Where do first time buyers on Primetime get 400k? What jobs have they? Is it staged?

NIMAN

Maybe he wasn't kicking them when they were down, but simply pointing out that lending criteria in the past was crazy, and current and future lending should have learned from the errors of the past?

Someone posted earlier that two people on 45k each should be able to borrow 400k, I don't agree with this. Thats nearly 4.5x their combined salary, and utter madness imho.

seamus

NIMAN wrote: »

Someone posted earlier that two people on 45k each should be able to borrow 400k, I don't agree with this. Thats nearly 4.5x their combined salary, and utter madness imho.

To clarify what I meant, €400k would be a standard approved amount for a couple earning a combined €90k. That is, €400k isn't an exceptional amount, many many people will get approved for this amount in principle.

Of course, affordability varies, people's ability to budget varies. One couple may be able to comfortably service a €400k mortgage and still go on nice holidays, while an equivalent couple through sheer poor money management (or bad luck; repairs, etc) will find themselves eating beans 3 nights a week in order to meet their mortgage.

Taking the X times salary approach as the be-all-and-end-all of affordability is a mistake regardless of what X is. Some people are so bad with money that they'll struggle to meet a €200k mortgage on a €100k salary. In theory the firewall should be at the bank's affordability assessment and not a one-size-fits-all calculation.

Shedite27

seamus wrote: »

Taking the X times salary approach as the be-all-and-end-all of affordability is a mistake regardless of what X is. Some people are so bad with money that they'll struggle to meet a €200k mortgage on a €100k salary. In theory the firewall should be at the bank's affordability assessment and not a one-size-fits-all calculation.

Yeah this 4x salary stuff people mention here is overly simplistic.

€400k on a combined €90k salary....
...with deposit of €100k with a track history of savings and no kids.
...with the minumum 8% or 10% deposit gifted to them and 3 kids.

Very different scenarios

NIMAN

Yeah those figures make sense as long as people have a big lump sum, and are good regular savers, but I would fear that a lot of FTBers would have the bare minimum deposit and take the max amount of money they would be given, and thats when things can get messy down the line (as the country knows all too well).

We got a mortgage passed in 2010 and we had to jump through hoops to get it. Took ages. And they certainly wouldn't have given us 5x our combined salaries at the time, as they told us how hard their criteria were to pass. They had so much leeway built into the interest rate rises, disposable income loss, child costs etc that I find it hard to believe they have suddenly relaxed their own rules around lending.

whippet

NIMAN wrote: »

........ and current and future lending should have learned from the errors of the past?

.

the banks are much more prudent now than they were. Anyone who has gone through the formal mortgage approval route recently will attest to.

Also .. as pointed out a simple salary multiplier calculation for a mortgage is so far off the mark.

the lender is much more concerned with out goings, children, potential children, industries that the applicant is employed in etc .... it is based on affordability

Bateman

375 for a joint income of 95k for 2 earners, early 30s, good credit history, secure jobs (1 private, 1 public)

This is absolutely the norm now as I have seen the spreadsheets being used to calculate this in 2 different financial institutions – the idea of “primary/secondary” incomes does not currently exist

Tarzana

The_Conductor wrote: »

The standard is 3.5 times the principle salary and 1 times the secondary salary.

Some of the recent threads in this forum suggest this isn't being followed though.......

OK, so on two 45k salaries... 202.5K? Tough in Dublin, I guess.

ionapaul

Tarzana wrote: »

OK, so on two 45k salaries... 202.5K? Tough in Dublin, I guess.

The banks definitely are not following a 3.5 x main salary + 1 x second salary, have been mortgage approved by two banks since the start of the year and we've been offered FAR more, closer to 4 x joint. Though as I mentioned earlier, I'd doubt we'd be able to draw down more than 3.5 x joint (and rightfully so).

Tarzana

ionapaul wrote: »

The banks definitely are not following a 3.5 x main salary + 1 x second salary

Oh, I believe you, the banks haven't seemed to follow it for many years now. I just think that they should. I know I'd be doing that kind of maths in my head before deciding to get a mortgage, because I'm very risk-averse, but I'm not sure many people are, so the banks need to do it. But then, they need to make money...

