Central Bank to limit amount banks lend for home purchase

GampDub

Phew - We currently have approval in principal on a mortgage and are currently sale agreed on a property but it not available to close until end of Jan 2015.

Contacted the bank today to see how this would effect us but they have advised that once we get full loan approval prior to the introduction of the new rules we will be able to draw down on the intial agreed terms regardless of when we go to close.

Hoping to have full loan approval in the next week or so

We are purposely on taking the mortgage out in my partners name as we didnt want to tempted by crazy money and burden ourselves for years to come. So happy all round but probably wont rest til we have keys in hand...

LordNorbury

What a downright stupid idea by the Irish Central Bank. This is just another obstacle that will put barely affordable homes further beyond the financial reach of first time buyers and young couples trying to upgrade from an apartment to a house. Are the aforementioned categories of people acting selfishly or in a greed orientated manner by wanting to buy a roof over their heads??? Not in the slightest, yet they are now being treated as some sort of speculative ropey investor!!!

First time buyers who are buying to live in, and young couples who are upgrading from an apartment to a house, these are the very people who we should be incentivising and encouraging to buy residential property. Yet we are now treating them as economic pariahs! How in the name of all that is serious, can any person or young couple come up with 20% of a property price, in a country with a marginal tax rate of almost 60%?!? You lose effectively 60% of your income via tax, the VAT rate is 23%, do the maths!!!

And how does this new ridiculous rule affect cash rich property speculators who are actually the whole cause of the problem in this country with respect to the property market crash??? It doesn't! Those people can continue speculating unabated. You couldn't make it up, and of course you have the small print that lets the rules be slightly bent for those in the public sector who have unquestionably secure employment, and the bank is allowed bend the rules in that event. The rest of us plebs who bust our nut for a living can just go sing for it.

This country has truly become a disgusting place to live, no matter what you try to do these days, the fundamentals needed for living are just being moved a little bit further away from you every day.

GinaI

are these new rules definitely will be introduced? it hasn't been decided yet...

pwurple

Yes, it takes more time to save, but does 20% not seem like a much better minimum amount of equity to have in your home than 10%, or even 5%? It provides a reasonable cushion against the market drops (which have always occured and WILL continue to happen, over and over again) People have become trapped in homes they can't sell, for exactly this reason. LTV ratio was gone completely bananas, and they found themselves in negative equity in a very short space of time. Their circumstances changed (family size increased) and they couldn't even move to a cheaper house!

desertcircus

LordNorbury wrote: »

What a downright stupid idea by the Irish Central Bank. This is just another obstacle that will put barely affordable homes further beyond the financial reach of first time buyers and young couples trying to upgrade from an apartment to a house. Are the aforementioned categories of people acting selfishly or in a greed orientated manner by wanting to buy a roof over their heads??? Not in the slightest, yet they are now being treated as some sort of speculative ropey investor!!!

First time buyers who are buying to live in, and young couples who are upgrading from an apartment to a house, these are the very people who we should be incentivising and encouraging to buy residential property. Yet we are now treating them as economic pariahs! How in the name of all that is serious, can any person or young couple come up with 20% of a property price, in a country with a marginal tax rate of almost 60%?!? You lose effectively 60% of your income via tax, the VAT rate is 23%, do the maths!!!

And how does this new ridiculous rule affect cash rich property speculators who are actually the whole cause of the problem in this country with respect to the property market crash??? It doesn't! Those people can continue speculating unabated. You couldn't make it up, and of course you have the small print that lets the rules be slightly bent for those in the public sector who have unquestionably secure employment, and the bank is allowed bend the rules in that event. The rest of us plebs who bust our nut for a living can just go sing for it.

This country has truly become a disgusting place to live, no matter what you try to do these days, the fundamentals needed for living are just being moved a little bit further away from you every day.

The majority of the population are not on a marginal tax rate of anywhere near 60%. This plan will mean a degree of chaos in the short term, but should both slow the pace of price rises and insulate buyers and the wider economy from the effects of price drops. In an environment where 92% mortgages are allowed, a 10% price drop means negative equity for recent buyers. With 20% deposits, it'll take over 20% drops to push the same buyers into NE. I understand people's frustration with this - I'm a renter looking at buying in the next few years - but I'm sick of watching every increasing mortgages chasing the same houses. This plan will probably mean the rental market stays overheated for the near future, and increased taxation on rental income should be considered in order to prevent landlords buying up properties, but by and large this limits the amount of debt we can get into and limits the effects of economic shocks. Given our recent past, that's a good thing.

