'Market has gone mad in Dublin' Any truth?

Duggys Housemate

GetWithIt wrote: »

I do not understand what you mean by this.

Taken in isolation, 1 tracker mortgage at ECB+1% losses more, less or the same when the ECB rate is 1%, 2% or 3%?

I dont understand what you don't understand. I'll try be remedial.

1) TSB has an existing loan book which is 60% tracker. These are debtors who pay a sum every month.
2) So these debtors are paying X per month to TSB.
3) If the ECB interest rates go up X goes up. Thats extra revenue to TSB
4) The costs to TSB of the rate increase are for loans it needs to get from other banks in that year, which would be less than the sum total of all loans in 1). This is the cost to the bank of new loans, not existing loans. They will pay some more to people on deposit but thats about 10% of their capital.

This is why the banks are raising interest rates on non-trackers when ECB rates go down.

D3PO

GetWithIt wrote: »

Don't their costs increase by the same amount?

Banks don't borrow at the ECB rate (if they did the rate changes up or down would be irrelevant and trackers wouldn't be loss making)

They borrow at EURIBOR / Interbank rates for the most part which will not exactly mirror ECB rates.

So increased ECB rates will reduce the loss making capacity of trackers. However I don't fully agree with Duggys synopsis although the logic behind his argument is sound. The percentage of trackers on a banks loan books will mean certainly for the next 6 - 8 quarter point increases when they come along will also be passed onto variable customers.

At that point then yes perhaps ECB increases may only be passed on in part or not at all, but that's a long way off. Banks will continue to pass on rate increased for the forseeable future.

GetWithIt

Duggys Housemate wrote: »

4) The costs to TSB of the rate increase are for loans it needs to get from other banks in that year, which would be less than the sum total of all loans in 1). This is the cost to the bank of new loans, not existing loans. They will pay some more to people on deposit but thats about 10% of their capital.

My understanding is that Trackers need to be refinanced on a continual basis. They are lent long but borrowed short. That this is the fundamental reason why they are losing money.

D3PO

GetWithIt wrote: »

I do not understand what you mean by this.

Taken in isolation, 1 tracker mortgage at ECB+1% losses more, less or the same when the ECB rate is 1%, 2% or 3%?

simple example

In 2005 you borrowed 300k off the bank with a tracker of ECB +1% at the time lets call that 4%

The bank idealy would like to fund that mortgage using case from their deposits on hand which would earn SFA interest but as deposits are liquid the bank would have loaned the money from the market over the same term say they got an interbank loan at 3% for example.

Remember this doesn't exactly tally as its a single case in isolation.

So when ECB rate drops the rate of return on that mortgage drops. So one the ECB rate dropped to 1.75% it becaome loss making to the banks. Every drop afterwards increased that loss.

Everytime it increases up to 2% it will bridge the loss and once it goes above that they will become profitable again.

D3PO

GetWithIt wrote: »

My understanding is that Trackers need to be refinanced on a continual basis. They are lent long but borrowed short. That this is the fundamental reason why they are losing money.

Not correct. Banks will roll over debt like governments yes they do not borrow short like you are indicating.

That is not why trackers are loss making. If you actually thought about it for a moment you would realize that if they borrowed short that trackers would no longer be a large issue as its 5 plus years since trackers were on the market... ergo short term debt rolled over would now mean they are not loss making.

this of course is not the case.

gaius c

liffeylite wrote: »

Again, see my previous post. Ireland has the 2nd highest average salary in the world!

Dublin is at the peak of this earning spectrum.

A couple both on 70k plus, bringing in 150k a year could save a deposit for a house worth this amount in not too long a time. I am not saying there are millions of them, but there are still a fair amount of people with this type of cash.

http://www.therichest.org/business/the-top-10-highest-average-salary-per-country/

Averages are highly misleading sometimes. For instance, the average wealth of Bill Gates and 9 college students is very high but it's a meaningless figure when taken out of context

Some other figures that have more relevance to the discussion:
•33% of households have a gross income of less than €30,000;
•56% of households have a gross income of less than €50,000;
•62% of households have a gross income below the mean household income;
•The top 20% of households have a gross income of more than €80,000 per annum;
•14% of household have a gross income above €100,000 per annum; and
•2% of households have gross incomes above €200,000 per annum.

