Central Bank to limit amount banks lend for home purchase

GinaI

El_Dangeroso wrote: »

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

and when you've saved enough you are probably too old to qualify for mortgage anyway :-)

LG1234

If this does bring house prices down, then surely the developers won't build? And supply will stay very limited?

Lucy B

Its a mess is what it is.

I think that they will look at it on a case by case basis. They are trying to please the big boys in Europe.

Frank Lee Midere

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?

Oh FFS. The sheer financial illiteracy of it all. Let me so spell it out for you. If you increase credit without increasing supply you increase prices. If you curtail credit you curtail prices. If prices rise you won't be able to afford the houses anyway.

The fact is if there are 10000 houses for sale only 10000 houses will sell. If you give everybody 100% mortgages at 6x the average salary only 10,000 houses will sell but they will cost more than 500k.
If you curtail credit only 10,000 houses will sell but they will be much cheaper.

It's that illiteracy which caused the last crash.

Yes we need more supply. Which wouldn't be a problem if there were a political will.

Frank Lee Midere

LG1234 wrote: »

If this does bring house prices down, then surely the developers won't build? And supply will stay very limited?

The whole developers priced out is just nonsense. How would anything get built anywhere else?

ffactj

Jesus, we would never have got near the mortgage on our house under those rules if they were in when we bought it in 2004.

This is going to hurt the first time buyer far more than anyone else.

realweirdo

Lucy B wrote: »

Great. Typical!! That is ridiculous. 3 times my husbands salary would not be enough for the house we want, we wouldn't want a huge mortgage, and would be able to easily repay the amount we want, but with this new rule we would be short about 40k. Will this really come in as a new rule soon??? Or would they base it on your affordability to repay? That makes more sense surely, not just a loose 3x or 4x your income, surely each case is unique?

Supposed to be coming in 1st January Lucy. So if I was you, I'd try to buy before then if possible and maybe get a loan from a relative to make up the difference.

Trying to save an extra 40k in this country is near impossible.

realweirdo

Frank Lee Midere wrote: »

Oh FFS. The sheer financial illiteracy of it all. Let me so spell it out for you. If you increase credit without increasing supply you increase prices. If you curtail credit you curtail prices. If prices rise you won't be able to afford the houses anyway.

The fact is if there are 10000 houses for sale only 10000 houses will sell. If you give everybody 100% mortgages at 6x the average salary only 10,000 houses will sell but they will cost more than 500k.
If you curtail credit only 10,000 houses will sell but they will be much cheaper.

It's that illiteracy which caused the last crash.

Yes we need more supply. Which wouldn't be a problem if there were a political will.

Since when did the Irish propery market conform to any normal laws of economics?

Current house prices are wildly overpriced. House prices generally go up fast but come down extremely slowly.

These new rules will have negligible impact on bringing down house prices. And they will also collapse the building of new estates. Banks will know there is now no market for these estates. So supply will remain restricted indefinitely, and therefore prices will remain high indefinitely. These proposals are a lose-lose for everyone except Central Bankers who only care about sums and figures and not people's lives.

Frank Lee Midere

realweirdo wrote: »

Supposed to be coming in 1st January Lucy. So if I was you, I'd try to buy before then if possible and maybe get a loan from a relative to make up the difference.

Trying to save an extra 40k in this country is near impossible.

Actually they said that there would be some leeway for 20% of buyers. Lucy will probably get that as she is approved.

Frank Lee Midere

There should also be a penalty for people who get the deposit from relatives - and in fact it happens already informally - because they have shown no ability to save.

realweirdo

desertcircus wrote: »

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

It is but it has nothing to do with the size of deposits required or the loan to salary rate.

If someone is unemployed, it doesn't matter how great their salary was. If they took out a mortgage on a house that was only 2 times their annual salary and then they lost their job, guess what, they are screwed. A person in employment meanwhile could easily afford 4.5 or 5 times their salary.

My guess is of those 25% in arrears, either one or both wage earners became unemployed as a result of the recession.

realweirdo

Frank Lee Midere wrote: »

There should also be a penalty for people who get the deposit from relatives - and in fact it happens already informally - because they have shown no ability to save.

Clearly you are not living in the real world where people struggle to get by and have to fund childcare, etc etc. and which makes saving difficult.

Clearly you don't believe most people should have the chance to buy a house.

You wouldn't be an investment landlord per chance?