LordNorbury

pwurple wrote: »

Yes, it takes more time to save, but does 20% not seem like a much better minimum amount of equity to have in your home than 10%, or even 5%? It provides a reasonable cushion against the market drops (which have always occured and WILL continue to happen, over and over again) People have become trapped in homes they can't sell, for exactly this reason. LTV ratio was gone completely bananas, and they found themselves in negative equity in a very short space of time. Their circumstances changed (family size increased) and they couldn't even move to a cheaper house!

When we start recognising that houses are for living in, and not a speculative tool to enrich yourself with, and when we start recognising the very fundamental simplicity of that logic, and when we start creating simple straightforward policies that support that very simple concept, we will have no problems here with the property market.

ixus

ixus wrote: »

You do realise the govt has been incentivising investment by removing CGT if you buy and hold for seven years.

Yes I did - and it proves my point.

The government has no interest in reducing house prices and until it does this measure is just more pain for young people looking to put a roof over their heads.

An inital measure would be 90% CGT on any property other than owner-occupied residence. Professional landlords would still be able to buy and let out property as they do today. Speculation - which is ultimately causes bubbles - would end overnight. Houses would end up in the hands of people who actually want to live in them.

It will never happen.

seamus

LordNorbury wrote: »

When we start recognising that houses are for living in, and not a speculative tool to enrich yourself with, and when we start recognising the very fundamental simplicity of that logic, and when we start creating simple straightforward policies that support that very simple concept, we will have no problems here with the property market.

Indeed. I have no problem with property speculators/investors in principle, provided that it's done right. Where the market allows for speculators to buy and flip a property, this is exactly what happens.

Even something as simple as a sliding CGT scale - 90% if you sell a property less than 24 months after buying it, 75% between 2 and 5 years, 50% between 5 and 10 years, and normal CGT rates after that.

That will discourage short-term speculation and encourage long-term rental investors into the market. A stable rental market is essential for the health of the entire property market, but our current situation where landlords are in it for the short-haul leaves us with a massively unstable rental sector.

Larbre34

LordNorbury wrote: »

When we start recognising that houses are for living in, and not a speculative tool to enrich yourself with, and when we start recognising the very fundamental simplicity of that logic, and when we start creating simple straightforward policies that support that very simple concept, we will have no problems here with the property market.

Absolutely this.

And when land owners / hoarders / speculators and developers recognise that it is sustainable to make a few percent profit on activity for reinvestment, not seeking to double their money all the time and continuously strangle buyers, elevating prices to a precarious level which will result in more boom/bust.

Theboinkmaster

LordNorbury wrote: »

First time buyers who are buying to live in, and young couples who are upgrading from an apartment to a house, these are the very people who we should be incentivising and encouraging to buy residential property. Yet we are now treating them as economic pariahs! How in the name of all that is serious, can any person or young couple come up with 20% of a property price, in a country with a marginal tax rate of almost 60%?!? You lose effectively 60% of your income via tax, the VAT rate is 23%, do the maths!!!

I think you should do the math - if everyone is limited to 80% mortgages & 3.5x income multiples and you have a normal level of cash buyers and transactions then prices will decrease to match affordability ie a correctly functioning property market.

Having to save 20% deposit and maxing 3.5x salary are good things IMO.

El_Dangeroso

I don't see how this will drive up rental prices, can someone explain that to me? These new rules will not change the number of housing units in the country, how could it restrict supply of them further?

ec18

I think most of ths issues with this are the unfortunates who are a victim of bad timing. They are people that were planning to buy in 2015. After that portion have bought or extended their savings plans. It will become the norm. It's similar to the outrage that some of the new driving license proposal when they brought in some of the changes.

Speaking personally it means that I will have to slightly amend my plans but it won't be major as I was looking maybe 4-5 years in the future. Saying that I'd be annoyed as well if they came in just around when I planned to buy.

on_my_oe

To those who keep repeating the mantra that a 20% deposit will bring down / slow prices, this is not correct - what it does is lock the FTB out of the market. It does however reduce competition for cash buyers and investors.

on_my_oe

El_Dangeroso wrote: »

I don't see how this will drive up rental prices, can someone explain that to me? These new rules will not change the number of housing units in the country, how could it restrict supply of them further?

