Central Bank to limit amount banks lend for home purchase

Barely Hedged

jay0109 wrote: »

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

I couldnt imagine a bank setting up in < 3 years if they started today, what with all the admin and office/branch locating required so i was being conservative with 5y - 10y.

Are the number of loans in arrears and defaults not falling? Positive news.

Political interference - when is there never political interference? The level at which it occurs should be more of a consideration.

RBS was going to offload UB but have now decided against it. They obviously see potential in the market and there wont be long before 1/2/3 more side with their opinion.

jay0109

Barely Hedged wrote: »

I couldnt imagine a bank setting up in < 3 years if they started today, what with all the admin and office/branch locating required so i was being conservative with 5y - 10y.

Are the number of loans in arrears and defaults not falling? Positive news.

Political interference - when is there never political interference? The level at which it occurs should be more of a consideration.

RBS was going to offload UB but have now decided against it. They obviously see potential in the market and there wont be long before 1/2/3 more side with their opinion.

Or maybe they can't find anyone mad enough to buy UB!

The numbers of loans in short term arrears are falling but in long term arrears continue to increase, if I recall correctly.
How much of the overall fall is due to can kicking?

Barely Hedged

jay0109 wrote: »

Or maybe they can't find anyone mad enough to buy UB!

The numbers of loans in short term arrears are falling but in long term arrears continue to increase, if I recall correctly.
How much of the overall fall is due to can kicking?

Quarterly profits of between €70mio - €450mio in the last quarter. Youd be a lunatic to buy it in the economy that is statistically proven to be the best performer in Europe and indeed in the western world in the past year and with healthy economic predictions. Off your rocker.

Which is a better measurement of the current state of the housing market:

short term arrears falling - people getting back into employment an dclearing both secured and unsecured debt more easily

long term arrears increasing - people who are ****ed, we know theyre ****ed, arrears compound as expected but at least we know. We didnt know in 2008 - 2011

chris85

Duckett wrote: »

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.

Great so prices still rising there. There is a common theory which says this new rule coming in will be ok as new buyers will need 20% of a lesser figure which is not true. Houses may drop slightly but more than likely stay where they are or a slow rise. Lack of a supply in the rental market is a killer in Ireland. Unsure how NZ is in terms of rental supply.

chris85

chris85 wrote: »

There is a common theory which says this new rule coming in will be ok as new buyers will need 20% of a lesser figure which is not true. Houses may drop slightly but more than likely stay where they are or a slow rise.

All of those outcomes (prices fall, prices remain the same, prices rise more slowly than at present) are better than current situation where prices are up 20% in some areas.

chris85

Deleted User wrote: »

All of those outcomes (prices fall, prices remain the same, prices rise more slowly than at present) are better than current situation where prices are up 20% in some areas.

Yes I agree prices cannot continue to rise how they have been. With the removal of CQT exemption at year end this will take some investors out of the market who have been swooping in to take properties for a rental market which is under supplied.

Just difficult to see how FTB are going to buy in next few years as they pay high rents which will make it harder to save and will have to save for much higher figure.

chris85

chris85 wrote: »

Yes I agree prices cannot continue to rise how they have been. With the removal of CQT exemption at year end this will take some investors out of the market who have been swooping in to take properties for a rental market which is under supplied.

Just difficult to see how FTB are going to buy in next few years as they pay high rents which will make it harder to save and will have to save for much higher figure.

Both interesting points - I wonder whether one will help to limit the impact of the other for first time buyers. I mean, the new rules will squeeze some FTBs out of the market but the end of CGT exemption will discourage some investors.

On the upside, both of these factors should curb prices. In NZ, they probably didn't have this exodus of investors at the same time as the new rules on mortgage lending so it knocked some FTBs back but was open season for investors with cash.

Obviously, as everyone keeps saying, supply is a big part of the picture. Maybe the measures above (lending limits + CGT) will cool things down a bit while we wait for houses to be built.

