Central Bank to limit amount banks lend for home purchase

MarkAnthony

Barely Hedged wrote: »

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

The fact is that it NOT debt they can't afford to service. If a family is paying €1500 for rent and a stressed mortgage repayment is €1250 they are better off on a mortgage. That mortgage can and should have significant strings attached to it such as a sinking fund requirement but to suggest that there aren't innovative solutions is just silly and a reason why the Irish middle class are such an homogeneous group.

Im not actually suggesting anything new here; no reason it couldn't be done in a 50/50 way like the affordable housing scheme.

Barely Hedged

MarkAnthony wrote: »

The fact is that it NOT debt they can't afford to service. If a family is paying €1500 for rent and a stressed mortgage repayment is €1250 they are better off on a mortgage. That mortgage can and should have significant strings attached to it such as a sinking fund requirement but to suggest that there aren't innovative solutions is just silly and a reason why the Irish middle class are such an homogeneous group.

Im not actually suggesting anything new here; no reason it couldn't be done in a 50/50 way like the affordable housing scheme.

Does this one hypothetical scenario apply to the enitre housing market and mean 100% mortgages should be brought back?

So in your mind because there is a difference between a short term liability (rent) and a long term liability (mortgage) this is outrageous. Have you ever asked yourself why these liabilities dont offset each other exactly rather than saying that theyre exactly the same. Theyre not the same for some very good reasons.

A sinking fund? What are you talking about exactly? How much would it be and how would it be policed?

Irish middle classes are such a homogeneous group? What does this even mean?

50/50?

MarkAnthony

Barely Hedged wrote: »

Does this one hypothetical scenario apply to the enitre housing market and mean 100% mortgages should be brought back?

So in your mind because there is a difference between a short term liability (rent) and a long term liability (mortgage) this is outrageous. Have you ever asked yourself why these liabilities dont offset each other exactly rather than saying that theyre exactly the same. Theyre not the same for some very good reasons.

Of course they're different which is why you'd risk manage it properly and look at cases where people are looking to settle for long periods. These people are better off on mortgages than renting. Where they are incapable of meeting a mortgage payment but still settled for long period the vast majority would fall into the social housing bracket.

Barely Hedged wrote: »

A sinking fund? What are you talking about exactly? How much would it be and how would it be policed?

With great ease.

Barely Hedged wrote: »

Irish middle classes are such a homogeneous group? What does this even mean?

Unable to think outside the box, unable to see it from any other point of view than the one that benefits them directly in the short term.

Barely Hedged wrote: »

50/50?

50 rented 50 mortgaged - possibly a better way of risk managing than a 100% mortgage but the point is the same. Some people don't fall into the traditional criteria and need to be looked at case by case. Some areas of Dublin would benefit from owner occupiers moving in the same way that distributed social housing is proving successful in places like London.

gaius c

MarkAnthony wrote: »

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.

So by making houses in Coolock more expensive, you'll reduce prices in Cabra?

Have you got a newsletter that I could subscribe to for my weekly laughs?

makeorbrake

MarkAnthony wrote: »

The fact is that it NOT debt they can't afford to service. If a family is paying €1500 for rent and a stressed mortgage repayment is €1250 they are better off on a mortgage.

And in tripping over themselves to save on rent, are they going to pay silly money in outlay for the property? In that way, are they going to make property more expensive for all others as a result - including those that have been prudent enough to have saved a significant deposit? Alongside that prudence comes a degree of medium term planning - which means that they are not buying on a whim.

Furthermore, banks assess peoples ability to save and pay. Surely there's no clearer confirmation of that ability when a customer presents him/herself with 20% down?

People vary - and there is a broad spectrum as regards personal financial responsibility. If 100% mortgages were available, then its the easiest thing in the world for the less financially prudent to sign up to that. On the same theme, I'd wager that those at that end of the spectrum are less likely to be as careful with regard to what they offer for a property.

gaius c

And like a mortgage repayment is the one and only cost of owning a house...

MarkAnthony

makeorbrake wrote: »

And in tripping over themselves to save on rent, are they going to pay silly money in outlay for the property? In that way, are they going to make property more expensive for all others as a result - including those that have been prudent enough to have saved a significant deposit? Alongside that prudence comes a degree of medium term planning - which means that they are not buying on a whim.

