Central Bank to limit amount banks lend for home purchase

johnp001

matt-dublin wrote: »

because you will find out that people who were planning on selling had enough equity to cover their deposits for new homes. now they wont.

A couple of posts up you say:

matt-dublin wrote: »

now it sounds like my best option will be to drop the price by 20k, avail of the negative equity mortgage rules and see if we can get through that way.

Am I missing something or are you proposing to do yourself exactly what you denied would happen?

PRAF

Kinet1c wrote: »

This move by the CB will force the Govt (current or future) to actually act on the housing situation as opposed to just grandstanding, as they usually do, in the hope the next person (sucker) will look after it.

True. The question is whether they go for the quick, easy, and worst option (changes to the tax code to boost demand) or whether they go for the hard but correct option (boosting supply and tackling the rental market).

mrmitty

matt-dublin wrote: »

your perception here is wrong, we didn't cause the mess. Developers & banks caused the mess, supported by our government.

If you offer 110% & 100% mortgages people will take them. (I personally didn't, I got 85% and still ended up in negative equity)
Give a dog a bone and he'll chew it.

I don't see the developers being punished by this.
I don't see the banks getting a slap either.
Anglo's board of directors should have received jail time for their parts.

We all created this mess.

Heck, nobody ever talked about anything but the value of their "portfolios" back during the boom.


Even my pensioned church going mother got caught up in the tulips.

RoboRat

donkeyoaty0099 wrote: »

You mean the generation that caused the mess in the first place?

How so? The people who are getting shafted are the people who paid their mortgages and are looking to move. They didn't welch on their debt because if they did, they wouldn't be in this position.

The people who we are referring to are those who got a mortgage they could afford... the proof is the fact that they have been able to pay even during the worst economic downturn in the history of this country.

NIMAN

Central Bank can't win it seems.

When the country went mad and it cost us all so dearly, we all called for it never to happen again.

The CB puts rules in place to stop it happening again, and they are now the worst in the world.

Us Irish can be a thick lot at times.

PRAF

matt-dublin wrote: »

I don't see the developers being punished by this.
I don't see the banks getting a slap either.
Anglo's board of directors should have received jail time for their parts.

Almost total obliteration of shareholders equity in all of our banks, nearly all of the directors of those same banks gone, most developers either bankrupt or working with NAMA with about 90% reduction in their salaries, the helicopters and Galway tent consigned to the dustbin of history, FF decimated at last election, the Greens obliterated, convictions against two Anglo directors, and hopefully Drummer will be back to face his punishment soon.

Were they punished - YES
Was it enough - NO!

It's time to move on now. The current govt need to step up to the plate now and sort out their housing policy

Jeremyr

Guys how do you see this effecting prices within the 150k-250k price range in the West Dublin region, any insight would be great lads and ladies !!

seamus

Here's the actual press release from the CB:
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

- No mention of a 3.5 times salary limit
- No mention of exemptions for negative equity
- They do not legally come into force until passed by the Oireachtas (in the coming weeks, according to the release); However banks are required to implement it immediately.
- Anyone with credit approval in principle (i.e. an application done, not a form on the website) can bull on.
- There is scope in all cases to allow the bank to breach the caps,. 15% of their loan book is permitted to be > 80% LTV.

There is a question here over the "effective date" of the regulations. The regulation won't be passed by the Oireachtas for a couple of weeks, yet the deputy governor claims that bank have to apply them immediately. Anyone who has credit approval on the "effective date" are exempt, but what is the effective date? The release doesn't say.

The claims that negative equity loans are exempt may be because they fall into a "restructuring" agreement. In which case I'll actually sell my property for a couple of K less than I owe on my mortgage in order to avail of this, rather than walk away with €10k in cash and be subject to the new rules.

