Central Bank to limit amount banks lend for home purchase

Chev2010

Finally we have a regulator who regulates and the banks and possibly the government are looking at ways to circumvent the new rules before they are launched.

I'll be very impressed with Honohan if he brings these rules in as stated and doesn't bend to VIs.

Banks, EAs, builders and the government all want house prices to increase, they are shouting the loudest and most of the articles quote one of the four to convince us it's a bad idea. Another 25% increase in 2015 would hide a lot of the mess created up to 2007 and land the issue on FTBs and anyone who bought a smaller home looking to trade up.

Greyian

Larry Wildman wrote: »

How is it achievable?

It's reasonable to expect someone to save 10%...that might be between €30k and €50k.

But 20%? Between €60k and €100k.

Very few people can pay rent and save (say) €1,000 a month.

Let's take the 10%/€30k figure (it's the lower end of what you've suggested). That would put the house price at €300,000.

At 3.5 times income, the €270,000 mortgage would require €77,000 salary.
Even if we push it to 4.5 times income, it would require a salary of €60,000.

If someone is on a salary of €60,000+, they should be able to save €1,000 per month.

Michael D Not Higgins

Greyian wrote: »

Let's take the 10%/€30k figure (it's the lower end of what you've suggested). That would put the house price at €300,000.

At 3.5 times income, the €270,000 mortgage would require €77,000 salary.
Even if we push it to 4.5 times income, it would require a salary of €60,000.

If someone is on a salary of €60,000+, they should be able to save €1,000 per month.

Indeed, in order to afford a 300k home, the average person would have to save much more than 20%.

Sala

Larry Wildman wrote: »

How is it achievable?

It's reasonable to expect someone to save 10%...that might be between €30k and €50k.

But 20%? Between €60k and €100k.

Very few people can pay rent and save (say) €1,000 a month.

It's achievable, as I said, if the property price is reasonable. Likewise even 10% could be unattainable if prices are bananas.

As prices go up, people's deposit requirements go up. If the new rules cause prices to drop, your deposit requirement drops.

Larry Wildman

Greyian wrote: »

Let's take the 10%/€30k figure (it's the lower end of what you've suggested). That would put the house price at €300,000.

At 3.5 times income, the €270,000 mortgage would require €77,000 salary.
Even if we push it to 4.5 times income, it would require a salary of €60,000.

If someone is on a salary of €60,000+, they should be able to save €1,000 per month.

When they're already paying rent that's higher than the mortgage and exhorbitant childcare, tax, etc?

gaius c

Larry Wildman wrote: »

How is it achievable?

It's reasonable to expect someone to save 10%...that might be between €30k and €50k.

But 20%? Between €60k and €100k.

Very few people can pay rent and save (say) €1,000 a month.

Your idea works if you accept that house prices between €300k-€500k are "normal" and that everything should be arranged around this notion of what normality is. Take a look at our trading partners. Those prices are anything but normal.

Greyian

Larry Wildman wrote: »

When they're already paying rent that's higher than the mortgage and exhorbitant childcare, tax, etc?

Based on what information I can find, the average age of a first-time mother is 31.8 years of age, while the average age of a first-time buyer is 32. So the average person (saving for a deposit) won't be paying childcare.

Even if a couple are paying childcare, they should have started saving their deposit before the birth of their child/children, when they wouldn't have had expenses that were as high.

You seem to be suggesting a deposit should take ~5 years (€1000/month, needing €60k deposit = 5 years of saving). If someone was to start saving at....25 (so they wouldn't have to start as soon as they start working), that gives them 7 years to save before they reach the age of the average first-time buyer, while they also wouldn't have any child-related expenses at this point in the majority of cases.

The average house price isn't €300,000 anyway, so the deposit requirement would be lower (even in Dublin, it's below €300,000, nationally it's ~€200,000). The median price would be lower than the average also.

For people who are struggling to save because of high childcare costs, it shouldn't really come as a surprise that having children (or rather, the expenses that go along with raising children) would impact your ability to purchase property compared against people who don't have children (or rather, people who don't have child-rearing expenses).


All of this also ignores that if enough people can't save deposits large enough, nobody will have the money to buy homes, reducing demand, which will lead to a fall in prices.

matt-dublin

Property prices had started to stagnate prior to these new rules.

20% will now prevent many 20 something's from buying any house that they wanted for several years.

The prices won't go down dramatically, they will stagnate as there simply isn't enough supply in the high yield areas.

This should have been phased in over several years. at a 2.5% up weight over 4 years to allow prices continue to level safely and keep the market alive.

Also don't forget, this doesn't mean the end of 90% mortgages at 4.5 times your salary. It just means that the banks books need to match this at year end.