Tarzana

gaius c wrote: »

You're ignoring the fact that rents are very high again and also the higher taxes that we have been paying for a number of years now. Utilities are more expensive than ever before.

Cost of living hasn't dropped at all. It's gone up.

Exactly, cost of living didn't decrease post-2008. As you say, more tax in the face of wage-stagnation.

seamus wrote: »

Rents dropped though for the last 7 years. That's the point. People had more scope to save during the recession.

Taxes haven't actually gone up that much in real terms. It's an extra couple of % for most people.

Taxes have gone up a lot. Not only are we paying the marginal rate at a much lower income threshold than 6 years ago, but then there's the lovely USC, which is a huge chunk out of the paycheques of everyone but part-time low income workers. This makes up for rent drops. And rents are on the way up again now, meanwhile USC is here to stay.

Tarzana

NIMAN wrote: »

Us Irish also have the logic of "well whats the absolute maximum the bank will lend me? 300K, right I'll spend 300K"

Rarely does the logic "maybe I should just borrow 250k, allow a bit of leeway in case anything goes wrong" enter the mind.

Exactly!

Tarzana

aristotle25 wrote: »

60k IMO is not a "big" salary. I work in a software company where the average salary is around 65k excluding benefits.

Good for you, but 60k IS a big salary. Perspective, people!

Tarzana

aristotle25 wrote: »

I see receptionists on 28k, IT graduates starting on the same or more. And I just base it on the avg salary in IT. So I am probably just blinkered by that.

Yes, you are. Vvvveerrrry few receptionists would make 28k.

Tarzana

seamus wrote: »

I disagree.

Fair enough. It seems imprudent to me to not consider the worst case scenarios but different strokes. I'm very aware of this kind of thing having lived in a family where my parents almost lost their house on a few occasions. That kind of thing sticks with you, the pervasive air of stress in the house, it makes an impression on a kid. It's hard to imagine for anyone who has not lived it.

I can't imagine why someone, when considering getting a mortgage, wouldn't consider the hypothetical scenario "What if we both lose our jobs?". You have focused in your response on there being two salaries usually. Which there is. But as a safety net, you really need to make sure you can pay the mortgage on one, because you can never know what will happen. It might not even be redundancy. Could be illness, could be childcare costs outweighing the benefits of the second job.

It's probably not possible to plan a mortgage for there being a possibility of no money coming in bar social welfare, but ideally, you should be able to cover the mortgage with no employment.

gaius c

Tarzana wrote: »

OK, so on two 45k salaries... 202.5K? Tough in Dublin, I guess.

Aye. Always believed that people on well above average/median salaries should be living in Tallaght & Ballyfermot or apartments. Living the Irish Dream...

gaius c

Tarzana wrote: »

Yes, you are. Vvvveerrrry few receptionists would make 28k.

Maybe in Googleland but in the rest of the country/economy that isn't distorted by transfer pricing, normal economics dictates low 20's at best.

seamus

Tarzana wrote: »

It's probably not possible to plan a mortgage for there being a possibility of no money coming in bar social welfare, but ideally, you should be able to cover the mortgage with no employment.

You see, there's prudence and then there's beng way overcautious. Realistically you wouldn't get any kind of mortgage if you plan on being able to pay without employment or if you're so risk averse that you want to cover all your bases.

It should be remembered that a mortgage and/or property should not be seen as a life sentence which must be paid at all costs. Both the mortgagee and the bank enter the agreement at a risk. The worst-case scenario for any mortgage, the final get-out plan should be selling up and moving into a property you can afford.

Realistically you can extend this to long-term illness or incapacitation of one of the incomes. If that happens, you sell up and adjust your circumstances.

Granted, that may not be an option if the arse falls out of the property market, but that's where you exercise your prudence; you don't borrow stupid amounts of money at the very limits of what you can afford. You borrow an amount of money which you can comfortably afford within the reasonably foreseeable future.

Tarzana

seamus wrote: »

You see, there's prudence and then there's beng way overcautious. Realistically you wouldn't get any kind of mortgage if you plan on being able to pay without employment or if you're so risk averse that you want to cover all your bases.