I do understand where you're coming from. I'm not suggesting that robust lending criteria should not come into play but I think you're missing the point that certain areas of Dublin are massively over priced and some are massively undervalue. Now to be fair the markets the market, but I don't think anyone would argue, with a straight face, that the Dublin property market isn't manipulated.

By allowing people to buy in less desirable areas, I don't think you'd see much of jump especially with proper safeguards in place. What you'd see is property that very few people want being taken over by people that know the area and care about the house they bought. We're talking Darndale here not Clontarf.

makeorbrake wrote: »

Furthermore, banks assess peoples ability to save and pay. Surely there's no clearer confirmation of that ability when a customer presents him/herself with 20% down?

I see where you're coming from but I think what you mean to say is the savings history for a 20% deposit. A good rental payment history is as good an indicator in certain limited circumstances IMHO. As for your previous reasonable question that I answered rather flippantly - a sinking fund would be used for two things;

(i) Vital repairs on the property

(ii) Reduction of the LTV until the mortgage could be converted to something more mainstream.

Look, I'm not suggesting this is the solution to all the issues but it would allow poorer people that are doing their damnist a fighting chance at having a property at 65 that doesn't require me to pay for it.

gaius c

MarkAnthony wrote: »

And like the current situation with rentals is perfect and no-one is dingeying the system, sticking stuff through under the table or living in a **** hole.

If you've nothing constructive to say and simply want to make 'smart' comment have you considered actually being smart?

Your proposal, and do feel free to correct me if we've misunderstood, seems to be:
-extending 100% mortgages to people to buy in one area but not in others?

If you have a problem with my posts, the report button is there. Please don't mistake attacks on your ideas as being attacks on you.

MarkAnthony

gaius c wrote: »

Your proposal, and do feel free to correct me if we've misunderstood, seems to be:
-extending 100% mortgages to people to buy in one area but not in others?

If you have a problem with my posts, the report button is there. Please don't mistake attacks on your ideas as being attacks on you.

If you're going to attack the idea, some indication of what your thoughts are or what you think is wrong would be appreciated. I've absolutely no problem with someone attacking the logic or basis of the argument - kinda what we're all here for I imagine.

That aside, yes - targeted areas on a targeted demographic with independent valuations. This would be to offset the harshness of the new rules, which I actually agree with in principle in most cases. The geographic requirement could be removed as this would be going on in a very tight earnings band.

ciaranlong

I read today that the Department of Finance are asking the Central Bank to row back on their decision about the 20% deposit rule. I have to say that I am very surprised that Patrick Honohan signed off on the 20% rule to begin with. His tenure has been very solid at the Central Bank, but this is his first big mistake, IMO. I hope that it is his last.

MarkAnthony

I should also point out that IMHO it's not been FTBs pushing up the market this time it's been cash investors looking to cash in to the ridiculously high rents and people forced into renting.

(I say this as someone who's literally just had an estate agent round to tell me I should get upwards of 1150 for a one bed apartment. Personally happy - very, my social conscience is biting a bit though not enough to do anything about it, of course.)

gaius c

You seem to be under the misapprehension that giving 100% mortgages to people losing out in bidding wars will "help" them to buy somewhere else. It won't. It gives them more debt and pushes up the price for everybody else.

Let's just take your Coolock and Cabra as hypothetical examples. John wants to buy a house in Cabra but he's bidding against others of similar or slightly better resources. Then he hears about this new scheme that will give him 100% finance but only if he buys in Coolock. So off to Coolock he goes to view houses and who does he meet but Jim who was also getting fed up of being outbid in Cabra and guess what, he has 100% mortgage approval too so they bid away and John eventually beats Jim having overpaid by 25% because somebody else got armed with the same distorting mortgage approval that he got.

You want my thoughts? My thoughts are that this is a not good idea.
The aim of the deposit rules are to prevent people from getting into too much debt again. It's not intended to "fix" bidding wars. Only better supply can do that.

MarkAnthony

gaius c wrote: »

You seem to be under the misapprehension that giving 100% mortgages to people losing out in bidding wars will "help" them to buy somewhere else. It won't. It gives them more debt and pushes up the price for everybody else.

