Central Bank to limit amount banks lend for home purchase

Michael D Not Higgins

I really really want the Central Bank to succeed in this. It lays the regulatory groundwork for the future. It also puts the foot down on political interfering in soft touch regulation and drags Ireland's mortgage lenders into a functioning sustainable financial industry.

I hope this is just the start for the CBI. They need to start tackling other areas as soon as they get this through.

seamus

seamus wrote: »

Perhaps the government needs to look at providing better protection for tenure in the rental market so that people see it as a viable option for building a home - tax rebates for long-term lease agreements (5 years+), etc?

Well, yes. They should - but they never have.

They should attempt by any means necessary to get investors out of the Dublin property market - but they won't.

What they WILL do is introduce these limits that will effectively mean no home ownership in Dublin other than for the wealthy.

I understand why people are in favour of the limits, but if they think they will have any effect on price they are deluded. They are similarly deluded, by the way, when they talk about supply.

Supplying more houses doesn't do anything to stop those houses being bought by investors (including international investors - so there is no effective end to the cash buyer phenomenon) as long as they know they will turn a profit in rent.

I don't know if the letter is genuine and I wouldn't wipe my arse with the Independent but let's not dismiss the valid concern (and personal heartbreak) that two people in socially useful jobs can no longer afford a roof over their head and two children. Is that the society we want? Really?

Awaits immediate sarcastic "yes everyone should get a five bedroom house in Dalkey" post...

gaius c

A real FTB would want cheaper prices, not "help" to pay higher ones.

makeorbrake

Deleted User wrote: »

Awaits immediate sarcastic "yes everyone should get a five bedroom house in Dalkey" post...

And where was your protest when the CGT exemption was introduced?

Typical irish response. Attack the measure that is incidental to the problem you're describing.


Furthermore, Ireland is not Dublin! It's one thing to deprive Dublin of this positive measure - but another thing entirely to deprive the rest of the country.


They talk about Ireland being a basket case. It is Ireland or the irish themselves!?

Michael D Not Higgins

Deleted User wrote: »

Awaits immediate sarcastic "yes everyone should get a five bedroom house in Dalkey" post...

Houses should be built. The investors are buying apartment blocks as they have higher returns and lower overheads. The houses will be bought by owner occupiers (mostly).

I did a quick play around on AIB's mortgage calculator and found this couple on 25k each with less than €300 a month childcare costs (good luck with that) could just about scrape a mortgage for 162k and 10% deposit to reach 180k (between their initial offer and where they dropped out above their budget).

I can't comment on how 'socially useful' their youth work is but that is just an appeal to emotion. They are not being paid well enough to afford the house they wanted.

We don't know the full circumstances. If they're 25 and have only been saving a couple of years they're in a much better position than if they're 35 after saving for 10 years. None of us can comment on whether it's right or a valid concern that they cannot buy a house right now.

All we know is that they can't afford a house now, so how does allowing the market to continue unchecked help them?

makeorbrake

makeorbrake wrote: »

And where was your protest when the CGT exemption was introduced?

Typical irish response. Attack the measure that is incidental to the problem you're describing.


Furthermore, Ireland is not Dublin! It's one thing to deprive Dublin of this positive measure - but another thing entirely to deprive the rest of the country.


They talk about Ireland being a basket case. It is Ireland or the irish themselves!?

I've always been against all exemptions for property investors. I am in favour of a 90% tax on all profits from the sale of property (including owner occupied houses).

I want cheap houses. That is how you get them. This measure will take a miniscule amount of heat out of the property market and further skew it towards investors and the wealthy.

gaius c

gaius c wrote: »

A real FTB would want cheaper prices, not "help" to pay higher ones.

Of course. But this measure won't deliver cheaper prices.

Michael D Not Higgins

Deleted User wrote: »

Of course. But this measure won't deliver cheaper prices.

That's not the point of the regulation. It's to prevent any further bubbles in the property market. The knock on effect is that we are likely to see the price rises reined in if everyone is playing to the same LTI and LTV ratios.

makeorbrake

Deleted User wrote: »

I've always been against all exemptions for property investors. I am in favour of a 90% tax on all profits from the sale of property (including owner occupied houses).

You may well have been - but there was little if any protest when the cgt exemption was introduced. Contrast that with the blatant propaganda that's being disseminated with regard to this measure. Vested interests hard at work!

Deleted User wrote: »

I want cheap houses. That is how you get them. This measure will take a miniscule amount of heat out of the property market and further skew it towards investors and the wealthy.

