Central Bank to limit amount banks lend for home purchase

Greyian

Electric Sheep wrote: »

I suspect because he has inflated ideas of the home and neighborhood he is "entitled" to.

Or else he owns a home and wants to see the value go up, up, up.

It's one thing when people have to use fictional numbers because there are no hard numbers, but we have more statistics about the property market than we could ever use, so we should use all we can.

Electric Sheep

dr.fuzzenstein wrote: »

How long does it take to save €50k?. People will have to put off marriage and kids till their 50's.

Edit
Though a lot if people would have the deposit if they just have a smaller wedding.
The Irish must all be hugely wealthy if they think nothing of digging out 20k on a wedding and 60k on a house. Enviable to have that kind if cash just lying around.

This is very true! I suspect that many couples who say they couldn't possibly save a deposit seem to be well able to finance a wedding. Where there's a will there's a way.

matt-dublin

Greyian wrote: »

They're not first time buyers if they already have a property though, and it seems that most of the complaints seem to be about how hard it is to get on the property ladder in the first place.


You can also seem from this, that prices (at least in Dublin) aren't all that far off peak prices at this point. The only people who would be negative equity at this stage would be people who have been paying interest only (is that even still possible?) or who bought right at the peak, and at current prices they'd be close to getting rid of negative equity at this point.
Over the next few years, which would be the equivalent of saving for a deposit for most people, they'll continue to pay off their mortgage, which should then put them in a good spot equity wise. Many of these people would also have trackers, so they should be able to make savings alongside their mortgage repayments, thereby having part of their deposit in savings, and part in equity in their current property.

http://www.daft.ie/sales/148-glasmore-park-swords-dublin/1006370/
http://www.daft.ie/sales/apartment-2-block-e-smithfield-market-queen-street-smithfield-dublin/1021764/
http://www.daft.ie/sales/no161-the-oval-tullyvale-cabinteely-dublin/1005705/

Those are just some of the examples from a (very) quick look on Daft, which wouldn't be unreasonable homes for first time buyers to target.



No, you don't. Roughly 15% of the properties sold in Dublin in October to December 2014 were sold for less than (or equal to) €150,000. So you'd need a deposit of €30,000 and a combined salary of €34,285 to purchase one of these properties. Those aren't exactly outrageous expectations for people who want to own a property.

Interest rates aren't at 5% either on mortgages, AIB and KBC (at the very least) have mortgage offerings under 4% currently.

All of these figures are easily found online, yet to keep ignoring them, and throwing out figures you've made up off the top of your head. Why?

They're way off peak prices!! My folks house was valued at 1.2m at the peak and currently sits between 6-700k

mrmitty

bluesteel wrote: »

bizarre logic.

The land is the most volatile part of the price - builders won't build if the market value is less than cost of materials, labour etc. but the price of land is not fixed!

If you were asked to value an empty site how would you do it? You'd get the market value of a completed house and site - and subtract the costs like materials, building, solicitor etc. It's not rocket science

I've posted this before but it's worth repeating.

Generally, there are three accepted methods of finding the value of a property.
1) comparative analysis method where a property is compared to a group of similar properties which have been recently sold (usually within 3 months) and assigning a numerical value to the subject property based upon comparable sales figures for comparable properties.
2) The cost approach, where the improvements such as a building etc. are valued on a replacement cost basis.
In the cost approach method, the value of the land will be achieved by the comparative analysis method described in 1) above and added to the calculated cost of improvements.
3) The income approach. In this method, the existing or potential rental yields minus maintenance and any other costs such as property taxes etc. of the property is taken into account and a percentage return on investment ( 3-3%) used to extrapolate a value for the property.


Valuation of a property is not an exact science and as the cliche goes, a property is worth what the highest bidder is willing to pay for it.

jester77

dr.fuzzenstein wrote: »

How long does it take to save €50k?. People will have to put off marriage and kids till their 50's.

Edit
Though a lot if people would have the deposit if they just have a smaller wedding.
The Irish must all be hugely wealthy if they think nothing of digging out 20k on a wedding and 60k on a house. Enviable to have that kind if cash just lying around.

Not that long, if a couple just saved €400 a month each, then they would have the deposit in just 5 years. 5 years is very short term, if you start saving when you enter employment then you would easily have the deposit by the time purchasing a house would come on the radar, with a lot less saving per month.

jay0109

matt-dublin wrote: »

They're way off peak prices!! My folks house was valued at 1.2m at the peak and currently sits between 6-700k

Houses in the leafy suburbs of Dublin that I'm familiar with D6,D6W,D14 etc are about 20-25% of peak and getting there fast.
They are not 'way off' anymore, thanks to the last 2.5 years!!!

zl1whqvjs75cdy

matt-dublin wrote: »

They're way off peak prices!! My folks house was valued at 1.2m at the peak and currently sits between 6-700k

They should never get back to peak prices again if anyone has any sense. The real question is what level of equity do they have in their house? That's the only question that's relevant if they are planning a move. If they are't planning to move again it doesn't matter a toss how much its worth.

