Central Bank to limit amount banks lend for home purchase

Glenbhoy

Larry Wildman wrote: »

Which is a joke really.

If you've two incomes, one is no less valuable than the other in terms of multiples etc.

It's really a concept from a different time, one when jobs were secure and for life etc.

Cuddlesworth

tigershould wrote: »

I spoke to the bank today and they told me there's a massive rush of buyers getting their approval in principle this December so that they can stick to the existing rules before the new CB guidelines are introduced in the new year.

This means that for the first 6 months next year there will be a flurry of buyers trying to get their new home before they have to stump up 20%.

So in reality (imo) if we are to see any drops they definately won't happen in the first half of next year and if anything we will probably see a continuation of rises.

If I was being cynical I would say this has been the ploy all along. To make the buyers dispose their hard saved cash by threatening to increase deposit rates.

*removes tin foil hat*

Is this not worrying? A huge rush of buyers will only serve to increase prices further. A stable market is worth far more than one that swings wildly.

gaius c

Cuddlesworth wrote: »

Is this not worrying? A huge rush of buyers will only serve to increase prices further. A stable market is worth far more than one that swings wildly.

Doubt it. Anybody who thinks getting approval now means they can get a 90% mortgage next march is probably in for a surprise.

El_Dangeroso

gaius c wrote: »

Doubt it. Anybody who thinks getting approval now means they can get a 90% mortgage next march is probably in for a surprise.

Yeah mortage approval in principle isn't worth the paper it's written on. And BOI will only give mortgage approval on a specific house, otherwise you need to re-apply.

gaius c

However bidders will use that approval to bid prices up and it'll all go swimmingly until the EA cops that none of the high bidders can actually close.

gaius c

Honohan's speech in full btw.
http://www.centralbank.ie/press-area/speeches/Pages/HonohanMABSHouseholdIndebtedness.aspx

Michael D Not Higgins

Glenbhoy wrote: »

The document doesn't say main income and I think that concept seems to have drifted away many years ago in any case. Given the reaction to the 20% deposit, there would be outright revolution (led by Inda) if the CBI were to propose that the income in question was actually 'main income' only.

If that's the case and it's 3.5x both salaries, then 2 college graduates (25k starting, small increases over the years) with modest saving (400/month each) could afford 250k in about 4-5 years. Hardly debilitating regulation in my eyes.

Lest there be any doubt, the Central Bank makes clear today in a speech to bankers that its mortgage limits are coming in: Central Bank's mortgage lending limits are 'proportionate'.

Her full speech is here.
Includes this:

The measures introduce proportionate limits and specific exemptions which take into consideration that there are some cases which could fall outside strict limits. Media commentary in recent weeks has focused on the potential negative impact of these measures on individual borrowers in certain circumstances. We would acknowledge that there is certainly some potential for such impacts. However, it is also important to balance the needs of these individual borrowers with the resilience of the banking and household sectors overall.

In addition, I think we would all agree that, and indeed our analysis shows, there is a clear link between lending at a higher LTV and income limits and future difficulties.

jay0109

Thats definitive alright.....makes Brian Hayes' comments from yesterday look silly

handlemaster

Why are the banks not borrowing longer term so that they can offer 20 year fixed mortgages

Barely Hedged

handlemaster wrote: »

Why are the banks not borrowing longer term so that they can offer 20 year fixed mortgages

It will only work if the variable rates on offer are low. Given their current levels a 20 year fixed would probably be priced at 7% to 8%. Hardly enticing number

Barely Hedged

Barely Hedged wrote: »

It will only work if the variable rates on offer are low. Given their current levels a 20 year fixed would probably be priced at 7% to 8%. Hardly enticing number

BoI does a ten-year fixed at 4.99%
High compared to other eurozone countries but not bad if you think the ECB could be a couple of points higher in, say, five years.

handlemaster

Why not offer 20yrs fixed ? Stabilise the prices

Barely Hedged

Deleted User wrote: »

BoI does a ten-year fixed at 4.99%
High compared to other eurozone countries but not bad if you think the ECB could be a couple of points higher in, say, five years.

I dont think the ECB base rate will be 7% in 5 years.

Also in the UK, when the BOE base rate was 5.5% you could pick up a 20y - 25y fixed rate mortgage for 6.25% to 6.5% with early repayment charges.

Barely Hedged

handlemaster wrote: »

Why not offer 20yrs fixed ? Stabilise the prices

Unless its competitve with current variable rates, then people wont jump in for it.

It would provide more stability in the housing market.

An interesting point of note though, if a lot of people went for them then liqiuidity in the market would dry up as people would face hefty early repayment charges. Has parallels with the current tracker situation.

Barely Hedged

Barely Hedged wrote: »

I dont think the ECB base rate will be 7% in 5 years.

Me neither. I meant up 2 points on what it is now. It's basically at 0% yet we have variable mortgage rates above 4% in most cases. If it were at 2% in five years (that's not a prediction, just a hypothetical) I suppose we'd have variable mortgages above 6.

Barely Hedged

Deleted User wrote: »

Me neither. I meant up 2 points on what it is now. It's basically at 0% yet we have variable mortgage rates above 4% in most cases. If it were at 2% in five years (that's not a prediction, just a hypothetical) I suppose we'd have variable mortgages above 6.

Ahh, thought you meant on top of the 4.9%.

The banks losses would be offset from increased cashflows from trackers if it does rise so i wouldnt say that the variable rate would rise by an additive amount. Id say it would stay flat or even fall with maybe one or two foreign banks encroaching on the domestic market

Barely Hedged

Barely Hedged wrote: »

Ahh, thought you meant on top of the 4.9%.