So if 50% of the banks loans are at 33% Deposit and 70% LTV for new mortgages across a fiscal year it will allow them to hand out some more of the 90% @ 4.5 times salary.

They have to allow for 85% of total new mortgages to match the new rules. Not 85% of individual mortgages.

desertcircus

matt-dublin wrote: »

Property prices had started to stagnate prior to these new rules.

20% will now prevent many 20 something's from buying any house that they wanted for several years.

The prices won't go down dramatically, they will stagnate as there simply isn't enough supply in the high yield areas.

This should have been phased in over several years. at a 2.5% up weight over 4 years to allow prices continue to level safely and keep the market alive.

Also don't forget, this doesn't mean the end of 90% mortgages at 4.5 times your salary. It just means that the banks books need to match this at year end.

So if 50% of the banks loans are at 33% Deposit and 70% LTV for new mortgages across a fiscal year it will allow them to hand out some more of the 90% @ 4.5 times salary.

They have to allow for 85% of total new mortgages to match the new rules. Not 85% of individual mortgages.

Prices were not levelling safely or stagnating: in Dublin, which will be most affected by this policy, they were escalating at a ridiculous pace.

matt-dublin

matt-dublin wrote: »

Property prices had started to stagnate prior to these new rules.

20% will now prevent many 20 something's from buying any house that they wanted for several years.

The prices won't go down dramatically, they will stagnate as there simply isn't enough supply in the high yield areas.

This should have been phased in over several years. at a 2.5% up weight over 4 years to allow prices continue to level safely and keep the market alive.

Also don't forget, this doesn't mean the end of 90% mortgages at 4.5 times your salary. It just means that the banks books need to match this at year end.

So if 50% of the banks loans are at 33% Deposit and 70% LTV for new mortgages across a fiscal year it will allow them to hand out some more of the 90% @ 4.5 times salary.

They have to allow for 85% of total new mortgages to match the new rules. Not 85% of individual mortgages.

Are you sure about that last bit? I read it as 85% of individual mortgages. They want to make high-risk mortgages the great exception so that, say, a newly-qualified doctor with a small deposit but a high, steady income can still be considered a good bet for a bank.

If you're right the bank could lend a few 10%LTV mortgages and allow themselves continue more or less as normal i.e. Making half their loans to people with deposits less than 20%.

Sala

A couple earning 40k each bring home around €5,086 net a month (according to deloitte calculator.)

Allowing for €1100 a month for a one bedroom flat, €1,432 for living expenses (taken from the insolvency service reasonable living expenses for a couple, no kids, car) and you get €2,532 expenses - leaves €2,554 for saving.
Even if you take away extra for pensions, and a few extra nights out or something, they could be able to save €2,000.

They will be able to get a mortgage of 3.5 times 80k = €280,000 and will need a 20% deposit €70,000 which gives a total of €350,000 for a house. It'll will take 35 (fairly frugal) months to save the 70k though.

mirrorwall14

So a couple with a joint income way above the average household income will need 3 years on an extremely frugal budget (one designed for people who are insolvent!), no car, no pension, no trips away, health insurance, eating out etc etc. Any unexpected expenses will significantly set them back.

And on top of that very few start out with a salary of 40k, far more likely to start at 25k and be working their way up after college. It is likely that a couple who are frugal graduates will need at least twice that time scale to get anywhere near 70k. This will put most mortgages starting far later in life, around 28years at a low level estimate and probably far closer to 30-35 age group. This pushes back children for women significantly and causes resulting health issues, infertility for example. Mortgages will be running far later into peoples lives etc.

I completely support the 3.5times salary but I think a jump from where 5 years ago we were giving 100% mortgages on stupid salary rates to now giving only 80% is an enormous jump and could have very unexpected effects on the economy in the long run. 85% or even just enforcing stringently 90% with the salary cap I really feel would have been sufficient.

Greyian

Greyian wrote: »

All of this also ignores that if enough people can't save deposits large enough, nobody will have the money to buy homes, reducing demand, which will lead to a fall in prices.

Which in turn ignores the fact that first time buyers are not the only people in the market for houses.

House prices will never fall below a mark at which investors (either domestic or international) can turn a profit on their investment.

Sala

mirrorwall14 wrote: »

So a couple with a joint income way above the average household income will need 3 years on an extremely frugal budget (one designed for people who are insolvent!), no car, no pension, no trips away, health insurance, eating out etc etc. Any unexpected expenses will significantly set them back.