The Spider

I have a question,not sure if it needs it's own thread, but what do people think Quantitative Easing is going to do to house prices?
Seeing as deflation is off the table and now inflation is being encouraged.

jay0109

The Spider wrote: »

I have a question,not sure if it needs it's own thread, but what do people think Quantitative Easing is going to do to house prices?
Seeing as deflation is off the table and now inflation is being encouraged.

It'll cause them to fall for sure

The Spider

jay0109 wrote: »

It'll cause them to fall for sure

How so?

zl1whqvjs75cdy

The Spider wrote: »

I have a question,not sure if it needs it's own thread, but what do people think Quantitative Easing is going to do to house prices?
Seeing as deflation is off the table and now inflation is being encouraged.

Difficult one. I suppose the aim of quantitative easing is to essentially provide more credit to the market in general (as well as to devalue the currency but that doesn't really make a huge difference unless you plan to buy in America soon). More credit could mean an increase in prices as more people will be able to get mortgages which will increase demand. But it could also mean a decrease in cost as more developers will be able to get loans and build more houses thus increasing supply. Ultimately I don't know if it'll make any difference. The Irish banks still seem to be moderately cagey with their money so I don't know how much of the money will filter down to your average punter.

Tl;DR I don't have a breeze.

The Spider

donkeyoaty0099 wrote: »

Difficult one. I suppose the aim of quantitative easing is to essentially provide more credit to the market in general (as well as to devalue the currency but that doesn't really make a huge difference unless you plan to buy in America soon). More credit could mean an increase in prices as more people will be able to get mortgages which will increase demand. But it could also mean a decrease in cost as more developers will be able to get loans and build more houses thus increasing supply. Ultimately I don't know if it'll make any difference. The Irish banks still seem to be moderately cagey with their money so I don't know how much of the money will filter down to your average punter.

Tl;DR I don't have a breeze.

I suppose the theory is that it'll push up the amount that banks can lend, and push up salaries as more money is in the system and goods become more expensive due to the currency being worth less. We've had little inflation over the past 6ish years.

I find the pint index is as good as any to see how inflation has occurred over the years.

http://www.finfacts.ie/Private/bestprice/guinnessindex.htm

The weekly wage column is interesting.

bluesteel

mrmitty wrote: »

I've posted this before but it's worth repeating.

Generally, there are three accepted methods of finding the value of a property.
1) comparative analysis method where a property is compared to a group of similar properties which have been recently sold (usually within 3 months) and assigning a numerical value to the subject property based upon comparable sales figures for comparable properties.
2) The cost approach, where the improvements such as a building etc. are valued on a replacement cost basis.
In the cost approach method, the value of the land will be achieved by the comparative analysis method described in 1) above and added to the calculated cost of improvements.
3) The income approach. In this method, the existing or potential rental yields minus maintenance and any other costs such as property taxes etc. of the property is taken into account and a percentage return on investment ( 3-3%) used to extrapolate a value for the property.


Valuation of a property is not an exact science and as the cliche goes, a property is worth what the highest bidder is willing to pay for it.

what's your point?

I was responding to someone who thinks that builders won't build because land prices are high/they paid a lot of money for land. My point is that the land component is a derivative of the completed asset price (house + site) - I'm well aware that the completed house price depends on various factors.

The thrust of my argument is that historical land prices cannot be used to justify sitting on land/not building. Builders will hoard land if they believe property prices [and by implication the land price] will continue to rise - and the cost of sitting on the land is low.

If prices stabilise at a lower price the land cost becomes a sunk cost - and they will build if the variable cost of building (labour/materials) is less than the newsale price. If you paid 100m for an acre in Ballsbridge and now it's not worth that - tough. Declare bankruptcy and the receiver will sell the land at its new price

zl1whqvjs75cdy

The Spider wrote: »

I suppose the theory is that it'll push up the amount that banks can lend, and push up salaries as more money is in the system and goods become more expensive due to the currency being worth less. We've had little inflation over the past 6ish years.

I find the pint index is as good as any to see how inflation has occurred over the years.

http://www.finfacts.ie/Private/bestprice/guinnessindex.htm

The weekly wage column is interesting.

Will the house prices inflate at the same rate though , or will they gallop off into the distance leaving Joe Soap renting for years to come? People seem to think the QE is too little too late anyway. The entire world economy is still flagging and I don't think 1 trillion over two years is going to help us much. The euro has already fallen against the dollar so we should see how that affects our exports more quickly than we'll see an inflation increase. Ultimately the price of exports is more important to the Irish economy than the rate of inflation since we trade extensively with the US and England.