No point having a big bubble for the next two years and then, as supply comes on (let's hope) and house prices fall, we get a second wave of negative equity home-owners - and new problems for the banks' balance sheets.

chris85

Deleted User wrote: »

Both interesting points - I wonder whether one will help to limit the impact of the other for first time buyers. I mean, the new rules will squeeze some FTBs out of the market but the end of CGT exemption will discourage some investors.

On the upside, both of these factors should curb prices. In NZ, they probably didn't have this exodus of investors at the same time as the new rules on mortgage lending so it knocked some FTBs back but was open season for investors with cash.

Obviously, as everyone keeps saying, supply is a big part of the picture. Maybe the measures above (lending limits + CGT) will cool things down a bit while we wait for houses to be built.

No point having a big bubble for the next two years and then, as supply comes on (let's hope) and house prices fall, we get a second wave of negative equity home-owners - and new problems for the banks' balance sheets.

The thing is I dont here any major plans on increasing supply into the market. I think some incentive for new builds but done to a high standard with minimum standards for room sizes and so forth would be good. I havent heard any central plans to do this, perhaps I have missed it. I dont think a holistic view of the situation has been assessed to make this work

Michael D Not Higgins

chris85 wrote: »

The thing is I dont here any major plans on increasing supply into the market. I think some incentive for new builds but done to a high standard with minimum standards for room sizes and so forth would be good. I havent heard any central plans to do this, perhaps I have missed it. I dont think a holistic view of the situation has been assessed to make this work

I agree, and it's the government's job to ensure that holistic view. The CBI are doing what they have to do and regulate the market (and can't affect the other aspects). The government should have stepped in with plans for something to increase supply, such as tax breaks or the likes, but rather have attempted to play down the effect of the regulation by introducing a mortgage insurance scheme and round the roundabout we go again.

The Construction 2020 plan was published before the summer but I'm not sure how much progress has been made since.

Anecdotally, I've seen a bit more activity around the edges of Dublin and in some commuter towns in Kildare and Meath but it's still fairly slow.

Ronan Lyons' piece on Prime Time last night was very good. For those who missed it, the point (as Chris85) mentioned, is that some of the regulations that have come in make it much less attractive for developers to build. As a result, whatever capital has come into the market has mostly gone into existing blocks instead of being used to fund new developments.

Michael D Not Higgins

Deleted User wrote: »

The Construction 2020 plan was published before the summer but I'm not sure how much progress has been made since.

Anecdotally, I've seen a bit more activity around the edges of Dublin and in some commuter towns in Kildare and Meath but it's still fairly slow.

Ronan Lyons' piece on Prime Time last night was very good. For those who missed it, the point (as Chris85) mentioned, is that some of the regulations that have come in make it much less attractive for developers to build. As a result, whatever capital has come into the market has mostly gone into existing blocks instead of being used to fund new developments.

He said as much in one of the daft.ie reports

To put some (round) numbers on it, suppose the average household has a total income of €50,000 and, when the Central Bank has done its job, can borrow no more than €200,000 with a €50,000 deposit. This sets a cap on the average house price of €250,000.

Clearly, if the average home costs €300,000 to build, nothing will be built. Even if the average home costs €200,000 to build, this is probably at the limit of acceptable profit margins. If the average home costs just €150,000 to build, this should encourage building.

I don't envy the government. They need to ensure a balance between tax breaks on building (to keep costs down and supply up) and non-intervention (to keep the price up to make sure builders will profit and keep the supply going) without sparking another bubble.

chris85

Deleted User wrote: »

The Construction 2020 plan was published before the summer but I'm not sure how much progress has been made since.

Anecdotally, I've seen a bit more activity around the edges of Dublin and in some commuter towns in Kildare and Meath but it's still fairly slow.

Ronan Lyons' piece on Prime Time last night was very good. For those who missed it, the point (as Chris85) mentioned, is that some of the regulations that have come in make it much less attractive for developers to build. As a result, whatever capital has come into the market has mostly gone into existing blocks instead of being used to fund new developments.