You mean the property market in Dublin. Any consideration for the rest of Ireland??

If there is a supply issue, then take the appropriate measures to deal with that. This measure is incidental to that - it's not directly concerned with that.

MarkAnthony

In all honesty while there is huge need for reform in renting it's not and should not be a long term solution for settled families. I know I'm going to get flamed to a crisp here but there is nothing wrong with 100% mortgages, rent to buy schemes or even less than ideal (within reason) credit risks.

There has to be a history of savings of course, people also need to live within their means but owning a house if you intend to live there for years should be with the reach of the majority of the population. Frankly, it's in everyone's interest as it provides a source of equity to be tapped for elder care, tax revenue in inheritance tax and removes the need to the exchequer to have to pay to house people in retirement.

What needs to be resolved is the market in Dublin. This will take decades of social change, anything else that's being done is simply nibbling around the edges.

makeorbrake

makeorbrake wrote: »

You may well have been - but there was little if any protest when the cgt exemption was introduced. Contrast that with the blatant propaganda that's being disseminated with regard to this measure. Vested interests hard at work!

Maybe. In fact probably yes.

Here's the thing - I don't have an objection to the measure as part of a sensible integrated package of policies that together will mean lower (much lower hopefully) prices.

I'd also like to see the rental market sorted out properly. You need to feel that raising children in rented accommodation is not just possible but as good as owning a home.

But as it stands now, this measure is skewing the market against FTBs, making it harder for them to buy a home, and in the process of course making it easier for investors.

Is that right?

BTW on a slight side note let's not fall into the trap of believing the 'crash' was caused by the plain people of ireland buying houses. Anglo never gave a mortgage to anyone I know. The economic shock caused by the collapse of that bank and the colossal default on COMMERCIAL loans led to unemployment, higher taxes and - yes - mortgage arrears. But the idea that the crash occurred because we allowed people to borrow 90% of the cost of their first house is fanciful to say the least.

Deleted User

Deleted User wrote: »

I've always been against all exemptions for property investors. I am in favour of a 90% tax on all profits from the sale of property (including owner occupied houses).

I want cheap houses. That is how you get them. This measure will take a miniscule amount of heat out of the property market and further skew it towards investors and the wealthy.

90% sale on all profits from house sales? So if someone buys a house for 150k, sells it in ten years for 200k so they can buy a bigger house, you would make them pay 45k in tax on their 'profit'? Far fewer would trade up or down, so supply would be restricted.

The fact that the CGT exemption is ending will reduce the risk of the market becoming an investors' paradise. In that sense, it's quite well timed.

Michael D Not Higgins

Deleted User wrote: »

Maybe. In fact probably yes.

Here's the thing - I don't have an objection to the measure as part of a sensible integrated package of policies that together will mean lower (much lower hopefully) prices.

I'd also like to see the rental market sorted out properly. You need to feel that raising children in rented accommodation is not just possible but as good as owning a home.

But as it stands now, this measure is skewing the market against FTBs, making it harder for them to buy a home, and in the process of course making it easier for investors.

Is that right?

BTW on a slight side note let's not fall into the trap of believing the 'crash' was caused by the plain people of ireland buying houses. Anglo never gave a mortgage to anyone I know. The economic shock caused by the collapse of that bank and the colossal default on COMMERCIAL loans led to unemployment, higher taxes and - yes - mortgage arrears. But the idea that the crash occurred because we allowed people to borrow 90% of the cost of their first house is fanciful to say the least.

The mortgage arrears due to the credit bubble is only now coming home to roost. The banks and Nama have been sitting on the worst performing mortgages in Europe over the last 7 years. The commercial loans also went to property developers to build the houses that were spiralling upwards in price. These things were inter-related.

All those people getting higher and higher LTV and LTI ratios kept pushing the price higher and required the next round to go higher again. It was a vicious circle of credit where anyone could walk into a bank and get a 100+% mortgage on over 5 times their income. This spurned the huge commercial loans in property. The international financial crisis just exposed the banks to the inability to pay off the amount borrowed.

The mortgage arrears on single homes is not as much an issue. They can deal with a family that owes 400k. They can recoup some of that back over the life of the loan. It's the developers who owed millions and just went bankrupt that they couldn't deal with. But they only owed that much because everyone was going bananas for property.

