Central Bank to limit amount banks lend for home purchase

IMF has timed its latest report on Ireland to perfection. It warns against phased approach and is cautious on creating different rules for different borrowers (i.e. it's not keen on making rules lighter on FTBs - something that even Honohan seems to have been open to)

Strengthening the regulation of residential mortgage lending is therefore welcome. The CBI’s proposed policies on loan-to-value and loan-to-income ratios will increase the resilience of households and banks to financial shocks and help dampen the property cycle. Any differential treatment of borrower categories should ensure their financial resilience remains as strong as other borrowers, and should be kept under review based on default experience. Given widespread expectations of continuing house price rises, a phase in period could pose risks from front-loaded borrowing. The credit register will eventually provide valuable information on borrowers’ credit records and total debt, helping to limit circumvention.

That last line means it will eventually be possible to know if someone has borrowed their deposit from one lender (a credit union, say) to get a mortgage from another (a bank, a building society).

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Deleted User wrote: »

IMF has timed its latest report on Ireland to perfection. It warns against phased approach and is cautious on creating different rules for different borrowers (i.e. it's not keen on making rules lighter on FTBs - something that even Honohan seems to have been open to)



That last line means it will eventually be possible to know if someone has borrowed their deposit from one lender (a credit union, say) to get a mortgage from another (a bank, a building society).

Does the bank not know this already? I've never applied for a mortgage but I presume they ask to see your accounts. If 40 or 50 grand suddenly wings in out of nowhere it doesn't exactly take a genius to work out where it came from.

seamus

donkeyoaty0099 wrote: »

Does the bank not know this already? I've never applied for a mortgage but I presume they ask to see your accounts. If 40 or 50 grand suddenly wings in out of nowhere it doesn't exactly take a genius to work out where it came from.

Yep, they're pretty rigorous - they ask where the deposit is coming from and then ask for proof of that. Even if you claim it's coming from a parent as a gift, they ask for proof of funds from the parent too.
Now, a parent could do this and then you go and get a credit union loan instead, but the avenues for magicking funds out of nowhere are mostly closed, you can't just claim the deposit exists anymore, you have to show that it does.

The main way to do this trick requires a lot of planning - i.e. taking out a credit union loan more than 6 months before you apply for a mortgage, and you won't have to prove where that funding came from.

Rumours on Twitter that Bloomberg is reporting that for loans under €220k, you'll need a 10% deposit rather than 20%. Anyone have a Bloomberg subscription?

Peter File

The Spider wrote: »

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.

Crazy advice, you should look to pay off mortgage ASAP rather than gamble on stocks.

marathonic

Peter File wrote: »

Crazy advice, you should look to pay off mortgage ASAP rather than gamble on stocks.

I wouldn't consider it crazy advice if someone's mortgage is at a very comfortable level - I'd consider comfortable as anything below 20% of take home pay.

Of course, they should have an emergency fund in place of about 5-6 months living expenses before starting investing.

It makes particular sense if investing in a tax efficient manner through a pension with the intention, potentially, of paying off the mortgage with the tax free lump sum when you reach an age that allows you to withdraw it.

Of course, paying off your mortgage ASAP is the traditional, risk-free approach. However, if you only do what the average person does, you'll only end up with an average retirement.

Thinking outside the box has the potential to give you a very comfortable retirement with limited downside risk. Of course, this is a completely different topic so no point in derailing the thread.

Deco99

Rte reporting the 10% upto 220k rule now as well. Well that's me screwed. Thought id get a nice place without paying silly money. Sigh. Let the good times roll. Is the 3.5 rule confirmed?

Sarn

Deco99 wrote: »

Rte reporting the 10% upto 220k rule now as well. Well that's me screwed. Thought id get a nice place without paying silly money. Sigh. Let the good times roll. Is the 3.5 rule confirmed?

I think that only applies to first time buyers.
Edit: the 10% that is.

crisco10

Deco99 wrote: »

Rte reporting the 10% upto 220k rule now as well. Well that's me screwed. Thought id get a nice place without paying silly money. Sigh. Let the good times roll. Is the 3.5 rule confirmed?

Or did they indicate when it would come in and what effect it would have on existing aip??

highgiant1985

link from RTE: http://www.rte.ie/news/business/2015/0127/676023-central-bank-mortgage/

Summary:

Banks will be able to lend up to 90% of the value of the home to first-time buyers up to a limit of €220,000.

This means that first time buyers will need a 10% deposit for the first €220,000 of their property's cost and 20% of whatever is above this limit.

For all other owner-occupier borrowers, the deposit required will be 20%.

matrim

highgiant1985 wrote: »

link from RTE: http://www.rte.ie/news/business/2015/0127/676023-central-bank-mortgage/

Summary:

Banks will be able to lend up to 90% of the value of the home to first-time buyers up to a limit of €220,000.

This means that first time buyers will need a 10% deposit for the first €220,000 of their property's cost and 20% of whatever is above this limit.

For all other owner-occupier borrowers, the deposit required will be 20%.

