Central Bank to limit amount banks lend for home purchase

Michael D Not Higgins

mr_seer wrote: »

Sorry Michael D, that is not correct. The proposal exemption basket (15% proposed) is based on the number of mortgages and not on the quantum of debt issued by the bank.

15% is for the greater than 80% LTV and is also on the euro value

Thus, the Central Bank proposes to require lenders to restrict new lending for primary dwelling purchase above 80 per cent LTV to no more than 15 per cent of the euro value of all housing loans for principal dwelling home purposes entered into in a six monthly period.

Also 20% above the 3.5 LTI in euro value again

Thus the Central Bank proposes to require lenders to restrict new lending for primary dwelling purchase above 3.5 times LTI to no more than 20 per cent of the euro value of all housing loans for principal dwelling home purposes entered into in a six monthly period.

These are direct quotes from the consultation paper. What's your source?

by the seaside

MarkAnthony wrote: »

I defer to both of you, I've not been following it that closely. The point I was making is it's not a blanket ban on mortgages in excess of 3.5 LTI.

I am guessing (happy to be corrected) that in addition to junior doctors on a career path, exemptions may include salaried workers who regularly get a large (but not guaranteed) bonus.

The_Conductor

by the seaside wrote: »

I am guessing (happy to be corrected) that in addition to junior doctors on a career path, exemptions may include salaried workers who regularly get a large (but not guaranteed) bonus.

Bonuses are not counted- salary increments are.
Only guaranteed income is counted.

The Spider

The_Conductor wrote: »

Bonuses are not counted- salary increments are.
Only guaranteed income is counted.

They counted my bonus, and shares etc, granted that was in 2012

El_Dangeroso

The_Conductor wrote: »

Bonuses are not counted- salary increments are.
Only guaranteed income is counted.

I always laughed at that section of a mortgage application. Who gets a guaranteed bonus? The term is an oxymoron.

by the seaside

The_Conductor wrote: »

Bonuses are not counted- salary increments are.
Only guaranteed income is counted.

Exactly. Which is why I an wondering if the non-guaranteed bonus might be taken into consideration for some applicants, and this may then constitute part of the 15% of mortgages that exceed 3.5 x salary.

The_Conductor

The Spider wrote: »

They counted my bonus, and shares etc, granted that was in 2012

I don't get a bonus (given the nature of the work I do)- but I do hold shares. They (BOI) certainly didn't count mine- and to be honest with you- I'd rather it that way- as I have a little financial leeway that is outside the remit of my mortgage lender. In any event my LTV ratio is ultra low- so its moot.

The_Conductor

by the seaside wrote: »

Exactly. Which is why I an wondering if the non-guaranteed bonus might be taken into consideration for some applicants, and this may then constitute part of the 15% of mortgages that exceed 3.5 x salary.

They are not supposed to consider non-guaranteed income. According to Spidey- they did in his instance- which would at very least indicate they are being inconsistent.

by the seaside

The_Conductor wrote: »

They are not supposed to consider non-guaranteed income. According to Spidey- they did in his instance- which would at very least indicate they are being inconsistent.

But they are allowed to give >3.5 x income in 15% of cases. Maybe this would be one of those occasions. But perhaps you're right.

Michael D Not Higgins

by the seaside wrote: »

Exactly. Which is why I an wondering if the non-guaranteed bonus might be taken into consideration for some applicants, and this may then constitute part of the 15% of mortgages that exceed 3.5 x salary.

It may inform their underwriters on whether the applicant was worth the risk of offering one of the mortgages above 3.5 LTI, but I wouldn't be counting on it. See above for my demonstration on how 20% (not 15%) of the euro value can drop down to much fewer than 20% of the number of mortgages. With the new rules, it's unlikely the regular punter will get a mortgage above 3.5 LTI.

by the seaside

El_Dangeroso wrote: »

I always laughed at that section of a mortgage application. Who gets a guaranteed bonus? The term is an oxymoron.

Does anyone still get a guaranteed Christmas bonus like my Dad used to? Although I agree that it should just be rolled into salary, with the salary being paid unevenly across the year.

by the seaside

The_Conductor wrote: »

Bonuses are not counted- salary increments are.
Only guaranteed income is counted.

Exactly. Which is why I an wondering if the non-guaranteed bonus might be taken into consideration for some applicants, and this may then constitute part of the 15% of mortgages that exceed 3.5 x salary.