Sarn

It looks like there will be a spike in house sales as we come up to the end of the year as those who will not meet the new criteria scramble to get ahead of the changes. Given the lack of supply, this can only manifest as a temporary jump in prices. If you can afford to wait, I think it wise to see how things play out in the second and third quarters of next year.

dubrov

realweirdo wrote: »

It is but it has nothing to do with the size of deposits required or the loan to salary rate.

If someone is unemployed, it doesn't matter how great their salary was. If they took out a mortgage on a house that was only 2 times their annual salary and then they lost their job, guess what, they are screwed. A person in employment meanwhile could easily afford 4.5 or 5 times their salary.

My guess is of those 25% in arrears, either one or both wage earners became unemployed as a result of the recession.

Have to agree. Most of these mortgages were taken out when interest rates were much higher, Even large wage cuts would be offset by a drop in mortgage.

Most defaults are probably due to loss of employment or are strategic

Frank Lee Midere

realweirdo wrote: »

Since when did the Irish propery market conform to any normal laws of economics?

Current house prices are wildly overpriced. House prices generally go up fast but come down extremely slowly.

These new rules will have negligible impact on bringing down house prices. And they will also collapse the building of new estates. Banks will know there is now no market for these estates. So supply will remain restricted indefinitely, and therefore prices will remain high indefinitely. These proposals are a lose-lose for everyone except Central Bankers who only care about sums and figures and not people's lives.

If you think that house prices won't be affected you don't understand the role of credit in housing. Whatever happens to housing prices now will be less growth than if credit were loose.

And you have fallen for the poor mouth developer nonsense. If the government wanted housing supply increased it could do it tomorrow with carrot and stick.

The central banker is doing exactly what he should be doing - stopping a runway housing market. The fact that we didn't do it last time is why the country nearly bankrupted.

At least this puts to rest who was responsible for the last collapse. Joe public was. Nothing that FF could have done. And if after a huge crash caused by runaway credit doesn't convince people that credit control is a good idea in 2014 there was no hope in 2006.

on_my_oe

They have largely based this on the NZ 20% deposit.

In Jan 2014 it took 19 median incomes in Auckland to buy a home at the city's median house price, 3 months the rule came in.

A year later the median price in Auckland has increased 10% year on year, but the median Auckland wage hasn't.

FTB also receive help from their employer and the government if they save for 3 years, of $1,000 a year (to a maximum of $5,000/5 years). There is no stamp duty or CGT in NZ but landlords don't have the same number of income write offs.

Frank Lee Midere

realweirdo wrote: »

Clearly you are not living in the real world where people struggle to get by and have to fund childcare, etc etc. and which makes saving difficult.

Clearly you don't believe most people should have the chance to buy a house.

You wouldn't be an investment landlord per chance?

No i am not. If I were already an investment landlord I would be in favour of 100% mortgages at 6x income. Most people with skin in the game who have property would understand that would massively increase prices.

I want lower prices. This is step one. Step two is more supply. That simple.

Frank Lee Midere

on_my_oe wrote: »

They have largely based this on the NZ 20% deposit.

In Jan 2014 it took 19 median incomes in Auckland to buy a home at the city's median house price, 3 months the rule came in.

A year later the median price in Auckland has increased 10% year on year, but the median Auckland wage hasn't. FTB also receive help from their employer and the government if they save for 3 years, of $1,000 a year (to a maximum of $5,000/5 years). There is no stamp duty or CGT in NZ but landlords don't have the same number of income write offs.

the solution in NZ is to build more houses. That's always the solution to housing shortages.

realweirdo

Frank Lee Midere wrote: »

the solution in NZ is to build more houses. That's always the solution to housing shortages.

And who is going to buy the houses? It's a chicken and egg situation that's ultimately doomed to fail.

People can't afford houses, no-one will build houses. No-one builds houses, supply becomes ever more restricted, driving up the price of houses and further out of the affordability of the majority.

It doesn't matter if you build 1 million new houses at a value of 200,000 each if no-one can afford them.

I agree prices follow supply and demand. But this move will not increase supply. Developers and banks are in the business of home construction for profit.

In Dublin there might be a a critical mass of buyers to justify limited house building although I doubt it.

I am sure you would be the first to admit these measures will push house buying well beyond the affordability of the majority.

And again our arrears crisis has nothing to do with the easy availability of credit. It has everything to do with massive unemployment.

on_my_oe

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on_my_oe

Frank Lee Midere wrote: »

the solution in NZ is to build more houses. That's always the solution to housing shortages.