So for a 300k house you would need about 38k deposit instead of 60k with a full 20% rule?

handlemaster

If that goes ahead 10% up to 220k the houses in Dublin currently under will be pushed toward s this figure

highgiant1985

matrim wrote: »

So for a 300k house you would need about 38k deposit instead of 60k with a full 20% rule?

Yes "This means that first time buyers will need a 10% deposit for the first €220,000 of their property's cost and 20% of whatever is above this limit."

So Example where house is worth 300K:

€22,000 - 10 % of 220,000
€16,000 - 20 % of 80,000 (The balance)
=
€38,000K

bigdaddy2010

At long last some in administration has some balls and realises that there needs to be an overhaul of the mortgage system. I think the new set of rules are an excellent idea to calm the housing price bubble. Well done the central bank.

makeorbrake

Honahan has fudged it - as is the way with everything in IRL. The epic lobby by VI's had it's effect. It should have remained 20% for all - first time buyer or otherwise...

ghostdancer

any mention of the 3.5x salary rule?

Gumbo

How long does rules like this take to go to the Oireachtas?

Greyian

kceire wrote: »

How long does rules like this take to go to the Oireachtas?

They don't go through the Oireachtas, this isn't to do with government

the world wonders

kceire wrote: »

How long does rules like this take to go to the Oireachtas?

It was my understanding that the Central Bank was independent and did not require Oireachtas approval for rules like this, are they trying to fudge it even further? I can see the amendments flooding in from every economically illiterate backbencher in the Dail who wants to get their speech on Six One.

Edit for the posters immediately above me:

The new rules will not be phased in, and will have immediate effect once they have been approved by the Oireachtas.

Gumbo

Greyian wrote: »

They don't go through the Oireachtas, this isn't to do with government

highgiant1985 wrote: »

This is nothing to do with the Government / Oireachtas. Its the Central Bank implementing it.

Maybe I'm reading it wrong?

From the RTE website

The new rules will not be phased in, and will have immediate effect once they have been approved by the Oireachtas.

http://m.rte.ie/news/business/2015/0127/676023-central-bank-mortgage/

TheDriver

It seems to suggest this is what will probably be announced but not the actual announcement yet.....

highgiant1985

I stand corrected.. and confused

Idioteque

handlemaster wrote: »

If that goes ahead 10% up to 220k the houses in Dublin currently under will be pushed toward s this figure

Not sure I follow your logic on that one. If it's mostly been 10% already, surely the market will dictate price for any properties from €220K downwards, don't see why they would magically aim for €220K as people don't suddenly have more affordability - unless I'm missing something?

I would have thought that while this is not as big a step as expected, that it means for every €10K over €220K, FTB's have to now think about it costing them €2K in deposit up front as opposed to 1K, thereby effecting spare savings they would have for furniture, rainy day etc. I'd think house prices should slightly trend downwards (if anything) as the further away from €220K you go, the more FTB's you lose to bid against each other and drive up the price.

Barely Hedged

A very considered and sensible set of rules that are weighted in favour of the CB and what they wanted to achieve initially.

Low earning FTB's arent screwed over and the 80% rule exists across the board for > 85% of the mortgages. In time, id say they will enact the 80% rule for FTB's when it is shown to be successful.

I only wish they had brought in a term limit too.

A good day for the long term stability of the economy and country.

Barely Hedged

Barely Hedged wrote: »

A very considered and sensible set of rules that are weighted in favour of the CB and what they wanted to achieve initially.

Low earning FTB's arent screwed over and the 80% rule exists across the board for > 85% of the mortgages. In time, id say they will enact the 80% rule for FTB's when it is shown to be successful.

I only wish they had brought in a term limit too.

A good day for the long term stability of the economy and country.

http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

Inspector Coptoor

So basically, if you want to buy a house in say, South Dublin, for €500,00, you previously would have needed a deposit of €50k.

Under the new legislation, that will rise to €100,000

BUT if you're a first time buyer, you need 22k deposit on the first 220k and then 56k on the remaining 280k so a total deposit of 78k? Or 15.6%

Am I reading that right?

Clonnative

Will existing AIP's be ok?

Barely Hedged

Inspector Coptoor wrote: »

So basically, if you want to buy a house in say, South Dublin, for €500,00, you previously would have needed a deposit of €50k.

Under the new legislation, that will rise to €100,000

BUT if you're a first time buyer, you need 22k deposit on the first 220k and then 76k on the remaining 280k so a total deposit of 78k? Or 15.6%

Am I reading that right?

Correct

Trond

If a first time buyer had around 40K saving towards a house for say 220K whats the craic now?

Barely Hedged

Inspector Coptoor wrote: »

So basically, if you want to buy a house in say, South Dublin, for €500,00, you previously would have needed a deposit of €50k.

Under the new legislation, that will rise to €100,000

BUT if you're a first time buyer, you need 22k deposit on the first 220k and then 56k on the remaining 280k so a total deposit of 78k? Or 15.6%

Am I reading that right?

Also 3.5 LTI limit. Another good bit of soon to be legislation