Seeing as less than over half of Irish households earn less than €50k, I don't see how this supports any notion other than half of Irish homes being affordable by people on those salaries. Only something in the region of 5% of all households in Ireland earn the €150k figure you casually throw out and they won't all live in Dublin.

Scroll down to chart 4.1 (also 4.5) to see what the spread looks like. See that big spike at €200k+? Those are the people skewing your averages and making it useless for this discussion.

Scroll down to section 4.3 and you'll spot the following:

50% of individuals have a gross annual income of less than €18,000

So you need 8 of them in a house to be able to tune with your €150k figure.

The point I'm making is that very few people in this country have the kind of incomes required to sustain the property beast in the style to which it has become accustomed. Middle-class houses should be affordable by middle class people and the septic tiger days of making €50k without breaking sweat is long gone.

GetWithIt

D3PO wrote: »

Not correct. Banks will roll over debt like governments yes they do not borrow short like you are indicating.

That is not why trackers are loss making. If you actually thought about it for a moment you would realize that if they borrowed short that trackers would no longer be a large issue as its 5 plus years since trackers were on the market... ergo short term debt rolled over would now mean they are not loss making.

this of course is not the case.

They become loss making when the short term costs exceed the margin they are lending at - the margin has not changed in the last 5 years. They cause the bank to go bust when the bank needs to refinance 100 billion euros on Monday but no one will lend to them.

The extent to which a bank losses money on a tracker is determined by the euribor. The ECB increasing or decreasing rates has no bearing.

D3PO

GetWithIt wrote: »

They become loss making when the short term costs exceed the margin they are lending at. They cause the bank to go bust when the bank needs to refinance 100 billion euros on Monday but no one will lend to them.

Your knowledge on the subject is misinformed, why are you trying to argue a point that doesn't reflect the reality ?

John_Rambo

Duggys Housemate wrote: »

As for the "good area" thing, it's obviously mostly a thing for Dubliners. Looking at the map I can see no reason why Goatstown is a good area, its almost in Wicklow

That's silly. Plenty of people from all over the world and the country pay a premium to live in good areas in Ireland, not only Dublin. You won't get a feel for an area, it's amenities, the locals etc... by looking at a map. Also, almost in Wicklow is a good thing, it's a stunning county.

BostonB

Duggys Housemate wrote: »

...As for the "good area" thing, it's obviously mostly a thing for Dubliners. Looking at the map I can see no reason why Goatstown is a good area, its almost in Wicklow. Meanwhile north of the Liffey and close to the city very little is happening...

Its as close to the city center, even a little closer than it is to the Wicklow border. So you might as well say its almost in the city center. So I don't get that comment at all. From the map you can see its close to a number of desirable amenities and resources. Even being close to Wicklow is desirable for a number of reasons. I'm not sure if or why you are trying to compare Goatstown with those other areas because they are quite different, and appealing to a different market.

Seems to me its only very specific locations and a certain market where there shortage of property and increased demand, with the associated buyers with the funds to buy.

GetWithIt

D3PO wrote: »

Your knowledge on the subject is misinformed, why are you trying to argue a point that doesn't reflect the reality ?

It is certainly not complete but I've read nothing here to back up the assertion that increased ECB rates = lower losses on Trackers.

D3PO

GetWithIt wrote: »

It is certainly not complete but I've read nothing here to back up the assertion that increased ECB rates = lower losses on Trackers.

are you for real ?

You accept that the banks don't borrow from the ECB - Yes

However you also know that Trackers must track the ECB rate plus margin - Yes

Take an isolated case again. You get a tracker +1% in 2006 on a 300k mortgage. The bank funds this mortgage through interbank lending lets say at 3%

Therefore the bank needs to be charging over 3% for the loan to be profitable - Yes

Currently the ECB rate +1% would mean bank are charging 1.5% but are being charged 3% to fund this mortgage therefore are making a loss of 1.5% (headline figures forget other overheads) - Yes

Draghi and his cohorts next month decide to increase the basis point by .25% now the bank are charging 1.75% and are being charged 3% so therefore the ECB rate increasing has reduced their lossmaking position on this mortgage by the equivalent .25%

If you cant follow that you may aswell forget about trying to understand interbank economics.