Well, I did say you couldn't really plan for no income. However, it's depressing that it's considered overcautious to considered trying to rely on one or maybe one and a bit income when thinking about getting a mortgage. Taking into account multiples of two full incomes allows people to borrow more which leads to larger loans being given which leads to people offering more on houses which pushes prices up further and away we go. Maybe if people were lent less to begin with, this might have helped stop house prices from spiralling. I know there's probably tonnes of other variables but I reckon it's part of it. Lots of people will borrow the max they are offered.

As for selling on, well of course you can do that but it might be a loss and you will still have that mortgage debt.

seamus

Tarzana wrote: »

Maybe if people were lent less to begin with

But isn't that to a certain extent artificially constricting demand? If people can afford a larger mortgage, why should they not be permitted to borrow it?

The wisdom of borrowing the very limit of what you can afford and allowing the banks to be their own firewalls are a slightly different topic, but it's anathema to a free market to "ration" credit artificially in order to cool down a property market.

Like I say, it's inherently a risk and private individuals are permitted to take risks with their own money.

The current issue is not so much the banks allowing people to overextend; it's cash-rich buyers flooding the market. Estate agents are actively pushing to do business with cash buyers over those with mortgage approval, but are using those with mortgage approval to inflate the cash price.

However, cash only lasts a certain amount of time and eventually the volume of free cash floating around has to level or die off, especially if supply increases. The risk in this case is once again a dip in prices as it becomes clear that there are no cash buyers viewing any properties.

Tarzana

seamus wrote: »

But isn't that to a certain extent artificially constricting demand?

No, not at all.

It means that pretty much any two income household can offer higher and higher amounts, whether they can truly afford to or not. And if everybody offered more sensible amounts, demand wouldn't lessen, there were just be less house price inflation.

Offers will expand to fill the potential loan. Regulate everyone more carefully, and demand won't be constricted. Of course that's shot to shít now...

Mortgages are risky yes, but not all risks are equal. You can take measures to take as little risk as possible. An educated risk, if you will.

beauf

seamus wrote: »

B...Like I say, it's inherently a risk and private individuals are permitted to take risks with their own money....

But its not their own money. Its the Banks. Look how that turned out.

Its a different debate maybe, but its central to the issue here. Regulating lending.

Theboinkmaster

seamus wrote: »

But isn't that to a certain extent artificially constricting demand? If people can afford a larger mortgage, why should they not be permitted to borrow it?

The wisdom of borrowing the very limit of what you can afford and allowing the banks to be their own firewalls are a slightly different topic, but it's anathema to a free market to "ration" credit artificially in order to cool down a property market.

Like I say, it's inherently a risk and private individuals are permitted to take risks with their own money.

The current issue is not so much the banks allowing people to overextend; it's cash-rich buyers flooding the market. Estate agents are actively pushing to do business with cash buyers over those with mortgage approval, but are using those with mortgage approval to inflate the cash price.

However, cash only lasts a certain amount of time and eventually the volume of free cash floating around has to level or die off, especially if supply increases. The risk in this case is once again a dip in prices as it becomes clear that there are no cash buyers viewing any properties.

Some people think there'll be a dip in in next 18 months from cash buyers drying up, what do you think?

Bobeagleburger

seamus wrote: »

But isn't that to a certain extent artificially constricting demand? If people can afford a larger mortgage, why should they not be permitted to borrow it?

The wisdom of borrowing the very limit of what you can afford and allowing the banks to be their own firewalls are a slightly different topic, but it's anathema to a free market to "ration" credit artificially in order to cool down a property market.

Like I say, it's inherently a risk and private individuals are permitted to take risks with their own money.

The current issue is not so much the banks allowing people to overextend; it's cash-rich buyers flooding the market. Estate agents are actively pushing to do business with cash buyers over those with mortgage approval, but are using those with mortgage approval to inflate the cash price.

However, cash only lasts a certain amount of time and eventually the volume of free cash floating around has to level or die off, especially if supply increases. The risk in this case is once again a dip in prices as it becomes clear that there are no cash buyers viewing any properties.

I think so.

There's 400k out of work still and this house price rise is nothing like the other one in the bubble.