Sala

The difference between buying a FTB house at 300k with a 10% /30k deposit is only 8k more now. I can't see this by itself having too much effect on prices. That said, trader uppers will be gone, so less starter homes coming on the market but less competition for trader up homes. Id say smaller cheaper properties will go up in price, more expensive could come down.

the kelt

donkeyoaty0099 wrote: »

You mean the generation that caused the mess in the first place?

What?

The people who bought houses. Paid their mortgages, never missed payments, didnt welch on payments. They are to blame.

What an ill advised lazy assumption of a generation of people who have been most hit but dutifully paid their dues and their ever increasing taxes woking their asses off during the worst recession in recent history to keep paying what they owed.

You must work in government!

seamus

Jeremyr wrote: »

Guys how do you see this effecting prices within the 150k-250k price range in the West Dublin region, any insight would be great lads and ladies !!

My prediction is that it will cause a lot more competition for properties in the sub €300k bracket, and especially the sub €200k bracket.

A FTB who has a €40k deposit saved and was previously looking at a property up to €400k is now limited to a maximum of €310k, and that's where they'll start looking.

So properties at the cheaper end I predict will start to see price rises, but at the more expensive end (€350k+) will see pretty substantial drops.

RoboRat

Heck, nobody ever talked about anything but the value of their "portfolios" back during the boom.

What utter utter BS.

I bought a house because I was on a salary where I could afford one. I was paying €650 a month rental in Dublin and I got a mortgage that was costing me €900 and I was able to rent a room out for €350, therefore I was better off and had my own house. I stress tested myself seeing as the banks weren't bothered and borrowed accordingly. The proof being that even though I took at 35% wage cut, I never missed a repayment.

Yes there were people who got involved with the property portfolio shenanigans but this doesn't affect them, and if it does, they didn't miss repayments either. This mainly affects those who bought somewhat sensibly and now are stuck once again after sucking it up for years. The CB can easily add a caveat to accommodate these people in the same way as the government did when they changed the TRS rates.

by the seaside

matt-dublin wrote: »

It won't reduce the house prices...

- people currently selling will withdraw their houses for fear of price reduction.
- people thinking of selling next year won't sell because they won't get the prices they want to achieve.

result - less property in the market equalling more demand, prices stagnate or rise.

on the flip side, the property prices drop and everyone who has bought in the last 3-5 years instantly go into negative equity. But then again this will stop people from selling. Because they won't sell again it will reduce the quantity of houses. Again, house prices will begin to raise due to availability.

People saving for deposits will end up spending less of their disposable income to save harder. This will result in a lower tax take for the revenue and retail expenditure across the county.

Less house sales will also mean lower revenue on stamp duty so its likely that 1% rate will come up as well.

Here's the thing. More credit puts upwards pressure on prices. Less credit puts downward pressure on prices. Of course there may be other factors such as demand and supply so it cannot be said that the new regs will lower house prices. But it will apply downward pressure.

The 'price they want to achieve' is an interesting piece of psychology and while there is some truth in it as a motivation, the laws of the market set price will ultimately win. Buyers pay the market price, not the price they want to pay, and sellers will do the same (unless in NE and stuck, which is a problem).

mrmitty

RoboRat wrote: »

What utter utter BS.

I bought a house because I was on a salary where I could afford one. I was paying €650 a month rental in Dublin and I got a mortgage that was costing me €900 and I was able to rent a room out for €350, therefore I was better off and had my own house. I stress tested myself seeing as the banks weren't bothered and borrowed accordingly. The proof being that even though I took at 35% wage cut, I never missed a repayment.

Yes there were people who got involved with the property portfolio shenanigans but this doesn't affect them, and if it does, they didn't miss repayments either. This mainly affects those who bought somewhat sensibly and now are stuck once again after sucking it up for years. The CB can easily add a caveat to accommodate these people in the same way as the government did when they changed the TRS rates.

Anybody who denies the fact that the Irish public were, en masse totally consumed by the property hysteria during the boom is deluded.

As an Irishman who lives abroad since the 80's I can tell you that it was sickening to see the madness.

