Central Bank to limit amount banks lend for home purchase

mariaalice

Karl Deter was on Newtalk today at lunch time and made some really interesting points about this I am sure you could find it on paly back if you want. I know as a mortgage broker its self interest from him to oppose this.

His main point was that instead of increasing deposits the bank should be more nuanced and individual in their mortgage leading which is a very good point, as income alone is not enough to judge risk.

For example people saying we have a large deposit saved and no loans ect have often paid off debt and saved in order to tidy up their financial position before they approach a bank or building society for a mortgage so that's not a good reflection of risk, so in the future they could well be taking on more credit based lending as well as the mortgage, Most couples have children and they cost a lot, some industries have better and more secure employment patterns than others.

So would it be better to base lending on the statistical evidence of what may happen in the future for the average borrower.

Or maybe instead of asking for a larger deposit it would be better to severely restricting access to credit once the mortgage lone is in place thus not allowing the build of house hold debt. That would have a big impact on the economy because in essence you would be restricting a mortgage holder from having a car lone or most other lending except for their mortgage.

Daith

seamus wrote: »

Indeed, this is going to be a problem, and it'll mean more people renting way outside the city.

Yes and combined with commute costs it may not mean that much in a saving.

L1011

Zamboni wrote: »

Here is an idea to stabilise prices
Increase stamp duty for non FTBers. Dramatically.

No, as that is effectively an incentive for FTB.

The market is never going to end up in a realistic position until there are NO incentives for purchase and strict credit rules.

hmmm

mariaalice wrote: »

His main point was that instead of increasing deposits the bank should be more nuanced and individual in their mortgage leading which is a very good point, as income alone is not enough to judge risk.

The banks giving the loans should be able to go to that level of granularity, and the CBI has opened the door to this by allowing a certain percentage of loans to breach their guidelines. The banks are still going to look for discipline and a good savings record however, the day of starting your first job and going looking for a 100% mortgage because "rent is dead money" is hopefully over.

Essentially the CBI is treating the banks like bold children. They were left alone to mind the house while the CBI went on holidays, and they trashed the place. The CBI are back in charge now and setting out their expectations for behaviour.

StudentDad

MYOB wrote: »

No, as that is effectively an incentive for FTB.

The market is never going to end up in a realistic position until there are NO incentives for purchase and strict credit rules.

That's all well and good. It is good that the banks are going to put some limits in place to stop lenders going back into fire sale territory. As cold as it sounds, if you can't afford a decent chunk of change towards a house, you shouldn't even be considering a mortgage.


That said, something needs to be done about the rental sector in Ireland. Landlords calling the tune and tenants having little or no rights on one side and then there is the almost ghettoization of people who simply cannot afford accommodation at all.


SD

ixus

ixus wrote: »

This makes you financially illiterate and ill-disciplined. Hardly ideal for getting a mortgage.

I would totally disagree, Using up a lump sum of savings is a very stupid move imo you never know when you might need them and they are also there to be added to if you can rather than having to start from scratch.

ixus wrote: »

Do the math on what you overpaid on loan by because of your lack of discipline.

Very little, credit union low interest loan well worth the cost in order to maintain a lump sum of savings.

mariaalice

Shedite27 wrote: »

My own situation....€120k joint income (no children/loans), €70k deposit saved.....Currently renting for €1200/m and saving another €1200/m

By 20% deposit rule I can now only buy for €300k (€1150 p/m repayment) Despite 5 years of effectively paying €1000 more.

Your finical position is not going to stay the same as it is now, say you have children...that 1000 more as you call it will pay for the crèche without putting a strain on you financially, that's the central point about not lending to people the amount they can pay back now but looking at the overall picture.

ghostdancer

hmmm wrote: »

The Journal has a good overview
http://www.thejournal.ie/bubble-buster-banks-are-being-hit-with-tighter-controls-on-high-risk-mortgages-1710290-Oct2014/

With some exceptions, the rules require a 20% deposit (30% in a BTL) and capped at 3.5 times income max. All seem very sensible - if you can't manage that, I don't see how you can manage a mortgage.

i have over 20% deposit.
i can easily afford the repayments on 3.5 times my salary over 30 years. they would currently be less than 1/3rd of my disposable income after all expenses.

the problem is around here there's absolutely nothing to buy at 3.5 times my salary. i would need about 4.5 times my salary to buy around here, yet would still easily be able to afford the repayments on it...

it's such a blunt, crude estimate for lending and doesn't take into account people's circumstances or outgoings whatsoever.

hmmm

ghostdancer wrote: »

it's such a blunt, crude estimate for lending and doesn't take into account people's circumstances or outgoings whatsoever.