It's a supply and demand issue and banks aren't throwing crazy money at people (yet)



I saw a house go on sale in Knocknacarra, Galway for €178k at the start of the year. Now this was low(similar properties were selling for approx 210k in that area), probably to stir interest, and it did.

It sold for 240k a few months ago.

However, I see it's back on Daft now again for €255k! Obviously fell through for whatever reason.

Asking prices in that area alone are gone through the roof recently. Some even over 300k :rolleyes:

Iago

El_Dangeroso wrote: »

Someone actually said to me the other day:

'A mortgage is the cheapest loan you can get, you should borrow as much as you can'

Clearly this mentality is still rife. We have learned absolutely nothing.

Sometimes this is true though.

For people who are on trackers, they could be paying as little as 1.2% on their mortgage right now.

If that person could borrow €100k against that mortgage and find an investment vehicle which would pay, say a conservative 4.5% a year they would be adding over €3k a year to their net worth (assuming tax sensible investments)

If they were also paying down the mortgage each month while leaving the €100k+ gains earning money then that amount would only increase over time.


So sometimes it's right to overload on the mortgage if

- you're disciplined
- the amount borrowed is fully invested and safe
- you can access it if/when the mortgage rate increases

El_Dangeroso

Iago wrote: »

Sometimes this is true though.

For people who are on trackers, they could be paying as little as 1.2% on their mortgage right now.

If that person could borrow €100k against that mortgage and find an investment vehicle which would pay, say a conservative 4.5% a year they would be adding over €3k a year to their net worth (assuming tax sensible investments)

If they were also paying down the mortgage each month while leaving the €100k+ gains earning money then that amount would only increase over time.


So sometimes it's right to overload on the mortgage if

- you're disciplined
- the amount borrowed is fully invested and safe
- you can access it if/when the mortgage rate increases

You could have a point if you had a crystal ball when they were handing out trackers, but then you could have used your knowledge of the future to play the lotto, for far less hassle.

No one could have predicted that interest rates in the ECB would stay at such historic lows, so if someone did overload their mortgage and got a tracker and are somehow not in neg equity now, they weren't wise, they got very very lucky.

beauf

El_Dangeroso wrote: »

You could have a point if you had a crystal ball when they were handing out trackers, but then you could have used your knowledge of the future to play the lotto, for far less hassle.

No one could have predicted that interest rates in the ECB would stay at such historic lows, so if someone did overload their mortgage and got a tracker and are somehow not in neg equity now, they weren't wise, they got very very lucky.

+1 exactly. With the benefit of hindsight etc.

Iago

El_Dangeroso wrote: »

You could have a point if you had a crystal ball when they were handing out trackers, but then you could have used your knowledge of the future to play the lotto, for far less hassle.

No one could have predicted that interest rates in the ECB would stay at such historic lows, so if someone did overload their mortgage and got a tracker and are somehow not in neg equity now, they weren't wise, they got very very lucky.

It's nothing to do with hindsight, my point was made in reference to someone making a comment recently that 'A mortgage is the cheapest loan you can get, you should borrow as much as you can'

That is very true for a large number of people on trackers right now.

It will also be true when mortgage interest rates rise, because that will invariably lead to investment returns also rising.

Anyway, it's not really a discussion for this forum. I was just pointing out that the central tenet behind the statement is true.

I also disagree with your last point. It's not just a case of luck, plenty of people borrowed below their means and took a variable mortgage and had solid reasons for doing so.

beauf

Is that simply a fact that you generally get a better rate with a larger sum over a longer period. (there's probably exceptions).

That is the cheapest loan may not be true if you've managed negotiate a cheaper one?

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

Geuze

maryishere wrote: »

Thank you.

the above states "On average individuals in the Republic of Ireland have an annual gross income of €26,800"

CSO earnings data:

http://www.cso.ie/en/statistics/earnings/

http://www.cso.ie/en/releasesandpublications/er/elcq/earningsandlabourcostsq32013finalq42013preliminaryestimates/#.U339X_ldWSo

Average weekly earnings = 687, or 36k pa.

Geuze

Household income data

http://www.cso.ie/en/media/csoie/releasespublications/documents/silc/2012/silc_2012.pdf


Mean gross hh income = 52,265

Median gross hh income = 37,395