And on top of that very few start out with a salary of 40k, far more likely to start at 25k and be working their way up after college. It is likely that a couple who are frugal graduates will need at least twice that time scale to get anywhere near 70k. This will put most mortgages starting far later in life, around 28years at a low level estimate and probably far closer to 30-35 age group. This pushes back children for women significantly and causes resulting health issues, infertility for example. Mortgages will be running far later into peoples lives etc.

I completely support the 3.5times salary but I think a jump from where 5 years ago we were giving 100% mortgages on stupid salary rates to now giving only 80% is an enormous jump and could have very unexpected effects on the economy in the long run. 85% or even just enforcing stringently 90% with the salary cap I really feel would have been sufficient.

I actually agree with you. I thought the 20% sounded like a good idea until I started doing the figures on how long it would take to save for a fairly average priced house. If they only had 30k deposit they could bid to a max of €150k which wouldn't get you much in Dublin anyway, at least right now.

I do agree with my €3000 a month budget though. The insolvency service guidelines were for a reasonable living standard, and I have given them an extra €500 farting around money. I'm saving and that's my goal to live within the 3k.

I used 40k as it's the average industrial wage (or more like 41 I think).

jester77

mirrorwall14 wrote: »

So a couple with a joint income way above the average household income will need 3 years on an extremely frugal budget (one designed for people who are insolvent!), no car, no pension, no trips away, health insurance, eating out etc etc. Any unexpected expenses will significantly set them back.

And on top of that very few start out with a salary of 40k, far more likely to start at 25k and be working their way up after college. It is likely that a couple who are frugal graduates will need at least twice that time scale to get anywhere near 70k. This will put most mortgages starting far later in life, around 28years at a low level estimate and probably far closer to 30-35 age group. This pushes back children for women significantly and causes resulting health issues, infertility for example. Mortgages will be running far later into peoples lives etc.

I completely support the 3.5times salary but I think a jump from where 5 years ago we were giving 100% mortgages on stupid salary rates to now giving only 80% is an enormous jump and could have very unexpected effects on the economy in the long run. 85% or even just enforcing stringently 90% with the salary cap I really feel would have been sufficient.

But you don't start saving for a house just 3 years beforehand. The average person puts away savings each month. If someone starts saving when they first enter employment (usually 21-22), then they have 10 years before they will purchase taking the average purchase age. Just putting away an average of 500 a month (less at the start, more as earnings increase) leaves a single person with 60k (and that is minus interest or returns on investments). And if it is a couple they will have 120k and that is without any significant sacrifices or being frugal.

quadrifoglio verde

jester77 wrote: »

But you don't start saving for a house just 3 years beforehand. The average person puts away savings each month. If someone starts saving when they first enter employment (usually 21-22), then they have 10 years before they will purchase taking the average purchase age. Just putting away an average of 500 a month (less at the start, more as earnings increase) leaves a single person with 60k (and that is minus interest or returns on investments). And if it is a couple they will have 120k and that is without any significant sacrifices or being frugal.

In days gone by that would have been the case. Out of group of college friends who've graduated and all are working I'm in the minority who'd put aside a few quid each week. I'm on the same or similar wages as well

mirrorwall14

quadrifoglio verde wrote: »

In days gone by that would have been the case. Out of group of college friends who've graduated and all are working I'm in the minority who'd put aside a few quid each week. I'm on the same or similar wages as well

500 a month on graduate salaries in Dublin with rents the way they are would be very optimistic nowadays I would agree.

Deloitte is showing 1700 odd a month on a graduate salary of 25k which would be good nowadays. In Dublin even a room rental will be 5-600 a month plus commuting money. Take out 2-300 a month for food and that's you down to 700 before bills are paid. Saving 500 a month of that in Dublin would be tough. Doable if you are frugal, but tough and incredibly responsible of someone just out of college.

HamsterFace

jester77 wrote: »

But you don't start saving for a house just 3 years beforehand. The average person puts away savings each month. If someone starts saving when they first enter employment (usually 21-22), then they have 10 years before they will purchase taking the average purchase age. Just putting away an average of 500 a month (less at the start, more as earnings increase) leaves a single person with 60k (and that is minus interest or returns on investments). And if it is a couple they will have 120k and that is without any significant sacrifices or being frugal.

I think that's assuming people are earning reasonable salaries from whenever they leave college. Most people in know, myself included, spent their twenties working for peanuts to gain experience to maybe earn a decent salary in their thirties.
I know few who broke the 40k mark until 30, and most would have saved for a year of travel then get back on their feet after that again.
And of course the huge numbers who have been unemployed for some time.
Plus the expenses of post grad education which is almost expected now.

I suppose Travel and post grads are a luxury but the reality is that most people hit 30 with nothing saved but have arrived at the career path they want.

