the last couple of years - at a time when the ecb rate is at an all time low.

The expectation cannot be that the ecb rate will remain at such a level continuously. In the short term - it certainly looks like it will - but the same cannot be said of the medium term. When those increases come - irish mortgage holders will not be a consideration. The main european economies will.

On that basis, I believe that to be relevant. Particularly so - when you had people complaining about the bank imposed increases. How are those same people going to cope when the ecb rate increases come? And following on from that, what effect will that have on property prices?

The cost of borrowing for banks is wholly independent of the ECB overnight rate. That lenders were willing to kill one another offering to 'track' the ECB base rate- was an anamoly- and not a norm- and certainly one of the factors that contributed to the banking bust, and continues to exert a brake on a recovery in the financial sector.

Compare the Irish situation- to the Belgian situation- which is more similar to the Irish situation than they'd like to admit........

Recent rates in Belgium include floating rates of over 5% and fixed 10 year+ rates north of 6%, from commercial lenders operating in the residential market. These are not dissimilar to those currently on offer from numerous Irish institutions. Rates in Belgium vary according to the part of the country you're in- and the property type- and are nigh impossible to achieve for BTL property (given their legacy rental issues with rent-control which they are urgently reviewing).

We need to ignore the ECB overnight rate- insofar as its only real effect is a legacy effect related to all those tracker mortgages, which should never have issued in the first instance.

We, and other EU countries, Belgium included (esp. after the Dexia/BNP messy saga)- are entering a phase of 'normalisation of interest rates' (according to the ECB).

We seem to think we have some inherent rights, as consumers- to the ECB overnight rate, or a mortgage tracking it at a reasonable level- when nothing could be further from truth.

If you want to see what a reasonable rate from an Irish lendling institution might be- look at the 10 year bonds they're issuing to investors- and add 1-1.5% to these rates, which would infer there continues to be slack in the system, and increases of about 0.5% are still on the cards (possibly held in check by political pressure).

As an aside- Bank of Ireland reached it pre-financial turmoil market capitalisation last week, for the first time- when it successfully got away its 10 year offering- while I don't appreciate being shafted by them as a long-term customer- I do have to admire the simple fact that while AIB has had to be bailed out multiple times since 1980 for their reckless lending and lack of due diligence (Irish Insurance Corporation anyone?)- BOI have managed to sort out their problems in-house, and the tax payer will have made a profit out of them when we finally divest our last 14% share (whenever that may be).

So- interest rates, while high, are actually be held in check by political pressure, and could, given fundamentals, actually be at least 0.5% higher, on the back of current financials.

cookie1977

I agree with a lot of what you say but the thing I have a problem with is that while yes the ECB rate and the rate the banks get is different they do have some connections. They should allow for trends to be predicted. The problem is that because the banks went on a crazy tracker binge they are not behaving in some sort of predictable fashion.

Banks have pummeled std variable rate mortgage holders due to the ECB cuts to their tracker customers. And once we see trackers rise due to ECB rate rises (when ever they come) we'll also see continued rises in std variable rate mortgages too. There has been no let up for variable rate customers. They are doubly hit as far as I'm concerned. Hit because they're tax payers and hit because they didn't get them selves a tracker. So while tracker holders have benefited substantially from ECB cuts, std variable rate holders have been hit for the gaps.

Again a complete overhaul of the mortgage system and the bankruptcy system in Ireland is still needed but it seems to me we have missed that opportunity.

The_Conductor

Thats where you and I have a fundamental disagreement.
There is not in fact a connection between the ECB overnight rate- and the rate banks charge customers for loans.

The ECB overnight rate- is the rate the ECB pay to lenders to allow them park their money overnight with the bank, rather than leave it on their own balance sheets- or lend it to other banks in the Eurozone.

The low rate is to encourage banks and financial institutions to park their excess liquidity on the interbank market- rather than to make it worthwhile to simply park it back with the ECB.

It has been discussed reducing, or even having the overnight rate enter negative territory- aka to penalise those institutions who park their money at the ECB.

Banks cannot borrow money from the ECB at the overnight rate- the ECB may lend them money (at any of a number of different rates) and has also had a programme for recapitalising the banks at preferable rates- but unfortunately for all of us- its not as simple as imagining that the banks can turn to the ECB and say- 'Hi- I'll borrow a billion @ 0.5% please'. If only.

The current cost of borrowing for banks is between 4 and 7% (aka the price they must pay for 10 year bonds, depending on how safe they are perceived to be by potential investors). This is the true cost of their money. The rates they are charging floating rate borrowers- reflects this.

cookie1977

The_Conductor wrote: »

Thats where you and I have a fundamental disagreement.
There is not in fact a connection between the ECB overnight rate- and the rate banks charge customers for loans.

The ECB overnight rate- is the rate the ECB pay to lenders to allow them park their money overnight with the bank, rather than leave it on their own balance sheets- or lend it to other banks in the Eurozone.

The low rate is to encourage banks and financial institutions to park their excess liquidity on the interbank market- rather than to make it worthwhile to simply park it back with the ECB.

It has been discussed reducing, or even having the overnight rate enter negative territory- aka to penalise those institutions who park their money at the ECB.

Banks cannot borrow money from the ECB at the overnight rate- the ECB may lend them money (at any of a number of different rates) and has also had a programme for recapitalising the banks at preferable rates- but unfortunately for all of us- its not as simple as imagining that the banks can turn to the ECB and say- 'Hi- I'll borrow a billion @ 0.5% please'. If only.