It's based on long history and experience which showed the CBI that as LTV increased, so did arrears. They've still left the door open to you to argue & prove to your bank that somehow you're different to all the rest.

Besides which this is good news in the long run for you - because at the rate house prices are increasing, you'd be looking for 6-8 times your salary as some buyers were doing during the bubble.

TheBandicoot

Strengthens the case more for young people to emigrate.

ghostdancer

hmmm wrote: »

It's based on long history and experience which showed the CBI that as LTV increased, so did arrears. They've still left the door open to you to argue & prove to your bank that somehow you're different to all the rest.

Besides which this is good news in the long run for you - because at the rate house prices are increasing, you'd be looking for 6-8 times your salary as some buyers were doing during the bubble.

it's not "all the rest", it's a small amount. most people are well able to meet their mortgage payments on 90% LTVs.


and no, it's not good for me in the long run. the bank already gave me a MIP on more than 4 times my salary, so i'm basically just going to have to go hell for leather now to get something bought before Christmas, otherwise i'll quite possibly be unable to buy when these regulations come in in January, despite being well able to afford the repayments for my MIP offer.

vinylbomb

ghostdancer wrote: »

it's not good for me in the long run. the bank already gave me a MIP on more than 4 times my salary, so i'm basically just going to have to go hell for leather now to get something bought before Christmas,

I'm in the same boat here, have 25% deposit after 3 years of saving and 4 times salary mortgage granted. Totally p1ssed off.

As an aside - would this possibly make people that were sitting on their hands jump up and sell, while they might be able to squeeze a bit more price out?

hmmm

ghostdancer wrote: »

it's not "all the rest", it's a small amount. most people are well able to meet their mortgage payments on 90% LTVs.

That's not what the reports say.

Default rates for 90% LTV are approaching 25%, and that's in an environment where interest rates are as low as they'll ever be. What happens when interest rates rise 4/5/6%?

ghostdancer

hmmm wrote: »

That's not what the reports say.

Default rates for 90% LTV are approaching 25%, and that's in an environment where interest rates are as low as they'll ever be. What happens when interest rates rise 4/5/6%?

so that's more than 75% that aren't in arrears.
so "most", like i said.
<25% is not quite "all the rest", like you said.

hmmm

hmmm wrote: »

. What happens when interest rates rise 4/5/6%?

Why are some people so sure interest rates are going to get so high? There is no guarantee at all they will rise significantly.

hmmm

ghostdancer wrote: »

so that's more than 75% that aren't in arrears.
so "most", like i said.
<25% is not quite "all the rest", like you said.

Fine, whatever you want.

25% default rate on mortgage lending is massive, and I'm sure those 25% thought they would be able to repay their mortgages. The CBI were absolutely correct to do what they did.

El_Dangeroso

This is great news, it's nice to see the CB finally take steps to ensure a long term sustainable property market.

I am someone who is affected by this, I have plans to buy in early 2015.

What people don't realise is that the property market has two types of buyers at the moment. Investment cash-rich landlords and FTB. Very few trader-uppers due to people not wanting to sacrifice their tracker.

Investors are not seeing great returns anymore, so are slowly tapering off. This leaves the FTB to form the majority of those bidding.

People need to understand that increased lending just means one thing, increased prices.

I'll need to save a bit longer, but at least I know when I do get around to buying, I won't be competing against people borrowing more than they should pushing up the price.

desertcircus

ghostdancer wrote: »

so that's more than 75% that aren't in arrears.
so "most", like i said.
<25% is not quite "all the rest", like you said.

25% in arrears is a horrific number from a bank's perspective.

GinaI

when applying for a mortgage is it possible to go to the bank and brokers at the same time?

Recondite49

handlemaster wrote: »

Perhaps if your struggling with a 10% déposit y ou shouldnt be buying.

Your words are harsh but fair handlemaster. If this money was instead invested in an index fund dealing in government bonds and topped up with regularly monthly contributions, compound interest can work in your favour and at the end of that time you can buy a property outright.