People like to blame everyone else, the bankers, the developers, the politicians, the newspaper supplements. They were all just giving us what everyone was screaming for. More houses, more credit.

makeorbrake

Deleted User wrote: »

Maybe. In fact probably yes.

Here's the thing - I don't have an objection to the measure as part of a sensible integrated package of policies that together will mean lower (much lower hopefully) prices.

We're on the same page :-)

Deleted User wrote: »

I'd also like to see the rental market sorted out properly. You need to feel that raising children in rented accommodation is not just possible but as good as owning a home.

Still on the same page :-)

Deleted User wrote:

But as it stands now, this measure is skewing the market against FTBs, making it harder for them to buy a home, and in the process of course making it easier for investors.

Is that right?

Ah don't spoil it
You've already identified that a raft of other measures are necessary to sort out the (dublin) supply issue and the rental market.
This measure is incidental to the supply issue. Its not designed to address it (and bear in mind also theres no such supply constraint in most of the rest of the country). Pressure needs to be exerted on government to take the necessary steps to deal with supply and to fix a long broken rental market (where neither tenant or landlord is happy).

Deleted User wrote:

BTW on a slight side note let's not fall into the trap of believing the 'crash' was caused by the plain people of ireland buying houses. Anglo never gave a mortgage to anyone I know. The economic shock caused by the collapse of that bank and the colossal default on COMMERCIAL loans led to unemployment, higher taxes and - yes - mortgage arrears. But the idea that the crash occurred because we allowed people to borrow 90% of the cost of their first house is fanciful to say the least.

It depends on what you mean by the crash or what the crash means to different people. To me, it means that my property is worth 55% of what I paid for it despite paying down a 27% deposit. I firmly believe that if everyone else had to pay down 20% plus, I wouldn't be underwater to the extent that I am now.

Meanwhile, I see people on this thread that are blazing a trail to exactly the same destination!

Sala

Over on the propertypin someone said they received a loan offer from Ulster Bank and it states a minimum 20% deposit is required. Obviously the banks were told to take on board (can't remember the exact terminology, but they were to take them into account anyway) the proposals even before they were implemented so it appears at least UB is

mr_seer

Deleted User wrote: »

Maybe. In fact probably yes.

Here's the thing - I don't have an objection to the measure as part of a sensible integrated package of policies that together will mean lower (much lower hopefully) prices.

I'd also like to see the rental market sorted out properly. You need to feel that raising children in rented accommodation is not just possible but as good as owning a home.

But as it stands now, this measure is skewing the market against FTBs, making it harder for them to buy a home, and in the process of course making it easier for investors.

Is that right?

BTW on a slight side note let's not fall into the trap of believing the 'crash' was caused by the plain people of ireland buying houses. Anglo never gave a mortgage to anyone I know. The economic shock caused by the collapse of that bank and the colossal default on COMMERCIAL loans led to unemployment, higher taxes and - yes - mortgage arrears. But the idea that the crash occurred because we allowed people to borrow 90% of the cost of their first house is fanciful to say the least.

The crash occurred because Irish house prices were too high. This was primarily because of lack of regulation

desertcircus

MarkAnthony wrote: »

In all honesty while there is huge need for reform in renting it's not and should not be a long term solution for settled families. I know I'm going to get flamed to a crisp here but there is nothing wrong with 100% mortgages, rent to buy schemes or even less than ideal (within reason) credit risks.

There has to be a history of savings of course, people also need to live within their means but owning a house if you intend to live there for years should be with the reach of the majority of the population. Frankly, it's in everyone's interest as it provides a source of equity to be tapped for elder care, tax revenue in inheritance tax and removes the need to the exchequer to have to pay to house people in retirement.

What needs to be resolved is the market in Dublin. This will take decades of social change, anything else that's being done is simply nibbling around the edges.

There's something hugely wrong with 100% mortgages: they leave people in negative equity the moment there's a downturn and massively increase the possibility of banks being exposed to outright losses rather than reduced profits.

The talk of all the other measures that are needed in Dublin is weird: people are criticising the Central Bank for doing its job. They say 20% deposits are necessary, and now it's the job of the government to make sure the 20% rule doesn't leave renters stuck forever. The CB has done its job, and any complaints from now on should be directed at the government for failing to plan accordingly instead of coming out with half-baked nonsense about getting round it.

Michael D Not Higgins

desertcircus wrote: »

There's something hugely wrong with 100% mortgages: they leave people in negative equity the moment there's a downturn and massively increase the possibility of banks being exposed to outright losses rather than reduced profits.