Now everybody is pointing the finger at everybody else.

dartstothesea

flogen wrote: »

I'm curious about the logic of those saying that €220k & 3.5 LVI is too low for Dublin - it may well be at the moment but if that is the case, do people not think it will force prices lower as a result?

I'd also question the argument that this will push currently lower prices up towards 220k... surely if sellers are all trying to hit that €220k 'sweet-spot' to attract FTBs then you'll also see some property prices falling towards that line?

So a property listed @ €230k-240k today might slip down towards €220k... this would mean that a slightly less attractive property - that might be listed today at €220k - will have to slip down to €200-210k in order to compete... and so on. I know I'm applying logic to the Irish property market, which is a fool's errand, but I think it's a slightly more logical outcome than seeing prices rise to €220k.

I agree with nearly all of that. Although on the last point, particularly in a "seller's market", it could just as easily get spun the other way, i.e. upwardly as in: property worth 190k climbs up to 220k, properties that were previously 220k-ish can say"well look at that inferior property where someone willingly paid 220k, using that as a benchmark this one should cost even more"

dearg lady

seamus wrote: »

Here's the actual press release from the CB:
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

- No mention of a 3.5 times salary limit
- No mention of exemptions for negative equity
- They do not legally come into force until passed by the Oireachtas (in the coming weeks, according to the release); However banks are required to implement it immediately.
- Anyone with credit approval in principle (i.e. an application done, not a form on the website) can bull on.
- There is scope in all cases to allow the bank to breach the caps,. 15% of their loan book is permitted to be > 80% LTV.

There is a question here over the "effective date" of the regulations. The regulation won't be passed by the Oireachtas for a couple of weeks, yet the deputy governor claims that bank have to apply them immediately. Anyone who has credit approval on the "effective date" are exempt, but what is the effective date? The release doesn't say.

The claims that negative equity loans are exempt may be because they fall into a "restructuring" agreement. In which case I'll actually sell my property for a couple of K less than I owe on my mortgage in order to avail of this, rather than walk away with €10k in cash and be subject to the new rules.

Thanks for sharing Seamus, the FAQ's are very informative. It does say 3.5 LTI though, or am I misunderstanding?!

flogen

matt-dublin wrote: »

It won't reduce the house prices...

- people currently selling will withdraw their houses for fear of price reduction.
- people thinking of selling next year won't sell because they won't get the prices they want to achieve.

It's likely that the prospect of lower prices (or a slower pace of price growth) will put some off selling, but I think you're over-stating its impact.

People wanting significant prices rises will effectively now need to wait for wages to grow, so that borrowers' LTI calculation can rise accordingly (and so they can hit a larger deposit target at a faster rate).

In other words, any one needing to sell will not benefit much by waiting around.

on the flip side, the property prices drop and everyone who has bought in the last 3-5 years instantly go into negative equity. But then again this will stop people from selling. Because they won't sell again it will reduce the quantity of houses. Again, house prices will begin to raise due to availability.

As has been pointed out already, you're arguing that supply will shrink further, thus pushing up prices... while also arguing that prices will fall and recent buyers will enter negative equity. It can't be both.

But even if the above happens, there is wiggle room within the rules to allow for those in negative equity.

Michael D Not Higgins

seamus wrote: »

Here's the actual press release from the CB:
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

- No mention of a 3.5 times salary limit 1
- No mention of exemptions for negative equity 2
- They do not legally come into force until passed by the Oireachtas (in the coming weeks, according to the release); However banks are required to implement it immediately.
- Anyone with credit approval in principle (i.e. an application done, not a form on the website) can bull on.
- There is scope in all cases to allow the bank to breach the caps,. 15% of their loan book is permitted to be > 80% LTV.

There is a question here over the "effective date" of the regulations. The regulation won't be passed by the Oireachtas for a couple of weeks, yet the deputy governor claims that bank have to apply them immediately. Anyone who has credit approval on the "effective date" are exempt, but what is the effective date? The release doesn't say.