Of course that means you have to rent for twenty years or so but when you consider the alternative is paying crippling interest rates on an asset that might actually decrease in value, I prefer to hedge my bets.

Recondite49

GinaI wrote: »

when applying for a mortgage is it possible to go to the bank and brokers at the same time?

Hi Gina,

I imagine you mean borrowing the 10% or so deposit from the bank, then visiting the broker to put the money down and get the mortgage?

In theory there's no reason you couldn't do this, though I don't know if it would come up on the credit checks the Brokers do when you visit them. It'll also put you more heavily in debt.

GinaI

Recondite49 wrote: »

Hi Gina,

I imagine you mean borrowing the 10% or so deposit from the bank, then visiting the broker to put the money down and get the mortgage?

In theory there's no reason you couldn't do this, though I don't know if it would come up on the credit checks the Brokers do when you visit them. It'll also put you more heavily in debt.

no, that's not what I meant, sorry, I didn't make it very clear. I mean, if I have 10% deposit can I go to the bank and brokers at the same time, rather than going to the bank first and to the brokers if I get my mortgage application declined by the bank?

billy111

I'm planning on a self build so not concerned with the new rules driving down house pricing. I'm not a risk taker and would never borrow more than we can afford. The 20% deposit means we will be saving for another bit but by then the cost of construction will have increased too meaning we will probably need to borrow more with 20% than we would need to borrow today with 10% deposit. Lose/lose situation with todays news. Rent going up soon too as we have paying below market rate so saving capacity reduced further.

Euro millions quick pick please.

Recondite49

billy111 wrote: »

I'm planning on a self build so not concerned with the new rules driving down house pricing. I'm not a risk taker and would never borrow more than we can afford. The 20% deposit means we will be saving for another bit but by then the cost of construction will have increased too meaning we will probably need to borrow more with 20% than we would need to borrow today with 10% deposit. Lose/lose situation with todays news. Rent going up soon too as we have paying below market rate so saving capacity reduced further.

Euro millions quick pick please.

Good man, do you know what kind of house you want? I have my heart set on a log cabin. Want to buy the land outright then use it as collateral for the mortgage, hopefully by then things will have calmed down.

Frank Lee Midere

ghostdancer wrote: »

i have over 20% deposit.
i can easily afford the repayments on 3.5 times my salary over 30 years. they would currently be less than 1/3rd of my disposable income after all expenses.

the problem is around here there's absolutely nothing to buy at 3.5 times my salary. i would need about 4.5 times my salary to buy around here, yet would still easily be able to afford the repayments on it...

it's such a blunt, crude estimate for lending and doesn't take into account people's circumstances or outgoings whatsoever.

The point is that your 4.5 priced house should now come down in price. And you can afford the payments "now".

Nobody should be borrowing a mortgage which costs more than 25% of their disposable.

billy111

Recondite49 wrote: »

Good man, do you know what kind of house you want? I have my heart set on a log cabin. Want to buy the land outright then use it as collateral for the mortgage, hopefully by then things will have calmed down.

Luckily have a site already gifted from a family member. Planning permission granted. I Have been told site value cant be used as collateral for mortgage?

Recondite49

billy111 wrote: »

Luckily have a site already gifted from a family member. Planning permission granted. I Have been told site value cant be used as collateral for mortgage?

Curses my plan's foiled! Well best of luck with your build, when do you plan to get started?

billy111

Recondite49 wrote: »

Curses my plan's foiled! Well best of luck with your build, when do you plan to get started?

20% of cost of build to be saved now. Pushed my plans back in the short/medium term.

GinaI

Frank Lee Midere wrote: »

The point is that your 4.5 priced house should now come down in price. And you can afford the payments "now".

Nobody should be borrowing a mortgage which costs more than 25% of their disposable.

and what is your suggestion to those whose mortgage would cost more than 25% of their disposable? to rent all of their life, paying somebody else mortgage and end up homeless when they retire?

El_Dangeroso

GinaI wrote: »

and what is your suggestion to those whose mortgage would cost more than 25% of their disposable? to rent all of their life, paying somebody else mortgage and end up homeless when they retire?

That's a false dichotomy. You can save until your deposit is so big that you don't need that much of a mortgage.

This is about short term pain for long term gain.

If people want to buy a house in their early 30's, they should start saving in their mid-20's. This whole 'scramble to scrape together a deposit in a year and get a gift from parents' culture is not financially prudent nor sustainable.