Central Bank to limit amount banks lend for home purchase

Idioteque

seamus wrote: »

...If they're a first time buyer.

I suspect the largest market for €220k+ properties are people just peeking out of negative equity and trying to trade up from the shoebox they overpaid for at the last boom. They'll have their 10% sorted, but a further 10% will effectively lock them out of the market and leave them in a property which is likely unfit for purpose.

Though that said, there's the possibility that the €220k rule for first time buyers will mean the sub-€300k market will become very popular with FTBs and in fact could bring up the prices of property in that bracket, which will go some way to resolving the issue for people in negative equity.

True about FTB...I thought that was what he was referencing as he was talking about many people in rural areas being about to afford up to 10% up to 220K...if it's like vs like, surely the non-FTB's in rural areas will now need 20% up to 220K also, so it's not disgracefully biased.

The_Morrigan

hmmm wrote: »

About time. If you have to borrow more than 3.5 times your income, you're over-stretching yourself financially anyway.

Not always the case.
I borrowed 5 times my salary in 2008, I've never missed a payment and I had 18 months of unemployment in the middle of that. I'm now earning 11k less than I was 2 years ago and I'm still managing to pay all my financial obligations, have a social life and replenish my savings account that I depleted while out of work(albeit at a slower rate than before).

hmmm

The_Morrigan wrote: »

Not always the case.
I borrowed 5 times my salary in 2008.

There's plenty of people who over-stretch and manage to pay off their debts, but that doesn't make it right or sensible.

The default graphs in this are pretty stark at higher LTI
http://www.centralbank.ie/publications/Documents/Economic%20Letter%20-%20Vol%202014,%20No.%2010.pdf

dizzy23

Im in the process of obtaining a negative equity trade down mortgage. I am sale agreed and hope to purchase a house that is 150k less than I owe so effectively 750pm less in payments and the bank have been dragging their heels !! I am 20k in negative equity and have never missed a mortgage payment in 8 years I have the house. They now tell me I cant afford t pay 750 a month less than I am paying for the past 8 years !! Im thinkin il rent feck the banks I couldn b bothered !!

dr.fuzzenstein

I think the problem was not people maybe borrowing 4 times their salary with a 10% deposit.
The problem was people also using the mortgage to pay for the furniture, their wedding, honeymoon and new car. And that wasn't even the worst, people then bought half of Bulgaria and Spain. Then game the crash and 15% unemployment. Today is a very different climate, back then people suffered from lottery syndrome, first time the country had that much money available, everyone went nuts. It wouldn't happen again today.
We'll see what happens, but the Irish only know tax hammer or ban hammer when it comes to regulation and it invariably turns into a massive car crash.

The_Morrigan

hmmm wrote: »

There's plenty of people who over-stretch and manage to pay off their debts, but that doesn't make it right or sensible.

The default graphs in this are pretty stark at higher LTI
http://www.centralbank.ie/publications/Documents/Economic%20Letter%20-%20Vol%202014,%20No.%2010.pdf

Being honest those figures mean nothing to me, I'm not a numbers person and can't understand data presented like that.

I had a low LTV when I bought which is why I had such a high multiple approved. I had savings over and above the threshold they are requiring now. The mortgage was circa 70% of the valuation done on the property at the time.

You can't make blanket statements about over stretched people being the cause of all the problems...Some people on paper are over stretched, but they are not a statistic when it comes to representing arrears or non performing debt.

MarkAnthony

The_Morrigan wrote: »

Being honest those figures mean nothing to me, I'm not a numbers person and can't understand data presented like that.

I had a low LTV when I bought which is why I had such a high multiple approved. I had savings over and above the threshold they are requiring now. The mortgage was circa 70% of the valuation done on the property at the time.

You can't make blanket statements about over stretched people being the cause of all the problems...Some people on paper are over stretched, but they are not a statistic when it comes to representing arrears or non performing debt.

+1 At the time we bought I think we got near 7/8 times our salary. It was mental on the one hand that we ended up massively overpaying in the boom and frankly that situation should be avoided hence by broad support for the new rules, however; I'm much better off than many I know, I pay way less than I would in rent, hence have saved a reasonable amount of money.