But those at that stage now seem to have to make a decision on whether they want a house or a kid.
If there were a decent rental market it wouldn't be so frustrating.

But we are where we are, will be better for the country in the long run, but kinda sucks for those of us who just got to be where we want to be.

quadrifoglio verde

mirrorwall14 wrote: »

500 a month on graduate salaries in Dublin with rents the way they are would be very optimistic nowadays I would agree.

Deloitte is showing 1700 odd a month on a graduate salary of 25k which would be good nowadays. In Dublin even a room rental will be 5-600 a month plus commuting money. Take out 2-300 a month for food and that's you down to 700 before bills are paid. Saving 500 a month of that in Dublin would be tough. Doable if you are frugal, but tough and incredibly responsible of someone just out of college.

I never said they should be saving 500, I was saying that they should save something. I don't save 500 on my salary, I couldn't, but that doesn't mean I'm not saving anything. Most graduates don't save anything though

mirrorwall14

quadrifoglio verde wrote: »

I never said they should be saving 500, I was saying that they should save something. I don't save 500 on my salary, I couldn't, but that doesn't mean I'm not saving anything. Most graduates don't save anything though

My apologies I misquoted!

jester77

mirrorwall14 wrote: »

500 a month on graduate salaries in Dublin with rents the way they are would be very optimistic nowadays I would agree.

Deloitte is showing 1700 odd a month on a graduate salary of 25k which would be good nowadays. In Dublin even a room rental will be 5-600 a month plus commuting money. Take out 2-300 a month for food and that's you down to 700 before bills are paid. Saving 500 a month of that in Dublin would be tough. Doable if you are frugal, but tough and incredibly responsible of someone just out of college.

Most graduates wouldn't be able to save 500, but as you get experience, pay rises and promotions over the years you will be able to save a lot more than 500. I bought a house last year with over 10 years savings for the deposit, averaged out at about 500 a month, but I was probably only saving 100-200 when I first graduated.

mirrorwall14

jester77 wrote: »

Most graduates wouldn't be able to save 500, but as you get experience, pay rises and promotions over the years you will be able to save a lot more than 500. I bought a house last year with over 10 years savings for the deposit, averaged out at about 500 a month, but I was probably only saving 100-200 when I first graduated.

Oh that's more or les my point. It's likely to 10 years to save for a house now and that delays other sections of the economy

Theboinkmaster

mirrorwall14 wrote: »

Oh that's more or les my point. It's likely to 10 years to save for a house now and that delays other sections of the economy

I think that's ok though, it's meant to be difficult

jay0109

mirrorwall14 wrote: »

Oh that's more or les my point. It's likely to 10 years to save for a house now and that delays other sections of the economy

Or perhaps prices will come back to some sort of reasonable level and it might take a few years less saving!

gaius c

jay0109 wrote: »

Or perhaps prices will come back to some sort of reasonable level and it might take a few years less saving!

Golden trophy for this man.
The notion that all discretionary spending should stop in order to save for a house deposit and then continue it in order to be able to pay the mortgage shows just how insane our priorities are.

trobbin

gaius c wrote: »

Golden trophy for this man.
The notion that all discretionary spending should stop in order to save for a house deposit and then continue it in order to be able to pay the mortgage shows just how insane our priorities are.

What he said.

doubter

trobbin wrote: »

What he said.

+1. it's insane to live frugal your whole life to own a bleedin house. You only have this life so live it.

doubter

1 think i must say I notice with myself, whilst having put in an application for a mortgage, I'm not going to be sad if it gets declined anymore.getting seriously put off here on buying a place. Renting might be dead money, but it's also freedom. you're not tied down to anything and can pick up and leave when you please

Theboinkmaster

Theboinkmaster wrote: »

I think that's ok though, it's meant to be difficult

Why is it meant to be difficult?

There is this weird attitude (this thread reeks of it) that a house is some sort of reward for years of self-sacrifice, a sort of prize for the 'deserving' few who never go out for a drink in their 20s.

I'd like to live in a country that prioritises affordable property and doesn't put young people into this grinder. I suppose that's too much to ask.

P. Breathnach

Deleted User wrote: »

...
I'd like to live in a country that prioritises affordable property and doesn't put young people into this grinder. I suppose that's too much to ask.

I think most of us would.

Through most of the country, housing is quite affordable. There are some areas, particularly in Dublin, that are considered more desirable, and the numbers wishing they could buy them exceed the supply. That's were we are seeing some localised bubble effect. The Central Bank proposals are intended to counter that. If you want to buy anywhere else, it's unlikely that the measures will impact greatly on you.