The claims that negative equity loans are exempt may be because they fall into a "restructuring" agreement. In which case I'll actually sell my property for a couple of K less than I owe on my mortgage in order to avail of this, rather than walk away with €10k in cash and be subject to the new rules.

1 "PDH mortgage loans are subject to a limit of 3.5 times loan to gross income."
2 "The Regulations do not apply to:

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

RoboRat

mrmitty wrote: »

Anybody who denies the fact that the Irish public were, en masse totally consumed by the property hysteria during the boom is deluded.

As an Irishman who lives abroad since the 80's I can tell you that it was sickening to see the madness.

Now everybody is pointing the finger at everybody else.

I for one was not consumed and I can say the same for my friends and I am sure that many many people were also not 'consumed'. I got to an age where I wanted to settle down, I had the money so I done what generations of people from all across the globe done, I found a house and settled down. You were living abroad so I am sure you got the media version which indeed fuelled the chaos but not everybody was duped.

My situation changed due to the downturn and I had to move to another job and now I am stuck in a predicament where I have a house I cant sell, well I could this year but not anymore. I never had any aspirations of a property portfolio, I just wanted a house.

jay0109

matt-dublin wrote: »

It won't reduce the house prices...

- people currently selling will withdraw their houses for fear of price reduction.
- people thinking of selling next year won't sell because they won't get the prices they want to achieve.

result - less property in the market equalling more demand, prices stagnate or rise.

So, in short, everyone puts their lives on hold because of the CB and it's new rules:rolleyes:

matt-dublin

flogen wrote: »

It's likely that the prospect of lower prices (or a slower pace of price growth) will put some off selling, but I think you're over-stating its impact.

People wanting significant prices rises will effectively now need to wait for wages to grow, so that borrowers' LTI calculation can rise accordingly (and so they can hit a larger deposit target at a faster rate).

In other words, any one needing to sell will not benefit much by waiting around.



As has been pointed out already, you're arguing that supply will shrink further, thus pushing up prices... while also arguing that prices will fall and recent buyers will enter negative equity. It can't be both.

But even if the above happens, there is wiggle room within the rules to allow for those in negative equity.

What im trying to point out is that it won't reduce prices, it will only stabilise them. I didn't word it very well.

crisco10

Central Bank FAQs wrote:

12. I had mortgage approval in principle prior to XX February 2015, how will I be impacted?

The limits apply to housing loans, approval in principal for which was received from the lender after
the Regulations coming into effect, and the housing loan is secured on residential property in the
State.

To me that indicates the Mortgage Advisors are gonna be busy in the next few weeks!

by the seaside

seamus wrote: »

Here's the actual press release from the CB:
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

- No mention of a 3.5 times salary limit
- No mention of exemptions for negative equity
- They do not legally come into force until passed by the Oireachtas (in the coming weeks, according to the release); However banks are required to implement it immediately.
- Anyone with credit approval in principle (i.e. an application done, not a form on the website) can bull on.
- There is scope in all cases to allow the bank to breach the caps,. 15% of their loan book is permitted to be > 80% LTV.

There is a question here over the "effective date" of the regulations. The regulation won't be passed by the Oireachtas for a couple of weeks, yet the deputy governor claims that bank have to apply them immediately. Anyone who has credit approval on the "effective date" are exempt, but what is the effective date? The release doesn't say.

The claims that negative equity loans are exempt may be because they fall into a "restructuring" agreement. In which case I'll actually sell my property for a couple of K less than I owe on my mortgage in order to avail of this, rather than walk away with €10k in cash and be subject to the new rules.

So a FTB can get a mortgage for a property with value of 440K with a 15% deposit:

For first time buyers of properties valued up to €220,000, a maximum LTV of 90 per cent will apply. For first time buyers of properties over €220,000 a 90 per cent limit will apply on the first €220,000 value of a property and an 80 per cent limit will apply on any excess value over this amount.