Michael D Not Higgins

by the seaside wrote: »

Does anyone still get a guaranteed Christmas bonus like my Dad used to? Although I agree that it should just be rolled into salary, with the salary being paid unevenly across the year.

There are companies I've heard of that pay 13 'months' salary a year, either every 4 weeks or double pay for December. It's not a bonus but rather a different division of your income.

Bonuses are bonuses because they can be withdrawn at any time. Salary is guaranteed, but if the company's not doing great it allows the management to halt the bonuses. My own bonus for last year amounts to nearly 6% but the previous year I didn't get anything because of the dip in the industry that year (mainly political failures having knock on effects). I don't count on this and don't expect it, it's a bonus.

Barely Hedged

Barely Hedged wrote: »

I think the term of mortgages should be capped too at 25y's.

35y's is too long and is just a considerable amount of rope to hang yourself with.

I actually applied for a 25 year which would have meant repayments just below what we pay in rent. The bank came back and approved us - but for 35 years, saying this was more prudent :eek:

Michael D Not Higgins

Deleted User wrote: »

I actually applied for a 25 year which would have meant repayments just below what we pay in rent. The bank came back and approved us - but for 35 years, saying this was more prudent :eek:

More prudent or more profitable?

by the seaside

Deleted User wrote: »

I actually applied for a 25 year which would have meant repayments just below what we pay in rent. The bank came back and approved us - but for 35 years, saying this was more prudent :eek:

Can you overpay (sorry, am unfamiliar with Irish mortgages and flexible component such as overpaying facilities or offsets)?

Michael D Not Higgins

by the seaside wrote: »

Can you overpay (sorry, am unfamiliar with Irish mortgages and flexible component such as overpaying facilities or offsets)?

Depending on the mortgage there may be overpayment fees.

Yes, you can overpay and save on interest (unless you have a fixed rate in which case there can be penalties).

I just thought it was funny that I was pitching a fairly conservative approach that would mean we were finished repayments before the age of 60 - and they offered to help us string it out until we were both 69!

P. Breathnach

The_Conductor wrote: »

They are not supposed to consider non-guaranteed income. According to Spidey- they did in his instance- which would at very least indicate they are being inconsistent.

That's a further justification for the CB taking an active interest in the mortgage lending market.

The_Morrigan

It's not inconsistencies it's lending discretion, every bank has the ability to make a decision at their discretion.

by the seaside

Deleted User wrote: »

Yes, you can overpay and save on interest (unless you have a fixed rate in which case there can be penalties).

I just thought it was funny that I was pitching a fairly conservative approach that would mean we were finished repayments before the age of 60 - and they offered to help us string it out until we were both 69!

I guess you just sign up to the 35 years and then repay as if it was 25 years (Assuming no overpayment fee).

Yeah, that's what I'll do when the time comes - because I'm a cautious type. But if this is their approach they are storing up trouble down the road.

I hope to be working when I'm 68 but doubt it'll be at the same pace (or same income level) as I do at present. Any little bump in the road along the way, such as a serious illness that led me to retire early or to reduce workload in my 60s, would be tricky.

As you say, I'll try and overpay if I can but recent history suggests some people take a short-term approach to long-term financial decisions.

by the seaside

Deleted User wrote: »

Yeah, that's what I'll do when the time comes - because I'm a cautious type. But if this is their approach they are storing up trouble down the road.

I hope to be working when I'm 68 but doubt it'll be at the same pace (or same income level) as I do at present. Any little bump in the road along the way, such as a serious illness that led me to retire early or to reduce workload in my 60s, would be tricky.

As you say, I'll try and overpay if I can but recent history suggests some people take a short-term approach to long-term financial decisions.

Trouble stored up down the road is the inevitable outcome of kick the can down the road policies, I'm afraid. But it sounds like you've got your head screwed on, anyway.

The Spider

Deleted User wrote: »

Yeah, that's what I'll do when the time comes - because I'm a cautious type. But if this is their approach they are storing up trouble down the road.

I hope to be working when I'm 68 but doubt it'll be at the same pace (or same income level) as I do at present. Any little bump in the road along the way, such as a serious illness that led me to retire early or to reduce workload in my 60s, would be tricky.

As you say, I'll try and overpay if I can but recent history suggests some people take a short-term approach to long-term financial decisions.