The construction plan has nothing about getting a solution to the housing market. Its about getting the construction sector moving. It basically says a solution is needed but this is being worked by local authorities in Dublin. I have heard some things in the media about them looking to get housing built on sites which have PP in place but have not seen a lot happening.

I seem to be going around it circles and so does this thread but I understand the principle of introducing this 20% deposit as a minimum but considering other factors I just don't see how its going to work.

As said before I have been saving for a few years have a decent permanent job with good prospects down the line and early in my career, same for my other half. We have worked hard to get 10% deposit up and a little extra for appliances and a couple of bit of bits of furniture. We have perfect credit history, practically no debt, no car payments or big bills like that. We have the income to meet stressed repayment and a bit more if they wanted to test it further but we are not good enough.

Theboinkmaster

chris85 wrote: »

The construction plan has nothing about getting a solution to the housing market. Its about getting the construction sector moving. It basically says a solution is needed but this is being worked by local authorities in Dublin. I have heard some things in the media about them looking to get housing built on sites which have PP in place but have not seen a lot happening.

I seem to be going around it circles and so does this thread but I understand the principle of introducing this 20% deposit as a minimum but considering other factors I just don't see how its going to work.

As said before I have been saving for a few years have a decent permanent job with good prospects down the line and early in my career, same for my other half. We have worked hard to get 10% deposit up and a little extra for appliances and a couple of bit of bits of furniture. We have perfect credit history, practically no debt, no car payments or big bills like that. We have the income to meet stressed repayment and a bit more if they wanted to test it further but we are not good enough.

Again in theory this introduction should decrease the price of your house so your deposit required even at 20% will reduce.

If this reduces prices to an affordable level and you cannot save 20% then you can't afford the house.

1 January can't come soon enough.

chris85

Theboinkmaster wrote: »

Again in theory this introduction should decrease the price of your house so your deposit required even at 20% will reduce.

If this reduces prices to an affordable level and you cannot save 20% then you can't afford the house.

1 January can't come soon enough.

You really think this will see a drop in prices. It wont. Prices may level and at most get rid of the dramatic increases which have been seen but this wont see huge drops in property prices. Look at NZ when it was introduced the rate of the rise slowed down but still increased. People seem to think this is the way it will go but where its coming from I dont know. Sheer hope I think.

Theboinkmaster

chris85 wrote: »

You really think this will see a drop in prices. It wont. Prices may level and at most get rid of the dramatic increases which have been seen but this wont see huge drops in property prices. Look at NZ when it was introduced the rate of the rise slowed down but still increased. People seem to think this is the way it will go but where its coming from I dont know. Sheer hope I think.

NZ is just one other example but i don't see how it cannot drop prices slightly, especially combined with finish of CGT excemption.

Houses are less affordable now than they were at the height of the boom in 2006 due to no tracker mortgages, with no increase in salaries to compensate and more taxes etc.

chris85

chris85 wrote: »

The construction plan has nothing about getting a solution to the housing market. Its about getting the construction sector moving. It basically says a solution is needed but this is being worked by local authorities in Dublin. I have heard some things in the media about them looking to get housing built on sites which have PP in place but have not seen a lot happening.

I seem to be going around it circles and so does this thread but I understand the principle of introducing this 20% deposit as a minimum but considering other factors I just don't see how its going to work.

As said before I have been saving for a few years have a decent permanent job with good prospects down the line and early in my career, same for my other half. We have worked hard to get 10% deposit up and a little extra for appliances and a couple of bit of bits of furniture. We have perfect credit history, practically no debt, no car payments or big bills like that. We have the income to meet stressed repayment and a bit more if they wanted to test it further but we are not good enough.

In fairness, the proposal allows the banks to make exceptions in 15% of cases for the LTV and 20% of cases for LTI.

It will still be possible to write mortgages for people with very good salaries and prospects who have smaller deposits (10-20%). Otherwise, a 30-year-old doctor with low savings but a big income wouldn't get a mortgage - and that would just be silly.