FTBs remain in rental properties longer
Low income / welfare claimants become bigger pariahs to landlords and can't find a place to live
Rent allowances increase in the hope low income / welfare claimants can buy their way into a rental
FTBs just pay more and remain the tenant of choice

ghostdancer

quadrifoglio verde wrote: »

As a future first time buyer I strongly welcome these changes. Not because it might reduce prices or anything like that, but simply because it will help
Protect people from screwing themselves over, taking out unsustainable mortgages. One only has to read this thread, to see what I mean, so many people willing to stretch themselves to get a house.
An income multiple of 3x income is safe. Yeah you mightn't be able to afford to buy that 3 bed semi in rathfarnham, but hey, if you need much more than that, you couldn't really afford to anyway.
This idea that you can save for a few months for a deposit is stupid as well, if you're paying a mortgage for the next 20 years, you should be able to demonstrate regular savings over the last few years, not months.

complete and utter nonsense.

i save double what the repayments on a mortgage at 3.5 times my salary would be at present. even with interest rate increases, my monthly savings would leave me far, far above the repayments.

if the interest rates went up to 5%, and i had a mortgage on 4 times my salary, i'd still have several hundred left over from what i'm putting into savings at present.

i'd love to know how i can't afford a mortgage at more than 3.5 times my salary :rolleyes:

ec18

ghostdancer wrote: »

complete and utter nonsense.

i save double what the repayments on a mortgage at 3.5 times my salary would be at present. even with interest rate increases, my monthly savings would leave me far, far above the repayments.

if the interest rates went up to 5%, and i had a mortgage on 4 times my salary, i'd still have several hundred left over from what i'm putting into savings at present.

i'd love to know how i can't afford a mortgage at more than 3.5 times my salary :rolleyes:

you are one of the people that the might make an exception for then

seamus

El_Dangeroso wrote: »

I don't see how this will drive up rental prices, can someone explain that to me? These new rules will not change the number of housing units in the country, how could it restrict supply of them further?

The negative equity generation are people between 30 and 40 stuck in properties which are unsuitable for their life plans (marriage, children, etc).
As they realise that buying is outside of their remit in the medium-term, they will move out to rent larger homes which are inside their rent affordability.

They have more disposable income, which means that rent for these types of properties increases, squeezing out slightly lower earners into smaller properties. From there, there's an outward ripple effect as the prices of larger properties go up, forcing people into smaller properties, which forces those rents up, and so on.

In effect, if 10,000 people were going to buy a property next year, these rules mean that (e.g.) 2,000 of them will hit the rental market instead.

There is also practically zero change in the number of units in the country at the moment, but there are still people growing up and moving out, there are more people in employment, which puts pressure on the rental market at the lower end too.

kippy

ghostdancer wrote: »

complete and utter nonsense.

i save double what the repayments on a mortgage at 3.5 times my salary would be at present. even with interest rate increases, my monthly savings would leave me far, far above the repayments.

if the interest rates went up to 5%, and i had a mortgage on 4 times my salary, i'd still have several hundred left over from what i'm putting into savings at present.

i'd love to know how i can't afford a mortgage at more than 3.5 times my salary :rolleyes:

I would have thought that were obvious. It's on part of the reason we've had such issues with mortgages in this country (moreso than the overpriced property although people overextending hasn't helped.)

All is well and good in the world when your income/expenditure remains as it is now.
What happens if you buy a hope and use a mortgage within the limits set.
Four weeks later you lose your job. Or taxes rise, cost of living rises, you get a paycut etc etc.
Very quickly that "affordable" mortgage is no longer affordable because the asset you had to pay that mortgage has been cut for whatever reason.
Leaving you in a tough situation.
This is what has happened a lot of people in the past number of years, generally with factors outside of their control. Granted lots of people over extended in the first place so any change at all to income/expenditure would put a bit strain on them.

You're capacity to pay is key.

Balmed Out

El_Dangeroso wrote: »

I don't see how this will drive up rental prices, can someone explain that to me? These new rules will not change the number of housing units in the country, how could it restrict supply of them further?

I suppose there's less of an incentive to build houses if developers etc are concerned that they may be harder to sell, self builds I guess are even harder again now. At the same time though surely there's more of an incentive for people saving for a deposit to stay with parents for longer or to share with more people when renting.
So basically I have no idea how it will affect rental prices.:)

I definitely think it will affect house prices. They will increase for a few months due to people rushing to buy now rather then wait to save so much more and then there should be a drop / stagnation / big reduction in house price growth as less people have enough saved to purchase what they desire.

gladrags

on_my_oe wrote: »

To those who keep repeating the mantra that a 20% deposit will bring down / slow prices, this is not correct - what it does is lock the FTB out of the market. It does however reduce competition for cash buyers and investors.