The talk of all the other measures that are needed in Dublin is weird: people are criticising the Central Bank for doing its job. They say 20% deposits are necessary, and now it's the job of the government to make sure the 20% rule doesn't leave renters stuck forever. The CB has done its job, and any complaints from now on should be directed at the government for failing to plan accordingly instead of coming out with half-baked nonsense about getting round it.

The government have several measures they can do in response to the new regulations. I'm sure they've sat down and looked at the pros and cons of each but the ones that will matter in the long run haven't materialised.

Short Term
The potential relaxing of rules on bedsits is partly due to the reaction to the homeless man dying on the doorstep near the Dáil, but doesn't actually address the homeless crisis. It may have a minor effect on the lower end of the market depending on the number of bedsits available.

The proposed mortgage insurance scheme just subverts the intentions of the Central Bank and keeps the status quo. The problems from this system are numerous, but it does mean people would be able to buy their house with 10% deposit which is popular for the government in the here and now.

Long Term
Now we're getting to the ones that the government haven't even talked about. These are the sustainable areas that don't win elections but help people more over the course of their lives.

Social housing is at an all time low, and the waitings lists are at an all time high. The government have not been building enough social housing but have relied in recent years on rent supplement to provide for these people. The spiralling rents in Dublin have shown that people are now not able to get anywhere to live with rent supplement. It's clear more social housing must be built.

Lack of building in the last few years has constricted supply and left the property market in Dublin particularly stetched. This is the reason for the 20%+ increase in prices in the last year. Houses must be built, 15,000 a year for the country if memory serves. The government must provide an incentive for builders to build.

The Nama properties and the negative equity problems mean the government have been sitting on it waiting for prices to go up again to recover some outlay on Nama and push private homes into positive equity again. Builders will only build when it's profitable so there is a minimum price needed to be achieved there also. New houses must therefore be at least €x thousand on the open market. In order to match that price with the current price, there must be some policy of tax breaks to bridge the gap.

The problem with these long term solutions is that they're all the same, build more houses. That takes time, enough time for another government to come in and claim the plaudits for the recovering housing market. It's not the popular decision to make right now but it is the right one.

seamus

Is there an argument in the short term for providing incentives to stop landlords increasing rents?

For example, monthly rents up to €1,000 are only taxable at 20%, but rents over €1,000 are charged at 40% on the full amount. This would be similar to rent control in a way, but without putting actual ceilings in place.

Or if you accept rent allowance, your rental income is only taxable @ 20%.

Not firm figures obviously, they could even vary depending on local authority, but the aim is to deliver more affordable rents in a supply-constricted market. It might also loosen up supply somewhat in the short term as people who are sitting on properties decide that the incentive is worth headache of renting it out.

gaius c

I'd be inclined to avoid market manipulation like that and instead concentrate on the supply.

Michael D Not Higgins

seamus wrote: »

Is there an argument in the short term for providing incentives to stop landlords increasing rents?

For example, monthly rents up to €1,000 are only taxable at 20%, but rents over €1,000 are charged at 40% on the full amount. This would be similar to rent control in a way, but without putting actual ceilings in place.

Or if you accept rent allowance, your rental income is only taxable @ 20%.

Not firm figures obviously, they could even vary depending on local authority, but the aim is to deliver more affordable rents in a supply-constricted market. It might also loosen up supply somewhat in the short term as people who are sitting on properties decide that the incentive is worth headache of renting it out.

I'm not sure of the full costs and all but I suppose there's a possibility of a short term solution in that.

The issue I would see would be (and I'll use your figures for an example, ignoring any other costs, deductions, etc.) you'll get a cap on rents at €1000 and then nothing between there and €1333 where you'll get the same return after the higher tax. Considering the way the rents are going, you'll have a ceiling for the lower rents at €1000 and then all others will start at €1333. Everything in between at the moment will be pushed even higher.

Simplistically we can see that someone currently getting taxed at 40% on €1200 will do better at €1000 at 20%, but how long before the shíteboxes creep up to the €1000 limit and the more reasonable ones then have to push beyond €1333?

I think there's a case for reforming the tax on rentals, perhaps in a different way to above. The thing to consider is how does that affect the yields and are you stoking more speculation in apartments to avail of tax breaks and thus make it more unaffordable to buy?

Deco99

Everyday it seems the Indo is pushing a scare story about the new rules, is there any media out there with the opposing view? Any commentators discussing the indo's obvious bias and spin journalism?