Duckjob

proponent wrote: »

Hi all,
time to wade in here with my tuppence.. had our eye on this
http://www.myhome.ie/residential/brochure/27a-drummartin-park-goatstown-dublin-14/2507827

and EA now tells me offers at €577k

WTF????????????

In Ireland, Peoples brains still drop down into their arses where property is concerned.

I think years of boom has completely knocked out of kilter peoples sense of what is fair value.

I understand local supply and demand is probably at play, but when you take that €577k and look at what it would buy - in parts of the States, in France, Germany, Spain, Italy etc, and compare it to what you see in the ad there in Soth Doblin, it really doesnt make a whole lot of sense.

D3PO

Duckjob wrote: »

In Ireland, Peoples brains still drop down into their arses where property is concerned.

I think years of boom has completely knocked out of kilter peoples sense of what is fair value.

I understand local supply and demand is probably at play, but when you take that €577k and look at what it would buy - in parts of the States, in France, Germany, Spain, Italy etc, and compare it to what you see in the ad there in Soth Doblin, it really doesnt make a whole lot of sense.

whilst I agree with your sentiment this nonsense of comparing what you could buy in other countries is exactly that nonsense. Exactly the same nonsense as trying to compare what you can buy in Dublin versus the same money in Monaghan or Longford or whatever.

ted1

Duggys Housemate wrote: »

i think that argument is whats commonly called "one site on the internet what proves my point".

2 salaries of 70K would be unusual to say the least. And many high earners in the public sector would be losing jobs, or income, over the last while. Most on that income are older, too.

Only IT has held up.

As for what they could afford on that income - they need to save about 110K, which is ok. But thats not enough if you assume that banks are looking for a a about 2.5 combined salary ( or working that out from post tax income) they are not earning enough.

2 salaries of 70k+ would be the norm of people I know all in there early thirties all schooled and brought up on the south side of Dublin.

Duckjob

D3PO wrote: »

whilst I agree with your sentiment this nonsense of comparing what you could buy in other countries is exactly that nonsense. Exactly the same nonsense as trying to compare what you can buy in Dublin versus the same money in Monaghan or Longford or whatever.

Why is it nonsense ? You don't accept that different geographic areas have relative pricing due to relative levels of desirability for people to live ?

GetWithIt

D3PO wrote: »

are you for real ?

You accept that the banks don't borrow from the ECB - Yes

However you also know that Trackers must track the ECB rate plus margin - Yes

Take an isolated case again. You get a tracker +1% in 2006 on a 300k mortgage. The bank funds this mortgage through interbank lending lets say at 3%

Therefore the bank needs to be charging over 3% for the loan to be profitable - Yes

Currently the ECB rate +1% would mean bank are charging 1.5% but are being charged 3% to fund this mortgage therefore are making a loss of 1.5% (headline figures forget other overheads) - Yes

Draghi and his cohorts next month decide to increase the basis point by .25% now the bank are charging 1.75% and are being charged 3% so therefore the ECB rate increasing has reduced their lossmaking position on this mortgage by the equivalent .25%

If you cant follow that you may aswell forget about trying to understand interbank economics.

Your example presupposes that the funding cost remains static at 3%. It does not.

Citycap

BostonB wrote: »

Don't really agree with that. Dubs would know the areas to choose. The non Dubs wouldn't so they wouldn't know which areas to avoid. At least thats my experience. Of course in the tiger years logic went out the window.

That's nonsense. You needn't be in Dublin too long before you learn what areas to avoid. A few hours driving around Dublin and its suburbs would be all it takes.

D3PO

Duckjob wrote: »

Why is it nonsense ? You don't accept that different geographic areas have relative pricing due to relative levels of desirability for people to live ?

Thats exactly what I do accept. Different areas have relative pricing. Therefore you cannot compare different countries or even counties.