It was a different situation with credit during the boom and mortgages, even larger ones were much more affordable.

The_Morrigan

MarkAnthony wrote: »

+1 At the time we bought I think we got near 7/8 times our salary. It was mental on the one hand that we ended up massively overpaying in the boom and frankly that situation should be avoided hence by broad support for the new rules, however; I'm much better off than many I know, I pay way less than I would in rent, hence have saved a reasonable amount of money.

It was a different situation with credit during the boom and mortgages, even larger ones were much more affordable.

Completely different ballgame, but saying that I wasn't doing stupid stuff to get approval. I saw some mental applications coming across my desk in the early '00s (and before anyone asks I wasn't staff when I applied for my mortgage). You had people borrowing the deposit from the CU as they weren't part of the ICB reports, parents going guarantor for massive mortgages and all manner of messing with incomes.

It is possible to have larger multiples of your salary approved if your lifestyle allows for it, I didn't have a car, or credit cards, no dependents ...I walked in with a stash of savings from my SSIA and some, a permanent job and zero debt.
I was the perfect candidate for a mortgage then, I also know that I wouldn't get the same if I applied now.

Lucy B

Well I am delighted!!! Like a massive weight has been removed!! Have very near to our 10% now!!!! 220k isn't even anywhere near what we wanted, so we fall firmly into the 10% bracket. And the LTI was always fine for us too. So just, phew!

mr_seer

MarkAnthony wrote: »

I'm alright I've bought on the Northside where I'll no doubt experience frequent burglaries, rapes and murders.

Will you be on the giving or receiving end of said experience?

quadrifoglio verde

Inspector Coptoor wrote: »

It's decent legislation, no doubt.

It comes 12 years to late.

The horse has bolted, we'll see if there's much point closing the stable door

Late it May be but just because it happened once doesn't mean that it can't happen again. History has an awful bad habbit of repeating itself.
While it sucks for the minority, it is better off for the majority in the long run.

quadrifoglio verde

seamus wrote: »

If the RTE report is correct and this needs to be approved/passed by Oireachtas, then it's going to be a number of months before it kicks in. The property market will become an absolute feeding frenzy in that case in the lead up to this being passed.

What's the point in having a regulator if it's actions have to be approved by the oireachtas?

jay0109

It'll be approved in the coming days by the Oireachtas...not months.
But there'll be a lot of busy mortgage officers in the banks over the next few days- they'll be working Saturday and Sunday this week for sure!

Kangoo Man

2007 average asking price for houses was €378,000 with 100% mortgages available.
2015 average asking price for houses is €193,000 with 80% mortgages available.

Talk about closing the stable door when the horse has bolted!

jay0109

Kangoo Man wrote: »

2007 average asking price for houses was €378,000 with 100% mortgages available.
2015 average asking price for houses is €193,000 with 80% mortgages available.

Talk about closing the stable door when the horse has bolted!

Future bubbles need to be prevented- can't keep looking back at the past. That's for Oireachtas enquiries and Historians to ponder on

Stream

Not quite.

"Housing loans for borrowers in negative equity who wish to obtain a mortgage for a new property are not within the scope of the LTV limits."

We will need to await the full wording but, if taken literally, this will exempt a large proportion of people who bought their first property over the last 10 years.

dizzy23

Are the rules different then for negative equity mortgages!! Sorry im jus being hopeful!!

Idioteque

Kangoo Man wrote: »

2007 average asking price for houses was €378,000 with 100% mortgages available.
2015 average asking price for houses is €193,000 with 80% mortgages available.

Talk about closing the stable door when the horse has bolted!

And that nationwide (nevermind Dublin) average in 2014 of €193,000 was a 12.8% rise on 2013 (€171,000).

For fun, lets imagine we allow that growth to continue at the same pace and assume it would not increase it's pace if left alone (unlikely)...