MarkAnthony

desertcircus wrote: »

There's something hugely wrong with 100% mortgages: they leave people in negative equity the moment there's a downturn and massively increase the possibility of banks being exposed to outright losses rather than reduced profits.

It's a risk granted but given the right client it's much less of a risk than people make out. A working class family buying the 'forever house' in an area other people might be reluctant to buy in is going to be much less likely to crap the bed over negative equity than the Jones' living in D6.

Where they can show a consistent payment of rent, some savings and good credit very high LTVs are simply not an issue. Some people simply can not get access to the bank of mum and dad. Now I'm not suggesting that 100% mortgages should be widely available and frankly they probably should be available to the banks directly but there should be some scheme in certain areas to allow people to buy who otherwise could not.

makeorbrake

seamus wrote: »

Or if you accept rent allowance, your rental income is only taxable @ 20%.

They don't have to give tax concessions. The dogs in the street know that any landlord would be a fool not to accept rent allowance - if the proper protections were in place.

i.e. the state becomes the landlord (as it should be) and pays the LL directly.

- The PRTB is reformed (as their performance right now is shameful!).

- Both tenants and landlords are afforded the protections they rightfully deserve.

over and above making rent allowance more attractive, solving this problem generally would make the cost of renting out a property lower - and that should subtly feed into lower rents.

of course, the big elephant in the room (in Dublin - not elsewhere) is the supply constraint - and there isn't a whole lot that can be done to solve that in the short term.

P. Breathnach

MarkAnthony wrote: »

... Where they can show a consistent payment of rent, some savings and good credit very high LTVs are simply not an issue....

But not 100%.

I agree that some people should receive special consideration, and the ones I would make allowance for are those you describe here. I'd place some emphasis on the rent they pay, because paying rent inhibits savings capacity.

If a family are paying €1500 p.m. to rent a home, and still manage some savings towards a deposit, they are doing well, and demonstrating a capacity to service a loan. I'd favour some flexibility in the rules for people in such situations. There is less case for showing flexibility to a newly-formed couple where each has been paying about €500 p.m. in a house-share, and they don't have a lot saved.

makeorbrake

MarkAnthony wrote: »

It's a risk granted but given the right client it's much less of a risk than people make out.

To hell with the risk. What does it do (in terms of property price) for other FTB'ers when you have got guys that are not financially prudent (generally or in this particular buying decision) spending money they havn't got?

Stumping up a 20% deposit will focus their minds on what they are committing to - and dampen the propensity to pay above the odds.

P. Breathnach

makeorbrake wrote: »

To hell with the risk. What does it do (in terms of property price) for other FTB'ers when you have got guys that are not financially prudent (generally or in this particular buying decision) spending money they havn't got? ...

This is an important point. The banks should not facilitate people to bid over the odds, because the real losers are prudent purchasers or people who are unable to get a higher than 80% LTV deal.

Thee is a need to strike a fair balance between facilitating people with a genuine need for some flexibility in approach, and those who are driven to over-borrow by desperation or by their own poor judgement.

MarkAnthony

makeorbrake wrote: »

To hell with the risk. What does it do (in terms of property price) for other FTB'ers when you have got guys that are not financially prudent (generally or in this particular buying decision) spending money they havn't got?

Stumping up a 20% deposit will focus their minds on what they are committing to - and dampen the propensity to pay above the odds.

They're already paying above the odds in rent.

There are a number of factors to be considered.

-It would be area specific to encourage people into the area, this has a number of positive knock on effects for the area and people living there. It also has the likely effect of freeing up more desirable housing for those that aren't forced into renting but choose to.

-It might very well reduce the price of housing in a more 'desirable' area you want to buy in. I know if I was born and raised in Coolock and could good get a good deal out there I'd likely move back there rather than buying in Cabra.

-It's cost neutral, in fact might even make a tidy profit if managed correctly.

-Paying above the odds is very, very easily solved. Independent valuations. Works in Scotland.

Barely Hedged

MarkAnthony wrote: »

Now I'm not suggesting that 100% mortgages should be widely available and frankly they probably should be available to the banks directly but there should be some scheme in certain areas to allow people to buy who otherwise could not.

I had to rub my eyes when i read this.

It is better to refuse somebody credit than to burden them with a debt they cant afford because of some feeling of entitlement.

100% mortgages shouldnt have existed and should never return without exception. It is risk management lunacy