The Spider

bluesteel wrote: »

what's your point?

I was responding to someone who thinks that builders won't build because of land prices are high. My point is that the land component is a derivative of the completed asset price (house + site) - I'm well aware that the completed house price depends on various factors.

The thrust of my argument is that historical land prices cannot be used to justify sitting on land/not building. Builders will hoard land if they believe property prices [and by implication the land price] will continue to rise

This makes no sense, so you're saying if prices don't rise they won't hoard land and will build? Why would they do that, they can just keep the land until they see fit to build on it, and that could be ten years down the road.

jay0109

The Spider wrote: »

How so?

I was being facetious.

You'd have to assume that with more money in the system, it will end up pushing up asset prices of all types.

But I'm no economist and I've heard a few big name commentators in the media in the past few days who have said QE will not work in the EU as it did in the UK and the USA. They cited several reasons from it being too late in the day, to the nature of the EU structure itself

The Spider

donkeyoaty0099 wrote: »

Will the house prices inflate at the same rate though , or will they gallop off into the distance leaving Joe Soap renting for years to come? People seem to think the QE is too little too late anyway. The entire world economy is still flagging and I don't think 1 trillion over two years is going to help us much. The euro has already fallen against the dollar so we should see how that affects our exports more quickly than we'll see an inflation increase. Ultimately the price of exports is more important to the Irish economy than the rate of inflation since we trade extensively with the US and England.

Don't know honestly some people are for it some against, but surely our exports being cheaper will be a good thing?

ionapaul

QE will mean more money being skimmed off by the middle men (the banks) and a load of money going into equities, if the US experience is anything to go by. If a roaring equities market becomes even more attractive, I wonder will that dampen down any enthusiasm for property investment in Europe? Why chase a 5% yield when equities continue to soar?

bluesteel

The Spider wrote: »

This makes no sense, so you're saying if prices don't rise they won't hoard land and will build? Why would they do that, they can just keep the land until they see fit to build on it, and that could be ten years down the road.

If prices don't rise and they're paying interest all the time it's costing them to sit on the land. This attitude - "shure it'll be worth loads in 10 years" is what got us into this mess.

Just goes to show how a land based tax is needed in Ireland

zl1whqvjs75cdy

The Spider wrote: »

Don't know honestly some people are for it some against, but surely our exports being cheaper will be a good thing?

It'll be a good think in terms of sales for sure particularly for farmers. Beyond that I can't say. I do think there are bigger problems with the European and world economies in general and if things keep sliding the way they are at the moment no amount of QE will save us.

gaius c

donkeyoaty0099 wrote: »

Difficult one. I suppose the aim of quantitative easing is to essentially provide more credit to the market in general (as well as to devalue the currency but that doesn't really make a huge difference unless you plan to buy in America soon). More credit could mean an increase in prices as more people will be able to get mortgages which will increase demand. But it could also mean a decrease in cost as more developers will be able to get loans and build more houses thus increasing supply. Ultimately I don't know if it'll make any difference. The Irish banks still seem to be moderately cagey with their money so I don't know how much of the money will filter down to your average punter.

Tl;DR I don't have a breeze.

The floppy haired one had a good article recently on how QE is failing because the "trickle down" aspect isn't working.

The wealthy are getting wealthier because governments are buying assets and poor people don't have assets so they fall behind more because they are loading up on debt to try and play catch up. Besides, the system is already overloaded with debt.

Wages aren't going up because global competitiveness is a factor (like it was in the 30's but not the 70's).

Asset prices will go up thanks to QE, at least for a little while but it will probably crash again because it's a bubble based on the capacity of new entrants to keep loading on more and more debt in order to keep the plates spinning.

Deco99

The Spider wrote: »

This makes no sense, so you're saying if prices don't rise they won't hoard land and will build? Why would they do that, they can just keep the land until they see fit to build on it, and that could be ten years down the road.

This is why the new rules are important, to get rid of this attitude. To provide stablility that a credit driven bubble wont.

P. Breathnach

bluesteel wrote: »

If prices don't rise and they're paying interest all the time it's costing them to sit on the land. This attitude - "shure it'll be worth loads in 10 years" is what got us into this mess.

Just goes to show how a land based tax is needed in Ireland

All agreed.

In addition, if a person owns a site suitable for building, and all the indicators are that land values are likely to fall rather than rise, then there is an incentive to sell now rather than later.

If the CB's proposed restrictions on lending do constrain house prices in places like Dublin 6, then the derived value of building land is impacted - and, the way things work, there is a gearing effect: a 10% drop in housing prices might result in a 25% drop in land prices (because other costs are less flexible).