The banks losses would be offset from increased cashflows from trackers if it does rise so i wouldnt say that the variable rate would rise by an additive amount. Id say it would stay flat or even fall with maybe one or two foreign banks encroaching on the domestic market

Oh yeah, I see how my earlier post was unclear.

Foreign entrants would be interesting. I've friends in Belgium with a 20-year fixed rate mortgage lower than our lowest variable rate.

Is there anything to stop foreign banks coming in? KBC are very active at the moment but they more or less match (or slightly beat) the local incumbents. Nothing disruptive happening in terms of competition.

Larry Wildman

I would say that the likelihood of foreign entrants is high...

jay0109

Larry Wildman wrote: »

I would say that the likelihood of foreign entrants is high...

No chance....come to Ireland to loan out on a house and when the loan goes bad, Jerry Beades and the Land League invade your offices when you make a move on the house:mad:

Cuddlesworth

jay0109 wrote: »

No chance....come to Ireland to loan out on a house and when the loan goes bad, Jerry Beades and the Land League invade your offices when you make a move on the house:mad:

Yep, one of the highest default rates in the world with near zero recourse. Any underwriter would laugh at the thought.

gaius c

Cuddlesworth wrote: »

Yep, one of the highest default rates in the world with near zero recourse. Any underwriter would laugh at the thought.

Which would also put the kibosh on any notions of independent mortgage insurance.

Barely Hedged

Deleted User wrote: »

Oh yeah, I see how my earlier post was unclear.

Foreign entrants would be interesting. I've friends in Belgium with a 20-year fixed rate mortgage lower than our lowest variable rate.

Is there anything to stop foreign banks coming in? KBC are very active at the moment but they more or less match (or slightly beat) the local incumbents. Nothing disruptive happening in terms of competition.

KBC have been around for a while so i wouldnt call them a new entrant - theyre pretty much consolidating. It would need a new face who would look for market share to change things

Barely Hedged

jay0109 wrote: »

No chance....come to Ireland to loan out on a house and when the loan goes bad, Jerry Beades and the Land League invade your offices when you make a move on the house:mad:

While an element of that is true, to say there will be no new entrants into the mortgage market in Ireland in the next 5y - 10y is pretty naieve

The_Conductor

Larry Wildman wrote: »

I would say that the likelihood of foreign entrants is high...

Why?
We've already had foreign entrants hand back their banking licenses......

Barely Hedged

The_Conductor wrote: »

Why?
We've already had foreign entrants hand back their banking licenses......

HBOS? Who else?

trobbin

Barely Hedged wrote: »

While an element of that is true, to say there will be no new entrants into the mortgage market in Ireland in the next 5y - 10y is pretty naieve

I actually think it's you that's naive.

You see for that to happen under the new ECB regulations, it's gonna take an awful lot. It will also only be attempted by high risk banks looking to increase their loan books. That sounds very like 2005 to me.

Banks have historically made their money in interest payments. The last 20 years banks raked in the cash from investing in properties and such, they got burnt, so did the tax payers. Because Irish people are fixated on property, they actually think what happened was normal. We are only starting to get back to normality. Banks won't be allowed to do what they did again, and they don't want to.

New money making strategies suggest banks will increase base rates in the next two years, with Bank of America to be first, followed by England and ECB. People that think there's still hope for the Irish property market with regards to 2007 are very naive.

There's a few haymakers on the way. The 20% deposit isn't even the start of them. Did make me laugh, people thinking basically everything would just repeat itself. Funny.

jay0109

Barely Hedged wrote: »

While an element of that is true, to say there will be no new entrants into the mortgage market in Ireland in the next 5y - 10y is pretty naieve

No one mentioned a time frame above. You brought that in to support your response.
Yeah, 10 years from now there may be some new foreign banks operating in Ireland (but I wouldn't bet too much on that).

But as things stand with mortgages in default and the near impossibility of making repossessions, and with constant political interference in the running of both the retail banks and the Central bank itself, I can see no foreign bank looking twice at us in the short to medium term

Barely Hedged

trobbin wrote: »

I actually think it's you that's naive.

You see for that to happen under the new ECB regulations, it's gonna take an awful lot. It will also only be attempted by high risk banks looking to increase their loan books. That sounds very like 2005 to me.

What ECB regulations prohibiting banks registered with the ECB from operating within the confines of the Eurozone?

trobbin wrote: »

Banks have historically made their money in interest payments. The last 20 years banks raked in the cash from investing in properties and such, they got burnt, so did the tax payers. Because Irish people are fixated on property, they actually think what happened was normal. We are only starting to get back to normality. Banks won't be allowed to do what they did again, and they don't want to.

I dont get your point. Increased numbers looking for mortgages means more cashflow. What will banks do if mortgages dont form a large part of their balance sheet?

trobbin wrote: »

New money making strategies suggest banks will increase base rates in the next two years, with Bank of America to be first, followed by England and ECB. People that think there's still hope for the Irish property market with regards to 2007 are very naive.

New money making strategies - what are these new money making strategies and how will they cause central banks (of which BoA certainly is not) to raise base rates?

trobbin wrote: »

There's a few haymakers on the way. The 20% deposit isn't even the start of them. Did make me laugh, people thinking basically everything would just repeat itself. Funny.

Can you list these haymakers that are going to knock the property market out?

Duckett

The Reserve Bank of New Zealand says restrictions on bank home loans have helped cool the housing market without unduly affecting first home buyers. Since October last year, most borrowers have needed a deposit of at least 20 per cent to secure a home loan. Annual house price inflation across the nation has dropped from 9.4 per cent in September last year to 5 per cent this year, according to the central bank report. Auckland house price growth has also slowed, but is still 8.6 per cent.