Your comments appear to be contradictory.

So what happens when you reduce competition?

Theboinkmaster

on_my_oe wrote: »

To those who keep repeating the mantra that a 20% deposit will bring down / slow prices, this is not correct - what it does is lock the FTB out of the market. It does however reduce competition for cash buyers and investors.

Why not? In a normal market what % are FTBs/trader uppers/investors?

If FTBs make up say 30% of the market that will reduce demand and lower prices across the market.

El_Dangeroso

on_my_oe wrote: »

FTBs remain in rental properties longer
Low income / welfare claimants become bigger pariahs to landlords and can't find a place to live
Rent allowances increase in the hope low income / welfare claimants can buy their way into a rental
FTBs just pay more and remain the tenant of choice

seamus wrote: »

The negative equity generation are people between 30 and 40 stuck in properties which are unsuitable for their life plans (marriage, children, etc).
As they realise that buying is outside of their remit in the medium-term, they will move out to rent larger homes which are inside their rent affordability.

They have more disposable income, which means that rent for these types of properties increases, squeezing out slightly lower earners into smaller properties. From there, there's an outward ripple effect as the prices of larger properties go up, forcing people into smaller properties, which forces those rents up, and so on.

In effect, if 10,000 people were going to buy a property next year, these rules mean that (e.g.) 2,000 of them will hit the rental market instead.

There is also practically zero change in the number of units in the country at the moment, but there are still people growing up and moving out, there are more people in employment, which puts pressure on the rental market at the lower end too.

So what will happen the houses that if the rules had not changed, FTB's would have bought? They will be bought by investors no? To rent?

LordNorbury

Theboinkmaster wrote: »

I think you should do the math - if everyone is limited to 80% mortgages & 3.5x income multiples and you have a normal level of cash buyers and transactions then prices will decrease to match affordability ie a correctly functioning property market.

Having to save 20% deposit and maxing 3.5x salary are good things IMO.

They would be good things in an economy where property is affordable, if the average cost of a reasonably decent 3 bedroomed home in the greater Dublin area was 175K, then for someone on 40K a year, it would work out very well:

40K x 3.5 times = 135K

175K x 20% = 35K

135K + 35K = 175K, therefore, sorted...

Let's ignore for a moment that 35K as a lump sum is extremely large about of money to acquire over a 5 year period, you'd need to be putting away just under 600 quid a month for 5 years, which is up there with the cost of a cheap mortgage! Lets also ignore as a fact that you wouldn't even get a 1 bed shoebox in Dublin at the moment for 175K, or indeed for 275K. And lets also ignore the fact that the majority of the jobs are in Dublin city & county.

These kind of stupid poorly thought out broad sweep policies are absolutely pointless and downright counterproductive because they fail to take account of some very fundamental market realities that I have covered above.

It is also interesting to note that it would appear to me that the people in government and in the ICB who are knocking out these decisions, have all probably bought homes back in the 80's and are so well paid that they will NEVER need to concern themselves on a personal or family level with the consequences of these crazy decisions that they are imposing on the rest of the people in this country.

NotInventedHere

Sanity prevails for now, is this because the European Bank stress tests are over?

tvc15

LordNorbury wrote: »

40K x 3.5 times = 135K

175K x 20% = 35K

135K + 35K = 175K, therefore, sorted...

Just for reference for everyone else, the max purchase price will be 4.375x your salary including the deposit

Eldarion

LordNorbury wrote: »

They would be good things in an economy where property is affordable, if the average cost of a reasonably decent 3 bedroomed home in the greater Dublin area was 175K, then for someone on 40K a year, it would work out very well:

40K x 3.5 times = 135K

175K x 20% = 35K

135K + 35K = 175K, therefore, sorted...

Let's ignore for a moment that 35K as a lump sum is extremely large about of money to acquire over a 5 year period, you'd need to be putting away just under 600 quid a month for 5 years, which is up there with the cost of a cheap mortgage! Lets also ignore as a fact that you wouldn't even get a 1 bed shoebox in Dublin at the moment for 175K, or indeed for 275K. And lets also ignore the fact that the majority of the jobs are in Dublin city & county.

These kind of stupid poorly thought out broad sweep policies are absolutely pointless and downright counterproductive because they fail to take account of some very fundamental market realities that I have covered above.