D3PO

GetWithIt wrote: »

Your example presupposes that the funding cost remains static at 3%. It does not.

again banks do not borrow short and roll over their interbank lendings as you suggest they do.

BostonB

Citycap wrote: »

That's nonsense. You needn't be in Dublin too long before you learn what areas to avoid. A few hours driving around Dublin and its suburbs would be all it takes.

I'd have thought the same. But this thread and others on boards would suggest a very poor awareness of what's important in a location. Especially in Dublin. Developers didn't help in this when they deliberately miss name developments to associate them with areas they are nowhere near. Or where they are only across a field from a trouble spot.

A lot of people seemed to be blinded by the cost of property rather than the quality of the location.

LowKeyReturn

BostonB wrote: »

A lot of people seemed to be blinded by the cost of property rather than the quality of the location.

There is equally snobbery about certain areas and huge exaggeration in regards to problems within them. Dublin 8 is a prime example - the SCR end of Dolphin's Barn is actually grand, yet ask a 'local' and they will tell you to avoid the place like the plague.

ted1

LowKeyReturn wrote: »

There is equally snobbery about certain areas and huge exaggeration in regards to problems within them. Dublin 8 is a prime example - the SCR end of Dolphin's Barn is actually grand, yet ask a 'local' and they will tell you to avoid the place like the plague.

No one from dublin uses postcodes, so I find it hard to believe people from dublin say avoid dublin 8

BostonB

That's true about Dublin people and postcodes. They use village or town names. I'm not to good with the postcodes myself.

LowKeyReturn

ted1 wrote: »

No one from dublin uses postcodes, so I find it hard to believe people from dublin say avoid dublin 8

You misunderstand - Dolphin's Barn does not encompass all of Dublin 8.

ted1

Where do they tell you to avoid ? Dolphins barn , absolutely don't go near the place. The SCR wouldn't be to bad.

My point in someone from Dublin wouldn't mention D8.

LowKeyReturn

ted1 wrote: »

Where do they tell you to avoid ? Dolphins barn , absolutely don't go near the place. The SCR wouldn't be to bad.

My point in someone from Dublin wouldn't mention D8.

I know a fair few people from Dublin, having lived here for 12 years, who mention Dublin postcodes.

gurramok

liffeylite wrote: »

once again, the population of ireland is irrelevant when you are talking about the Dublin market only. 15 - 25yos don't buy houses. its people in their late 20 and 30s that are the largest purchasers. Dublin has more people in this age category than it has had in the last few hundred years, and your stats tell you that.

Therefore, prices in Dublin have to be influenced by this. not everyone is mortgaged to the hilt and a lot of these people currently aren't mortgaged at all- just waiting in the wings and saving up deposits.

People especially in their 30's now would have bought 7-11 years ago at the height of the "get on the ladder mania".

Anyone I know in my workplace and outside the workplace in their 30's(i'm in my 30's) all bought in the bubble and are in negative equity. I do believe there is a small minority who have waited a long time to buy, they are not enough in number to influence things.

The current anecdotal crop are going for houses in high price brackets, they must be high earners/have cash left over from selling at peak/moving their savings into property due to crap interest rates and DIRT/and probably movers.

Last year about 40% of property purchases were cash buyers and we know credit is still under strict criteria when granting mortgages. All this has to be responsible for the mini bubble in that micro market, that's my view.

LowKeyReturn

That's actually a pretty good explanation. Might also explain South Dublin - High earners with large deposits who can get mortgages who are buying houses in excess of half a million.

L1011

gurramok wrote: »

Anyone I know in my workplace and outside the workplace in their 30's(i'm in my 30's) all bought in the bubble and are in negative equity. I do believe there is a small minority who have waited a long time to buy, they are not enough in number to influence things.

My workplace is full of people a few years below that - so now mid to late 20s - who didn't buy and are able to get mortgages - but for that price bracket that's now mostly full of ruinous probate sales.

Which is why I ended up buying a ruinous probate sale :P

(which was actually habitable from day 1 but has still required 5k of kit, tools and a hell of a lot of sweat equity to make it acceptable).