I think this is where we're probably grating each other. It's not about bidding wars its about encouraging people to sell in areas they think there is no chance of selling, but selling to FTBers, and encouraging those FTBs to think about that area.

gaius c wrote: »

Let's just take your Coolock and Cabra as hypothetical examples. John wants to buy a house in Cabra but he's bidding against others of similar or slightly better resources. Then he hears about this new scheme that will give him 100% finance but only if he buys in Coolock. So off to Coolock he goes to view houses and who does he meet but Jim who was also getting fed up of being outbid in Cabra and guess what, he has 100% mortgage approval too so they bid away and John eventually beats Jim having overpaid by 25% because somebody else got armed with the same distorting mortgage approval that he got.

Thats why independent valuations would be needed as well as other safe guards but I think you're missing my point on how this would work. As I say it's not a new concept.

gaius c wrote: »

You want my thoughts? My thoughts are that this is a not good idea.
The aim of the deposit rules are to prevent people from getting into too much debt again. It's not intended to "fix" bidding wars. Only better supply can do that.

I'm not sure the new rules will do much on prices or bidding. There are plenty of mid thirties apartment dwellers like myself that have built up six figure sums. All the new rules are doing is stopping people without my buying power getting into the market, yes that will help me a bit but is going to screw others.

desertcircus

ciaranlong wrote: »

I read today that the Department of Finance are asking the Central Bank to row back on their decision about the 20% deposit rule. I have to say that I am very surprised that Patrick Honohan signed off on the 20% rule to begin with. His tenure has been very solid at the Central Bank, but this is his first big mistake, IMO. I hope that it is his last.

Why do you think it's a mistake?

Barely Hedged

MarkAnthony wrote: »

Of course they're different which is why you'd risk manage it properly and look at cases where people are looking to settle for long periods. These people are better off on mortgages than renting. Where they are incapable of meeting a mortgage payment but still settled for long period the vast majority would fall into the social housing bracket.

The people who are better off on mortgages are the people that can afford to pay their mortgage that has significant equity in it. The example you have provided of determining if people will settle for longer is airy fairy nonsense.

MarkAnthony wrote: »

With great ease.

What??? You didnt answer any of my question. Your point makes no sense

MarkAnthony wrote: »

Unable to think outside the box, unable to see it from any other point of view than the one that benefits them directly in the short term.

What exactly are the short term benefits to the middle class that dont apply to other classes of people?

MarkAnthony wrote: »

50 rented 50 mortgaged - possibly a better way of risk managing than a 100% mortgage but the point is the same. Some people don't fall into the traditional criteria and need to be looked at case by case. Some areas of Dublin would benefit from owner occupiers moving in the same way that distributed social housing is proving successful in places like London.

All your doing is deferring the debt and hope that your asset balloons in price. Very optimistic and one way risk management there.

Heaping debt or deferring unsustainable debt on all classes of people is not good for the country. All your doing is promoting the very opposite.

Barely Hedged

MarkAnthony wrote: »

Some areas of Dublin would benefit from owner occupiers moving in the same way that distributed social housing is proving successful in places like London.

Can you explain please. Im unfamiliar with this setup...

MarkAnthony

Barely Hedged wrote: »

Can you explain please. Im unfamiliar with this setup...

It's simply a case of avoiding and repairing ghettoisation. In London all new builds have to have a social housing element. I know this was a thing/is a thing in Dublin bu they're prevented from doing land swaps which ends up with things like this but I'd argue it's a step in the ight direction.

It's also not unprecedented to have odd solutions such as the £1 houses in Liverpool - to be fair a different type of problem than the one we have here and I can see the logic in the CGT exemption to try and get some of the **** done up by investors.

MarkAnthony

Barely Hedged wrote: »

The people who are better off on mortgages are the people that can afford to pay their mortgage that has significant equity in it. The example you have provided of determining if people will settle for longer is airy fairy nonsense.

Not really - but suffice it to say we disagree.

Barely Hedged wrote: »

What??? You didnt answer any of my question. Your point makes no sense

I did and even offered you half an apology.

Barely Hedged wrote: »

What exactly are the short term benefits to the middle class that dont apply to other classes of people?

All your doing is deferring the debt and hope that your asset balloons in price. Very optimistic and one way risk management there.