[The problem with conducting economic analysis is that it presumes rational self-interested behaviour.]

kippy

Deco99 wrote: »

This is why the new rules are important, to get rid of this attitude. To provide stablility that a credit driven bubble wont.

Over a long period house prices rise in line with a number of variables. Even in a "functioning economy".
One of the issues with the bubble was that they rose too fast too soon, however there are still plenty of people (generally those who remained in gainful employment) who are paying their mortgages without issue - even at the prices they paid.

House prices are still much more expensive now (in general) than they were in 99,89,79 etc.
If there isn't a profit for the variable people involved in the entire process of house building, including landowners etc, then I don't see what these rules will do to "force" them to sell land or develop land at something that won't achieve a profit for them. Unless a major tax comes in on the retention of these landbanks etc, it is feasible that the owners will hold onto them.

P. Breathnach

gaius c wrote: »

The floppy haired one had a good article recently on how QE is failing because the "trickle down" aspect isn't working.
...

He will probably say something a bit different in another piece, and in six months' time will come back, point to the one that more closely approximates the outcome, and say" "See? I was right.".

Deco99

kippy wrote: »

Over a long period house prices rise in line with a number of variables. Even in a "functioning economy".
One of the issues with the bubble was that they rose too fast too soon, however there are still plenty of people (generally those who remained in gainful employment) who are paying their mortgages without issue - even at the prices they paid.

House prices are still much more expensive now (in general) than they were in 99,89,79 etc.
If there isn't a profit for the variable people involved in the entire process of house building, including landowners etc, then I don't see what these rules will do to "force" them to sell land or develop land at something that won't achieve a profit for them. Unless a major tax comes in on the retention of these landbanks etc, it is feasible that the owners will hold onto them.

Did i say they would be "forced"? Didnt mean to. Its just not as attractive to hold on to the land in the hope it will shoot up in value.

The Spider

The Spider wrote: »

I have a question,not sure if it needs it's own thread, but what do people think Quantitative Easing is going to do to house prices?
Seeing as deflation is off the table and now inflation is being encouraged.

In isolation, this would go onto the 'encourage house price inflation' side of the balance. Between the new mortgage rules and end of CGTax exemption, I still think (okay, hope) the runaway price increases are now on hold for the foreseeable.

There has been no attention given to the 60% deposit requirement for investors. On top of them having to pay Capital Gain Tax from here on, property has become significantly less attractive compared to some other options. For a 250k property, you'd need 100k cash in your pocket - not insignificant.

makeorbrake

Deleted User wrote: »

There has been no attention given to the 60% deposit requirement for investors. On top of them having to pay Capital Gain Tax from here on, property has become significantly less attractive compared to some other options. For a 250k property, you'd need 100k cash in your pocket - not insignificant.

I guess there hasn't - have been following this discussion here and elsewhere and it's the first I've heard of it.

Presumably, it doesn't make a whole lot of difference - as most would have sizeable deposits in any event...or do the stats show otherwise...?

makeorbrake

makeorbrake wrote: »

I guess there hasn't - have been following this discussion here and elsewhere and it's the first I've heard of it.

Presumably, it doesn't make a whole lot of difference - as most would have sizeable deposits in any event...or do the stats show otherwise...?

That I don't know. Generally I don't think of them as major 'competitors' in the hunt for family homes but we missed out on a 3-bed semi recently near a university and the agent later told us that it had been bought by an investor. "Makes sense for people with kids," says she, "Just get 30k, buy a house, put your son/daughter in one room and rent the rest. Then when they graduate you sell it or keep renting it out and the rent pays the mortgage. No lose situation".

But now these guys need 120k to buy a 300k house which is a different category of amateur landlord.

Also the 'just sell it when the kids are finished with it' is also less attractive. In the past you'd be exempt from Capital Gains Tax if you held it for seven years. Now you pay 33% on any profit you might make.

These disincentives - small and big - add up.

The_Conductor

makeorbrake wrote: »

I guess there hasn't - have been following this discussion here and elsewhere and it's the first I've heard of it.

Presumably, it doesn't make a whole lot of difference - as most would have sizeable deposits in any event...or do the stats show otherwise...?

Hitherto the smallest possible deposits have been used by investors- and the loans instead secured on other property- as the largest tax deductible expense available to investors has been 75% of mortgage interest. By insisting on a 60% deposit- and only 40% loan for properties bought by landlords- you are instantly freezing the market- not only are you asking the landlord to fund 60% of the purchase upfront- but you're also cutting the legs off their largest tax deductible expense.

Outcome- landlords and investors are *not* going to buy any further properties for the purpose of letting them out..........