Banks could also make an exception on the LTI side if you currently have a small salary but are certain to see that increase, for example when you get new qualifications or a (nailed on) promotion. 3.5x your currently salary might be just 2x your expected salary in a couple of years.

Sounds like you would be a decent candidate for this. The trick will be convincing your bank to include you in their list of exceptions. Play every card you have - including threatening to move all your business to another bank and never return.

Glenbhoy

chris85 wrote: »

Great so prices still rising there. There is a common theory which says this new rule coming in will be ok as new buyers will need 20% of a lesser figure which is not true. Houses may drop slightly but more than likely stay where they are or a slow rise. Lack of a supply in the rental market is a killer in Ireland. Unsure how NZ is in terms of rental supply.

Very definitive Chris, I don't think any of us know for certain. To my mind all indicators are that prices will have to drop, at least in circumstances where the vendor has to sell, the combination of the CGT exemption allied with the 20% deposit stipulation will exert very heavy downward pressures on price imo.

gaius c

The trouble with Ronan's blog post:

Clearly, if the average home costs €300,000 to build

Well there's a big one right there. It's either a lie or truth.
If it's true, then we have a very very big problem on our hands as the vast majority of FTB's are not going to be able to raise that kind of cash.
If it's a lie, then we need somebody, anybody at all in our media to start puncturing a few mistruths instead of parroting them.

Glenbhoy

gaius c wrote: »

The trouble with Ronan's blog post:

Well there's a big one right there. It's either a lie or truth.
If it's true, then we have a very very big problem on our hands as the vast majority of FTB's are not going to be able to raise that kind of cash.
If it's a lie, then we need somebody, anybody at all in our media to start puncturing a few mistruths instead of parroting them.

I was looking at building in the recent past, I was working on a 2000sq ft house coming to about €280K excluding site costs and local authority levy.

However, see the link for the RCSI rebuild costs:

http://www.scsi.ie/about_us/rebuildcalculator

Obviously it's hard to construct a one size fits all calculator for this type of thing, but this seems to pretty much debunk the 300K being posited. What I found particularly ludicrous was the sindo story from a few weeks ago about the developer complaining how he wouldn't be able to build apartments at a low enough price for FTB's to afford if the new rules were to come in, he mentioned 200K excluding VAT, if that's the case, he's not doing to well on the auld economies of scale etc, that, or he's fitting them out with marble from Tuscany and gold plated taps...

on_my_oe

Glenbhoy wrote: »

Very definitive Chris, I don't think any of us know for certain. To my mind all indicators are that prices will have to drop, at least in circumstances where the vendor has to sell, the combination of the CGT exemption allied with the 20% deposit stipulation will exert very heavy downward pressures on price imo.

Here's some figures for you, courtesy of the REINZ;
• 53.2 Per cent - NZ's home ownership rate in 2006
• 49.8 - Rate recorded in 2013 Census (prior to the new rules)
• 453,135 - Households in rental homes in last year's Census - up from 388,275 in 2006
In NZ the proportion of sales to first-home buyers has fallen from 19 per cent to 17 per cent but investors are still buying.
Sales jumped in October by almost 12 per cent on the previous month and lifted in almost all regions, while the median house price rose to $430,000, up 2.4 per cent on September and 5.4 per cent from a year ago; there was a lull due to the election.
The median weekly rent has risen more than 6 per cent nationally in a year, with 9.5% in Auckland and Wellington and 23% in Christchurch.

NZ doesn't have stamp duty or CGT.

on_my_oe

on_my_oe wrote: »

Here's some figures for you, courtesy of the REINZ;
• 53.2 Per cent - NZ's home ownership rate in 2006
• 49.8 - Rate recorded in 2013 Census (prior to the new rules)
• 453,135 - Households in rental homes in last year's Census - up from 388,275 in 2006
In NZ the proportion of sales to first-home buyers has fallen from 19 per cent to 17 per cent but investors are still buying.
Sales jumped in October by almost 12 per cent on the previous month and lifted in almost all regions, while the median house price rose to $430,000, up 2.4 per cent on September and 5.4 per cent from a year ago; there was a lull due to the election.
The median weekly rent has risen more than 6 per cent nationally in a year, with 9.5% in Auckland and Wellington and 23% in Christchurch.