Heaping debt or deferring unsustainable debt on all classes of people is not good for the country. All your doing is promoting the very opposite.

Thats not it at all. Sorry we're simply not listening to each other.

makeorbrake

MarkAnthony wrote: »

I do understand where you're coming from. I'm not suggesting that robust lending criteria should not come into play but I think you're missing the point that certain areas of Dublin are massively over priced and some are massively undervalue......By allowing people to buy in less desirable areas, I don't think you'd see much of jump especially with proper safeguards in place. What you'd see is property that very few people want being taken over by people that know the area and care about the house they bought. We're talking Darndale here not Clontarf.

Hmm...it's a different perspective - I'll give you that. However, it's normal that peoples perceptions of different locations/areas differs - that's normal regardless of where you are in the World.
I'm not so sure what you're proposing is wise. Won't the market dictate what the property price is in whatever area - affluent or otherwise? If you're saying that potential sellers in some areas are holding out for better, then so be it. They use their own judgement on that.
The point stands regardless of area - if 100% finance, then there's every chance that the potential buyer will pay more than they should (or would otherwise) and every chance they are not financially responsible enough to take on a mortgage. Furthermore, they may very well contribute towards higher prices - which impacts their more financially prudent peers.

MarkAnthony wrote:

I see where you're coming from but I think what you mean to say is the savings history for a 20% deposit. A good rental payment history is as good an indicator in certain limited circumstances IMHO.

I take the point that a good savings history is a good indicator - but I don't think it equals stumping up 20% cash from the outset.
As the other folks that are anti this measure have pointed out one after another on this thread, it's harder to achieve 20% deposit whilst paying rent. Therefore, it's a definite statement of ability to pay.

Barely Hedged

MarkAnthony wrote: »

Not really - but suffice it to say we disagree.

I disagree fundamentally that increasing the long term debt in society which all your strategies do, whether you like to admit it or realise, is any way of solving the problem. You'll find very few people who agree with you on that

MarkAnthony wrote: »

I did and even offered you half an apology.

You didnt. Im not getting into copying and pasting your replies.

MarkAnthony wrote: »

Thats not it at all. Sorry we're simply not listening to each other.

Then what is it as all your strategies will achieve is to inflate the value of the underlying asset and the people inflating the asset are leveraged to the hilt. Doesnt sound sustainable to me?

Barely Hedged

MarkAnthony wrote: »

It's simply a case of avoiding and repairing ghettoisation. In London all new builds have to have a social housing element. I know this was a thing/is a thing in Dublin bu they're prevented from doing land swaps which ends up with things like this but I'd argue it's a step in the ight direction.

It's also not unprecedented to have odd solutions such as the £1 houses in Liverpool - to be fair a different type of problem than the one we have here and I can see the logic in the CGT exemption to try and get some of the **** done up by investors.

Might seem harsh but in fairness, and some blinkered to reality people will disagree with me on this, i think its fine.

The families growing up here will have access to better schools and better areas/amenities then they would have had otherwise. The build standard will also be better than what you would get on a council estate. It gives people an additional leg up in life and aspirational people will grasp the leg up. You'll always get peope who wont, couldnt be arsed and will blame having to use a different door in a building resulted in them not getting a proper education etc etc

kippy

Can anyone outline how the "old" system worked and why it was "abolished"?
I'd be interested to hear the details.
I know my parents had a fixed interest rate mortgage via the local council when building a house on their own land circa early 80's. I know they only paid it off a number of years ago. My father worked at the time and did throughout the life of the mortgage.

What were the details here, how were they funded? When and why were they scrapped?
(This is a separate matter to social housing that exists nowadays I believe).

Surely a scheme such as this would be the answer to some peoples "problems"?

In essence if the state are carrying all banking risk (as they/we currently are) isn't it in the states interest in a number of areas that they themselves manage that risk, as opposed to private institutions etc?

dynamited

Estate agents getting desperate !!!!


A property i was looking at in July (which i was told be the EA that it had several bids over the asking price at the first viewing ) is surprisingly still for sale


EA contacted me to ask if i'm still interested and added the property has dropped 10k , i replied what happened to all those bids that were over the asking price he mumbles some trife


Either way they're getting desperate people , don't believe the hype !!!