It is also interesting to note that it would appear to me that the people in government and in the ICB who are knocking out these decisions, have all probably bought homes back in the 80's and are so well paid that they will NEVER need to concern themselves on a personal or family level with the consequences of these crazy decisions that they are imposing on the rest of the people in this country.

There really is no winning haha. They get slammed for allowing reckless lending then slammed for not allowing reckless lending.

I'm delighted this change is being proposed, it's the first real sign of proper action being taken. In fact I'd like it even more if they imposed a maximum of a 30 year mortgage terms with it.

The past has shown us people cannot be trusted with reckless amounts of credit. The banks were getting paid either way so they were happy to let people go mad, regulation is quite obviously needed in this scenario. If you cannot afford to buy an asset priced at > 4x your GROSS annual income then you cannot afford that asset. Deal with it.

tvc15

Eldarion wrote: »

In fact I'd like it even more if they imposed a maximum of a 30 year mortgage terms with it.

What's the reasoning behind this if the other limits are in place?

maynooth_rules

I presume this has been brought up, but would it be best to buy before the end of the year or hold off until the start of the new year?
We have a healthy deposit that will be between 30-40% of the value of the houses we are looking at. My partner has a decent contracted job, my job is a bit more volatile and most banks won't consider my income.
Hard to know what to do, something in my head is telling me to wait until next year but its tough to know

LordNorbury

Eldarion wrote: »

There really is no winning haha. They get slammed for allowing reckless lending then slammed for not allowing reckless lending.

I'm delighted this change is being proposed, it's the first real sign of proper action being taken. In fact I'd like it even more if they imposed a maximum of a 30 year mortgage terms with it.

The past has shown us people cannot be trusted with reckless amounts of credit. The banks were getting paid either way so they were happy to let people go mad, regulation is quite obviously needed in this scenario. If you cannot afford to buy an asset priced at > 4x your GROSS annual income then you cannot afford that asset. Deal with it.

Wanting to borrow to put a roof over your head for you and your family, and have some security of tenure in a nation that is known for its gombeenism and greed, is not reckless borrowing/lending, it is actually acting responsibly.

These new rules do nothing to deal with the core issues here which have been:

(1) Lack of housing supply and failure to build property since 2008 which has now left us in a place where they is a housing crisis in the Dublin area. Making people come up with a 20% deposit does nothing to resolve this issue.

(2) People who have been buying property with cash, in the main, retiring public sector workers who have been retiring with huge lump sums over the last few years, a large cohort of these have been early retirees, not that that matters, who have been leaving jobs with a 100-200K cash lump sum and have been lucky enough to be able to buy when house prices were in the trough and not the peak, have basically shorted the market as property speculators.

So we have too few houses in Dublin where people tend to want to live to be close to work, and we have had too many people with government paid lump sums, who have been hoovering up the small number of properties that have been on the market in Dublin in the last year or two, in the absence of any other building going on.

Now how does this 20% deposit rule deal with and resolve any of these realities? It doesn't! What it does do is it keeps more borrowers entirely out of the market and now acts as a ring fence for those who are wealthy enough, who will buy with cash and don't have to concern themselves with this rule!

That is, in effect, exactly what this is, it is a statement from the elite cabal who run this joke shop of a country that only those in the public sector who have higher incomes and protected salaries and jobs, (who these rules can now be bent for), and only those who are rich enough to buy with cash, have any business now buying a property! The rest, young families, people on 30K, 40K jobs in the private sector who have nothing left at the end of the month after paying taxes (PAYE, PRSI, USC, 23% VAT, highest hydrocarbon fuel prices in the EU), and exorbitant rent and a host of stealth taxes, levies and charges, (water charges, property tax), who cannot hope to put away 1K a month for 60 months to save a deposit for a house in Dublin, the message to these people is that they can (1) rent from those wealthy enough to buy property with cash, (2) live in a spare room in your parents house or (3) live in a tent, but don't you dare think for a second that you can buy a place of your own in this country!

pwurple

LordNorbury wrote: »

When we start recognising that houses are for living in, and not a speculative tool to enrich yourself with, and when we start recognising the very fundamental simplicity of that logic, and when we start creating simple straightforward policies that support that very simple concept, we will have no problems here with the property market.

I don't see what that has to do with what I said.

Giving yourself mobility and flexibility is important in a modern world. It's a long time since people lived in the same house for generations, where the same job was passed from father to son. Jobs move, people move.

Getting stuck in any home, because you cannot sell it, is a problem.