NZ doesn't have stamp duty or CGT.

Thanks for the numbers. As a matter of interest, why was there a lull due to an election?

chris85

Deleted User wrote: »

In fairness, the proposal allows the banks to make exceptions in 15% of cases for the LTV and 20% of cases for LTI.

It will still be possible to write mortgages for people with very good salaries and prospects who have smaller deposits (10-20%). Otherwise, a 30-year-old doctor with low savings but a big income wouldn't get a mortgage - and that would just be silly.

Banks could also make an exception on the LTI side if you currently have a small salary but are certain to see that increase, for example when you get new qualifications or a (nailed on) promotion. 3.5x your currently salary might be just 2x your expected salary in a couple of years.

Sounds like you would be a decent candidate for this. The trick will be convincing your bank to include you in their list of exceptions. Play every card you have - including threatening to move all your business to another bank and never return.

Yes its interesting and will be a battle for sure if we have to go down that route. We have full approval at moment having gone sale agreed on a house (see my recent thread about slow progress on completing the sale) and loan agreement with solicitor ready to sign when sale completed. However if we drop out on this one and have to go through approval again in the new year it will be a different story.

Mongfinder General

Some good points made above following RTE's 2 cents the other night. I think Professor Lyons was trying to tell us that the builders are not arsed building until they can make quick profits and not have to deal with red tape. Basically a return to 2006.

The way our media spins it is out of control. You'd swear that there wasn't a single unoccupied house in Dublin and that all the ghost estates around the country are suddenly in demand. There are houses a quarter of a mile away from me that have never been lived in (built in 2006/7). Ok they're in an area in Dublin that is short of amenities but the obsession with finding a home in an area that is way beyond the means of even those on 70 or 80k plus per annum is in the realm of fantasy economics.

Do posters see buyers trickling down into the less sought after zones or renting and kidding themselves in more sought after areas?

Larry Wildman

The measure will probably yield to customers being ripped off.

Buyers may end up being forced to buy other products from the bank (e.g. pensions).

gaius c

Mongfinder General wrote: »

Some good points made above following RTE's 2 cents the other night. I think Professor Lyons was trying to tell us that the builders are not arsed building until they can make quick profits and not have to deal with red tape. Basically a return to 2006.

The way our media spins it is out of control. You'd swear that there wasn't a single unoccupied house in Dublin and that all the ghost estates around the country are suddenly in demand. There are houses a quarter of a mile away from me that have never been lived in (built in 2006/7). Ok they're in an area in Dublin that is short of amenities but the obsession with finding a home in an area that is way beyond the means of even those on 70 or 80k plus per annum is in the realm of fantasy economics.

Do posters see buyers trickling down into the less sought after zones or renting and kidding themselves in more sought after areas?

Yep. Had reason to walk through the Square in Tallaght on Wednesday night around 9pm. I estimate that only a third of the apartments looked occupied but would they think of dropping the price on the other two thirds to get them filled?

Or would an enterprising young journalist bother their hole looking at this extremely obvious scam to force prices up?

Geuze

Glenbhoy wrote: »

Obviously it's hard to construct a one size fits all calculator for this type of thing, but this seems to pretty much debunk the 300K being posited. What I found particularly ludicrous was the sindo story from a few weeks ago about the developer complaining how he wouldn't be able to build apartments at a low enough price for FTB's to afford if the new rules were to come in, he mentioned 200K excluding VAT, if that's the case, he's not doing to well on the auld economies of scale etc, that, or he's fitting them out with marble from Tuscany and gold plated taps...

Yes, that developer was not correct.

He said it cost 200k to build an apt, excl land cost and VAT.

Totally exaggeration.