Not the worst compromise, I guess.

mrmitty

RoboRat wrote: »

I for one was not consumed and I can say the same for my friends and I am sure that many many people were also not 'consumed'. I got to an age where I wanted to settle down, I had the money so I done what generations of people from all across the globe done, I found a house and settled down. You were living abroad so I am sure you got the media version which indeed fuelled the chaos but not everybody was duped.

My situation changed due to the downturn and I had to move to another job and now I am stuck in a predicament where I have a house I cant sell, well I could this year but not anymore. I never had any aspirations of a property portfolio, I just wanted a house.

Perhaps you were that one in approx 4million


Btw, We have airplanes over here.

P. Breathnach

seamus wrote: »

My prediction is that it will cause a lot more competition for properties in the sub €300k bracket, and especially the sub €200k bracket.

A FTB who has a €40k deposit saved and was previously looking at a property up to €400k is now limited to a maximum of €310k, and that's where they'll start looking.

So properties at the cheaper end I predict will start to see price rises, but at the more expensive end (€350k+) will see pretty substantial drops.

I agree on the with this on the sort of forces that will operate, but not on the strength of those forces. There are two things that will moderate the effect of the FTB exception:
(a) there is marginal relief over the €220k cut-off, meaning that the 220k is not a rigid price barrier (but it will be, I think, a psychological barrier for some);
(b) some of those seeking to buy can be very determined and will work in every way they can to stay in their preferred market segment.

So my view is
(a) there will be modest upward price pressure in the €150-250K markets in Dublin;
(b) there will be some demand constraint in the €350k+ segments of the market - perhaps not falling prices, but not the rates of increase we have seen in the last couple of years.

RoboRat

mrmitty wrote: »

Perhaps you were that one in approx 4million


Btw, We have airplanes over here.

There were a LOT of people who just wanted a home and bought within their means. If everyone who bought during that time was buying silly, then we would be in the same boat as Greece so I was not 1 in 4 million.

Perhaps you should climb off your soap box and stop making assumptions.

dearg lady

P. Breathnach wrote: »

(a) there will be modest upward price pressure in the €150-250K markets in Dublin;

This seems to be the general consensus, which is a pity for me, as that's the bracket I'm looking in. But hopefully, as you say, it will be modest.

flogen

dartstothesea wrote: »

I agree with nearly all of that. Although on the last point, particularly in a "seller's market", it could just as easily get spun the other way, i.e. upwardly as in: property worth 190k climbs up to 220k, properties that were previously 220k-ish can say"well look at that inferior property where someone willingly paid 220k, using that as a benchmark this one should cost even more"

That's true - though the fact that a FTB will need to stump up 1 out of every 5k they go above 220k will (you'd hope) mute that somewhat.

matt-dublin wrote: »

What im trying to point out is that it won't reduce prices, it will only stabilise them. I didn't word it very well.

Ah ok. I'm really interested to see what impact this has on prices (from a personal point of view as well interest in the cause & effect of these kind of things)

If I had to bet I'd say it will lead to falls at the margins (places that would previously have gone for ~230-250k etc) but even at that I doubt the shift will be significant.

by the seaside

jay0109 wrote: »

So, in short, everyone puts their lives on hold because of the CB and it's new rules:rolleyes:

Possibly better than buying into a credit bubble and ending up with massive NE.

But while I think it is a good policy at a macro level, I have a lot of sympathy for individuals who've had the rug pulled from under their feet - I'd be mighty pissed off.

the kelt

mrmitty wrote: »

Perhaps you were that one in approx 4million


Btw, We have airplanes over here.

Thats BS Mitty,

There are thousands in the same situation. Its a lazy media fed assumption that everyone was involved in multiple property deals building up portfolios etc.

Did that happen, of course it did but there is a huge swathe of people who simply done as generations did here previously and all over the world, buy a property to live in that suited their needs and they could afford.

The government or the regulators have done nothing to help these people. These are ordinary people who have done nothing wrong.