End 2015 @ 12.8% = €217,704
End 2016 @ 12.8% = €245,570
End 2017 @ 12.8% = €277,002
End 2018 @ 12.8% = €312,458
End 2019 @ 12.8% = €352,452 (near peak 2007 prices)

I think we need to buy our horses from now on already in their stables with doors bolted closed

Editors note: I in no way stand by my Eddie Hobbs economics....

jay0109

I think most people in NE have enough to be worrying about, unless they are downgrading but how often does that happen

Stream

The above quote is taken from the Central Bank press release.

The following quote from the very end of the article may also be relevant

"Notes to editors

The Regulations apply to a housing loan that is secured on a residential property in the State, excluding the exemptions listed below, and where the borrower had not received an approval in principal based on a credit assessment supported by verified financial information before the effective date of these Regulations.

The Regulations do not apply to:

‘Switcher mortgages’, or refinancing of an existing housing loan;
Housing loans entered into for the purposes of addressing pre-arrears or arrears."

Kangoo Man

jay0109 wrote: »

Future bubbles need to be prevented- can't keep looking back at the past. That's for Oireachtas enquiries and Historians to ponder on

Whats to stop a future central bank/government reversing this decision during a future property boom, because it's holding back the property market.

While I welcome the exemptions for first time buyers, in my opinion it's a bad time to introduce this when the property market is on the floor.

It's the same philosophy as cutting taxes during the boom and increasing them during the recession...

Villa05

Larbre34 wrote: »

but its a disgraceful bias towards rural areas, many people there will be able to well afford 10% of €220k

Has nothing to do with urban bias. The purpose of the regs is to cool overheating markets. These just happen to be in urban areas

Stream

jay0109 wrote: »

I think most people in NE have enough to be worrying about, unless they are downgrading but how often does that happen

There are other worries. For example, many of the people who find themselves in NE bought their first property between 2004-2010. Many bought apartments that were never intended to be lived in for the long term. The years move on, people get married, start having kids and the apartment they originally bought is no longer ideal.

If they were looking for another property and saving for a deposit, this new 20% requirement, may delay their plans for another few years.

This is just one scenario but it is why I'm glad to see this exemption to the 20% deposit rule (if in fact it is as it seems). Obviously one will still need to prove ability to repay and satisfy other criteria (e.g. LTI as there does not seem to be an exemption for this).

PRAF

This move by the Central Bank doesn't do me any immediate favours. Currently looking to buy and have 10% saved. Would have bought by now apart from the 20% rise in Dublin prices over last 12 months. Likely to be locked out of the market for the next 6-12 months at least. However......broadly speaking I think this is the right thing to do. There are definite signs of insanity in the market right now. Credit chasing higher prices, wealthy parents with 6 figure gifts to their kids, greedy vendors wacking up prices by eye watering amounts, etc. The regulator is now doing its job and I don't blame them for that. Hopefully it will just cool rather than kill the market.

Now it's over to the govt. I really think they need to cop themselves on about the property market. Noonan seems to favour a re-inflating of the bubble so that he can make a profit on Nama and maximise his return on AIB, PTSB, etc. Short sighted in the extreme because it could end up erasing all of the hard won gains in competitiveness in this country over the last 5-6 years. Thankfully, Honohan has done something about it.

We now need a new housing strategy in this country. The hoarding of development land and brownfield sites should be taxed to encourage development. The costs of building need to be looked at. We need much higher densities of quality accommodation in the city (i.e. bigger apartments in taller buildings). We also need attractive, smaller apartments / houses in towns to encourage empty nesters to downsize. Some additional protection for renters would be welcome.

highgiant1985

quadrifoglio verde wrote: »

What's the point in having a regulator if it's actions have to be approved by the oireachtas?

this Irish times article says the changes take effect immediately.

http://www.irishtimes.com/news/ireland/irish-news/new-mortgage-rules-allow-relief-for-first-time-buyers-1.2081621

"The new rules, which are effective immediately, have been announced this evening."

Tobyglen

3.5 Times you income is way too harsh. To buy in Dublin is v expensive. 4.5 times would have been a better measurement. We have to accept that prices are vastly different in parts of the country and a blanket times your salary shouldn't be applied. If you have shown that you're in a good job with good prospects then the CB should trust the Credit Teams in the respective banks to make correct decisions. We have gone too far the other side now in terms of regulation. By all means apply the 4.5 rules stringently and never go above 90% LTV but don't freeze people out of the market.