The current cost of borrowing for banks is between 4 and 7% (aka the price they must pay for 10 year bonds, depending on how safe they are perceived to be by potential investors). This is the true cost of their money. The rates they are charging floating rate borrowers- reflects this.

There have been clear trends between the ECB rate and euribor rates going back years. In Ireland today there are none unless you're on a tracker.
Have a read here:
http://welearntoday.com/what-is-the-relationship-among-the-official-interest-rate-the-euribor-and-mortgage-cost/

As shown in the graph (which displays the evolution over time (from 1999 to 2012) of Euribor (12-month) and of the official interest rate) there is a clear relationship between both rates, since a priori, the decrease or increase of the Euribor rate will be subject to the variation of the official interest rate. That is, if the ECB lowers the official interest rate of the money, this means that financial entities could obtain liquidity at a lower cost (according to the needs of money); consequently, this fact would imply a decrease in Euribor, as banks could lend money each other to a more competitive price.

murphaph

Villa05 wrote: »

Variable rates were the root of the problem in the US

Agree with most of your post but just a point of order: Americans have historically preferred long term fixed rate mortgages.

The_Conductor

At best- the ECB overnight rate- is a minimum bid rate- the lowest rate available for financial institutions who choose not to park their excess liquidity on the interbank (Euribor) market. The 8 Euribor rates are all higher than the ECB overnight rate- as the ECB are viewed as a parking place of last resort. The idea behind making the ECB overnight rate negative- is to try to encourage financial institutions to lend to one another- rather than park their money with the ECB. At present- the financial institutions, by and large, don't trust one another sufficiently, to lend to one another in this manner. This is more an issue with the financial institutions on the periphery, than it is those institutions in the core market countries.

The_Conductor

murphaph wrote: »

Agree with most of your post but just a point of order: Americans have historically preferred long term fixed rate mortgages.

Europeans too. Its far from unusual to fix for the term of the mortgage.

cookie1977

The_Conductor wrote: »

Europeans too. Its far from unusual to fix for the term of the mortgage.

Something we should have introduced by now. Long term stability for banks and consumers with such fixed rates from the outset.

murphaph

cookie1977 wrote: »

Something we should have introduced by now. Long term stability for banks and consumers with such fixed rates from the outset.

I'm not sure it's something you can just introduce. Ultimately the mortgage rate reflects the risk to the bank. In Germany the security the bank holds is property in one of the most stable and mature economies in the world, so a pretty safe bet that they won't lose in the event they mortgage is defaulted on.

In Ireland the property is simply not such a safe, reliable bet. The country is not run well enough with no long term plan for the country. The UK is actually not much better, so they don't and won't have long term fixed rates. The problem lies largely in the political system: in Ireland (and the UK) a new government can produce a radical swing in policy. In Germany even a change from a nominally conservative government to a socialist one or vice versa will not see any "shock to the system". The system is built on consensus. The Irish and British systems are more like a pantomime with political parties roaring at each other across the chamber in parliament. You rarely if ever see that sort of carry on in the Bundestag. It just doesn't work that way here.

The parties all work for the long term stability of Germany, not just for their own chances of reelection. It was after all a nominally socialist party that was in government that began the Hartz reforms to welfare, because to avoid the issue would ultimately have ruined the country. Such a thing would be unimaginable in Ireland (or Britain).

No long term political stability = no long term affordable fixed interest rates. It goes way beyond simple economics.

cookie1977

As I said earlier. We had the opportunity to reform everything with this recession/catastrophe. Not just the mortgage system but also how we deal with those in debt. A defined fairer system for all. But we chose to not do very much.

The_Conductor

Another thing- Germany is, uniquely among EU memberstates, the only country who classifies its nationals working in the ECB as national civil servants, subject to German civil service rules. They do not act independently- they obey the rule of Berlin (the job of any civil servant being to implement the policies of its government).

Aka- the German government, by extension, views the ECB as an arm of the German state (perhaps its rude of me to state it so bluntly, but I challenge anyone to prove differently).

wexie

murphaph wrote: »

I'm not sure it's something you can just introduce. Ultimately the mortgage rate reflects the risk to the bank. In Germany the security the bank holds is property in one of the most stable and mature economies in the world, so a pretty safe bet that they won't lose in the event they mortgage is defaulted on.

In Ireland the property is simply not such a safe, reliable bet. The country is not run well enough with no long term plan for the country. The UK is actually not much better, so they don't and won't have long term fixed rates. The problem lies largely in the political system: in Ireland (and the UK) a new government can produce a radical swing in policy. In Germany even a change from a nominally conservative government to a socialist one or vice versa will not see any "shock to the system". The system is built on consensus. The Irish and British systems are more like a pantomime with political parties roaring at each other across the chamber in parliament. You rarely if ever see that sort of carry on in the Bundestag. It just doesn't work that way here.

The parties all work for the long term stability of Germany, not just for their own chances of reelection. It was after all a nominally socialist party that was in government that began the Hartz reforms to welfare, because to avoid the issue would ultimately have ruined the country. Such a thing would be unimaginable in Ireland (or Britain).

No long term political stability = no long term affordable fixed interest rates. It goes way beyond simple economics.

they could, if the money was there, in Holland most people would have an interest rate fixed for the duration of the mortgage. The interest rates are much higher but you get income tax relief the entire portion of interest of your mortgage. So there's a large difference between your mortgage payments gross and nett.

Very well put with regards to the differences in politicians and their motivations I must say, couldn't have expressed it any better myself.