With economies of scale, a 1-bed apt could be built for under 100k, excl land costs.

gaius c

Geuze wrote: »

Yes, that developer was not correct.

He said it cost 200k to build an apt, excl land cost and VAT.

Totally exaggeration.


With economies of scale, a 1-bed apt could be built for under 100k, excl land costs.

I think there's a case of "the boy who cried wolf" here in that when VI's tell such obvious lies, then all statements from all VI's are treated as outright fabrications. They are reaping what they sowed now.

If you really want to get a handle on build costs, sidle up to a builder and ask him what his own 2,500 sq ft house cost to build. Assuming he didn't place every brick himself, you'll probably get a fair idea of what the build cost is before his markup and invariably, it comes in cheaper than what they claim is the "I'm making a loss" price on a regular 3 bed semi.

It's double nonsense because there's economies of scale when building an estate full of identical houses or indeed a block of 1 bed apartments.

Every other industry works on cutting their costs if they are too high for the market, even the farmers. Builders seem to be alone in thinking that the market has to adjust in order to satisfy their "costs". Sure, regulations and inflexible union-mandated pay rates don't help but other sectors have that too.

Michael D Not Higgins

gaius c wrote: »

I think there's a case of "the boy who cried wolf" here in that when VI's tell such obvious lies, then all statements from all VI's are treated as outright fabrications. They are reaping what they sowed now.

If you really want to get a handle on build costs, sidle up to a builder and ask him what his own 2,500 sq ft house cost to build. Assuming he didn't place every brick himself, you'll probably get a fair idea of what the build cost is before his markup and invariably, it comes in cheaper than what they claim is the "I'm making a loss" price on a regular 3 bed semi.

It's double nonsense because there's economies of scale when building an estate full of identical houses or indeed a block of 1 bed apartments.

Every other industry works on cutting their costs if they are too high for the market, even the farmers. Builders seem to be alone in thinking that the market has to adjust in order to satisfy their "costs". Sure, regulations and inflexible union-mandated pay rates don't help but other sectors have that too.

I mostly agree with you here but I'd just add that a builder probably gets his sparky mate, plumber mate, brickie mate, etc. to build his house and gets the family rate, at a cut down amount from the actual trade rate. Probably ends up lashing some extra building materials onto another project to avail of the economies of scale on that project.

The Spider

gaius c wrote: »

I think there's a case of "the boy who cried wolf" here in that when VI's tell such obvious lies, then all statements from all VI's are treated as outright fabrications. They are reaping what they sowed now.

If you really want to get a handle on build costs, sidle up to a builder and ask him what his own 2,500 sq ft house cost to build. Assuming he didn't place every brick himself, you'll probably get a fair idea of what the build cost is before his markup and invariably, it comes in cheaper than what they claim is the "I'm making a loss" price on a regular 3 bed semi.

It's double nonsense because there's economies of scale when building an estate full of identical houses or indeed a block of 1 bed apartments.

Every other industry works on cutting their costs if they are too high for the market, even the farmers. Builders seem to be alone in thinking that the market has to adjust in order to satisfy their "costs". Sure, regulations and inflexible union-mandated pay rates don't help but other sectors have that too.

Well, if they can't make a profit at what they see as a reasonable amount they won't build simple as that. Popular thing down my neck of the woods at the moment is that buying a house at the moment is still cheaper than a self build.

Add site costs in Dublin, proper wages and the need to make a profit and you'll see the price.

Builders don't have to build cheaply just because you want them to, as can be seen from the extreme lack of supply in Dublin.

gaius c

Michael D Not Higgins wrote: »

I mostly agree with you here but I'd just add that a builder probably gets his sparky mate, plumber mate, brickie mate, etc. to build his house and gets the family rate, at a cut down amount from the actual trade rate. Probably ends up lashing some extra building materials onto another project to avail of the economies of scale on that project.

True but the mates are not going to work for half their usual rate or anywhere close to it. At best, they'll chop their 20% margin. The cost to build their own house isn't going to be a million miles off the "real" cost to build that house for an ordinary client.