The bank's probably right on this one, a mortgage loan is the cheapest loan you'll get, so there may not be a huge advantage in having higher repayments over a shorter time which is still decades. You may need more disposable income to live and if you take a drop in income, you still need to make sure repayments are affordable.

Over time inflation should make the repayments smaller as happened in the past excluding the collapse of the property market. Especially now with QE over the next few years the repayments on the loan should seem smaller as wages go up, that's the theory anyway.

As far as I know when you choose to overpay the repayment term shortens but the payments are higher.

This 'overpayment calculator' is worth a go. Even small regular overpayments can knock years off your mortgage.

Or try this one to see how much interest you pay in 20 years vs 35. Frightening. Inflation can help but it might also bring higher interest rates down the line - certainly over the lifetime of any mortgage.

I would hope to put a decent dent in a mortgage (when I finally find a house!) in the early years while I'm in good health and earning reasonably well (touch wood).

Selfishly though, I wouldn't be too thrilled if we ended up with a wave of mortgage defaults 30 years from now when people in their 60s are still expected to make repayments. I wouldn't care much if recent history didn't suggest that the State would end up bailing out the banks.

Of course the people giving out mortgages today will all be retired by then.... It's a dangerous situation when those who make decisions about risk will be out of the game by the time those mortgages enter a high-risk phase.

Inflation, inheritances etc. will sort most of them out, but not all.

gaius c

Deleted User wrote: »

I actually applied for a 25 year which would have meant repayments just below what we pay in rent. The bank came back and approved us - but for 35 years, saying this was more prudent :eek:

Well, if it's for the same loan amount, you could argue the point somewhat.
Just make overpayments so it's done in 25 years or stretch it out to the contracted 35 depending on financial circumstances.
If you can just about afford 25 years, going to 30 gives you more of a cash cushion.

And yes, you do pay a lot more in interest for the 10 extra years.

Deco99

Deleted User wrote: »

Yes, you can overpay and save on interest (unless you have a fixed rate in which case there can be penalties).

I just thought it was funny that I was pitching a fairly conservative approach that would mean we were finished repayments before the age of 60 - and they offered to help us string it out until we were both 69!

Same story, have got AIP for 35 years but will be renegotiating that down, I want 25 years, consider myself prudent, so lets see what happens.

The Spider

Deleted User wrote: »

This 'overpayment calculator' is worth a go. Even small regular overpayments can knock years off your mortgage.

Or try this one to see how much interest you pay in 20 years vs 35. Frightening. Inflation can help but it might also bring higher interest rates down the line - certainly over the lifetime of any mortgage.

I would hope to put a decent dent in a mortgage (when I finally find a house!) in the early years while I'm in good health and earning reasonably well (touch wood).

Selfishly though, I wouldn't be too thrilled if we ended up with a wave of mortgage defaults 30 years from now when people in their 60s are still expected to make repayments. I wouldn't care much if recent history didn't suggest that the State would end up bailing out the banks.

Of course the people giving out mortgages today will all be retired by then.... It's a dangerous situation when those who make decisions about risk will be out of the game by the time those mortgages enter a high-risk phase.

Inflation, inheritances etc. will sort most of them out, but not all.

If you can afford to overpay, it may be better to save that money and invest in some shares which may perform better and allow you to pay off a larger amount sooner, of course there's risk involved but such is capitalism.

gaius c

CB are meeting today so maybe we'll get an announcement soon!

RTE were saying this morning that there was no certainty over when an announcement would come - Sean Whelan said it could even be next week.

I think if they want to bring them in 'immediately', it would make sense to say that the rules will be applied to everything issued from the beginning of a month i.e. February. If it's March or April then you've got an artificial scramble for a couple of months until the new regime comes into force.

In any case, there have obviously been a few leaks over the past week with this 15% LTV rising to 20% over 3-5 years (depending on who you believe) so it's hard to imagine that there won't be stories in tomorrow's papers about what was agreed at the meeting. Or, even if the final say is Honohan's, there will be some impression given of how the issue was left after the Commission had their say. 10 people in a room - there will have to be leaks.

It would make sense for this to be confirmed on Thursday/Friday. In fact, as there are CSO property price figures due out tomorrow, maybe no harm getting it done tomorrow morning. If tomorrow's CSO shows another slight dip in Dublin prices there will be opponents of the proposal saying it's unnecessary