PRAF

Tobyglen wrote: »

3.5 Times you income is way too harsh. To buy in Dublin is v expensive. 4.5 times would have been a better measurement. We have to accept that prices are vastly different in parts of the country and a blanket times your salary shouldn't be applied. If you have shown that you're in a good job with good prospects then the CB should trust the Credit Teams in the respective banks to make correct decisions. We have gone too far the other side now in terms of regulation. By all means apply the 4.5 rules stringently and never go above 90% LTV but don't freeze people out of the market.

3.5 LTI is a little harsh. Agree with that and would agree that 4 or 4.5 would probably be reasonable. However, I do accept the principle that loan amounts (and house prices) should be linked to incomes. House prices moving into 5, 6, 7+ times income during the boom was a key cause of the banking crisis.

20% deposit is also quite harsh. 15% would be plenty IMO. Again though, LTVs of 95-110% were a key part of the banking crisis. Nobody wants to go back there again.

I certainly wouldn't recommend trusting the banks to self-regulate

quadrifoglio verde

Tobyglen wrote: »

3.5 Times you income is way too harsh. To buy in Dublin is v expensive. 4.5 times would have been a better measurement. We have to accept that prices are vastly different in parts of the country and a blanket times your salary shouldn't be applied. If you have shown that you're in a good job with good prospects then the CB should trust the Credit Teams in the respective banks to make correct decisions. We have gone too far the other side now in terms of regulation. By all means apply the 4.5 rules stringently and never go above 90% LTV but don't freeze people out of the market.

Trust the credit teams? They were trusted before and we saw where that got us :rolleyes:
Five years ago we were calling for Neary's head for being asleep at the wheel, now we want Honahans for doing the job that Neary should have done. Yes it sucks for some, those who would've hoped to buy this year or next, but if it does its job in limiting people signing up to unaffordable loans, then its the right thing.
Look back in threads on here in 2011/2012 and you'll see people moaning it wasn't my fault i borrowed too much. This is to prevent that happening in the future.

Also, if it freezes people out of the market, what will happen the price? If I need to sell and no one buys at 400k, but someone offers me 350k, well then I sell at 350k because thats what the market is willing to pay. The % that id have needed to save and amount I needed to borrow is now less as well

mrmitty

If we're going to regulate the banks lending ability then perhaps we can now start to regulate and license properly the estate agents and auctioneers.


It's time to put a stop to the shenanigans of that profession.

Deck1

My two cents for what its worth
1st off,I guess I am lucky,it doesnt affect me,have letter of offer for last few weeks..
Have purchase price of just above the 220k cut off so it would have hurt a little but could possibly have gotten the same deal over the line..Anywho

Over all I broadly welcome it but think the margins are a little low and should be tweaked,not by much

3.5 salary...fine anywhere but Dublin-think it should have gotten an exception to a higher bracket -4 times max

220k is prob just a little too low for Cork/Galway,rest of the country(Dub excluded) prob fine

FTB houses in city are in and around the 250k mark in Gal/Cork (Yes there are cheaper areas but I am not talking the highest end areas either I am thinking Knocknacarra on Gal for example which is a nice ftb 3/4 bed area),I dont see them climbing much more over this but think 250K would have allowed more FTB keep the 3-4 extra k for a few bits of furniture etc.. And kept the houses from creeping up much more than this as they then become un-affordable to FTB and honestly become over priced..250k for a decent 4 bed semi-d in Galway in a decent area I think is a reasonable ceiling..

Salthill is pushing 310-320k so I think this may slow the spurt there...which is no bad thing..I dont see this reigning the houses that are currently for sale @250k back to 220k so I think the 250k would have been fairer.

Think this may also hurt some of the Southfork ranches out the country for sale as well so I would expect the price of these to come back a bit...much more limited market which just got smaller...

God Help them in Dublin...Frankly I think they are f*&ked...the extra 1k per 10k over 220 i think is a bridge too far..again maybe an exception to 300k - 10% for Dublin...Salaries are in general higher in Dub and therefore should be allowed for

just an opinion..