El_Dangeroso

^^ I suppose the argument would go that social housing would go to people who need it on a medium term basis until they can re-enter the normal property market when they are on their feet.

Not a a long term subsidy so that people could build equity in an asset.

ciaranlong

desertcircus wrote: »

Why do you think it's a mistake?

It's not a very effective way to prevent another housing bubble, IMO.

Furthermore, it has the negative effect of essentially consigning a generation to renting (assuming that they can find somewhere to rent with all that excess demand).

I thought Honohan would have known better than to start messing around with demand when supply is the real issue.

There are other ways to try and prevent a bubble emerging, such as a new tax on any properties owned in addition to the family-home. Or a new tax on any properties sold within a certain timeframe after they are purchased.

The Central Bank can't implement those measures of course. But they could recommend them...

gaius c

dynamited wrote: »

Estate agents getting desperate !!!!


A property i was looking at in July (which i was told be the EA that it had several bids over the asking price at the first viewing ) is surprisingly still for sale


EA contacted me to ask if i'm still interested and added the property has dropped 10k , i replied what happened to all those bids that were over the asking price he mumbles some trife


Either way they're getting desperate people , don't believe the hype !!!

They return calls now. Yep, they are desperate alright!

makeorbrake

ciaranlong wrote: »

It's not a very effective way to prevent another housing bubble, IMO.

So if this measure had been in place back in 2005, it would have made no difference? I don't accept that for a second.

ciaranlong wrote: »

Furthermore, it has the negative effect of essentially consigning a generation to renting (assuming that they can find somewhere to rent with all that excess demand).

It's not consigning a generation to renting - its consigning a generation to plan years in advance of purchasing....and that is to be welcomed.

ciaranlong wrote: »

I thought Honohan would have known better than to start messing around with demand when supply is the real issue.

He's not messing around with demand! He's preventing the ability of people to overpay for an asset - to over extend. In the same action, he's ensuring that banks are less likely to end up with an asset that they lose disproportionately on.

ciaranlong wrote: »

There are other ways to try and prevent a bubble emerging, such as a new tax on any properties owned in addition to the family-home. Or a new tax on any properties sold within a certain timeframe after they are purchased.

High taxes and usc in play. I guess you could just ban investment property - that's effectively what you're saying - if you are thinking in terms of adding additional taxation onto the additional that was added a few years ago.
If you are saying there shouldnt have been a cgt tax exemption, then I agree.

Michael D Not Higgins

ciaranlong wrote: »

It's not a very effective way to prevent another housing bubble, IMO.

Furthermore, it has the negative effect of essentially consigning a generation to renting (assuming that they can find somewhere to rent with all that excess demand).

I thought Honohan would have known better than to start messing around with demand when supply is the real issue.

There are other ways to try and prevent a bubble emerging, such as a new tax on any properties owned in addition to the family-home. Or a new tax on any properties sold within a certain timeframe after they are purchased.

The Central Bank can't implement those measures of course. But they could recommend them...

This already exists, NPPR. The bubble was not driven by second homes anyway.

The Central Bank are regulating the lending market. They are doing all in their power to prevent another bubble. It's the government's fault for the lack in supply. They are the ones with the power to implement policies which drive the supply.

I'd like to see your economic credentials which outweigh the extensive research and implementation of LTI and LTV limits in other markets, as demonstrated in the Central Bank's proposal paper.

The Spider

Any of these new rules go ahead, building will stop, supply will be non existent and everyone better get used to high rents.

http://www.independent.ie/business/personal-finance/property-mortgages/half-of-new-homes-face-axe-over-mortgage-proposals-30820869.html

El_Dangeroso

The Spider wrote: »

Any of these new rules go ahead, building will stop, supply will be non existent and everyone better get used to high rents.

http://www.independent.ie/business/personal-finance/property-mortgages/half-of-new-homes-face-axe-over-mortgage-proposals-30820869.html

So they say house prices will rise anyway but somehow this will mean at the same time demand will drop causing less building.

The mental gymnastics that allow for that level of cognitive dissonance is staggering!

Either 2 things will happen:

1. Demand and therefore prices rises will slow or go down slightly.
2. Demand will not go down and the builders will sell their houses no problem

This is just more fear-mongering from vested interests.