Yes, but they're not, and those they are are still unaffordable to FTB - people are moving and doing 120km commutes.

Renters are screwed as rents are going up, and you have people living in their cars or several families sharing a property, one family in the garage. People are paying 45%/50% rents.

Unfortunately two of my siblings are mortgage brokers in NZ and my mother and another sister are estate agents, all operating in the Auckland market. My aunt is also senior in the South Auckland 'Housing NZ' (social housing) division.

I think the 20%/3.5 multiple is a step too far - 15%/3.5 or 20%/4 would have left a little hope in the market for FTB.

Frank Lee Midere

realweirdo wrote: »

And who is going to buy the houses? It's a chicken and egg situation that's ultimately doomed to fail.

People can't afford houses, no-one will build houses. No-one builds houses, supply becomes ever more restricted, driving up the price of houses and further out of the affordability of the majority.

It doesn't matter if you build 1 million new houses at a value of 200,000 each if no-one can afford them.

I agree prices follow supply and demand. But this move will not increase supply. Developers and banks are in the business of home construction for profit.

In Dublin there might be a a critical mass of buyers to justify limited house building although I doubt it.

I am sure you would be the first to admit these measures will push house buying well beyond the affordability of the majority.

And again our arrears crisis has nothing to do with the easy availability of credit. It has everything to do with massive unemployment.

This measure will have no impact on who buys houses. It will just reduce the cost for everybody. And again with the kool aid about developers not developing unless houses are 300k plus. The clowns who made that argument are the clowns who caused the last crash. ( Why do people taje these guys at their word?). NAMA seems to have an interest in over valued houses.

Look around Europe. Houses are being built for a lot cheaper than Dublins average.

And any carrot or stick would help. Tax on unused land. Lower credit for certain developers ( maybe that QE stimulus). Tax concessions to build. Tax penalties to hoard.

The CB is not the government. Honohan is the only adult in the country. We could have lower prices next year if we wanted. In a country full of landlords in the Dail and underwater "professionals" and a media in thrall to property there is no hope but it's easily possible.

Plenty of people in arrears probably have jobs. Without jobs you are generally repossessed.

Frank Lee Midere

on_my_oe wrote: »

Yes, but they're not, and those they are are still unaffordable to FTB - people are moving and doing 120km commutes.

Renters are screwed as rents are going up, and you have people living in their cars or several families sharing a property, one family in the garage. People are paying 45%/50% rents.

Unfortunately two of my siblings are mortgage brokers in NZ and my mother and another sister are estate agents, all operating in the Auckland market. My aunt is also senior in the South Auckland 'Housing NZ' (social housing) division.

I think the 20%/3.5 multiple is a step too far - 15%/3.5 or 20%/4 would have left a little hope in the market for FTB.

You know most western governments seem to want to kill their economies with these ludicrous house manipulations. NZ has more sheep than people. Both islands are bigger than Ireland. That any part of it should have houses at 20 times income is absurd. And can't last.

realweirdo

I wonder what people think would happen if for example everyone had to put up 100% of the money of a house up front, no mortgage. Some people would believe this would drive down the price of houses, but it wouldn't really.

I would imagine, all things considered it costs on average 200k to build a half decent house in Dublin area, price of land included.

Also, how exactly do these new measures help people in negative equity trying to sell their homes, even if house prices come down. They are screwed again. I know there is a provision that it won't impact them buying another house, but what about selling? They will lose again.

The whole thing has so many basic flaws in it.

El_Dangeroso

El_Dangeroso wrote: »

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.

But it's not always possible for people to save in their 20's when they are in college etc and it's not fair to expect people to live in rented accomidation until their are 40 or older because they decided to study for longer especially as they will most likely have much better jobs because of it.

I see nothing wrong with a person buying in their late 20's or early 30's after maybe a year in their job saving for that year on top of say a good gift from parents.

hometruths

realweirdo wrote: »

And again our arrears crisis has nothing to do with the easy availability of credit. It has everything to do with massive unemployment.

Unfortunately that argument is complete garbage, but seems to be so commonly held that it is accepted wisdom.

Our arrears crisis has everything to do with easy credit - put simply people entered into a 30 year contract to borrow money that they could not afford to repay, because credit was easy to obtain. The reasons now why they can't afford it - whether its unemployment, wage cuts, strategic defaulting, negative equity etc - are to a large extent irrelevant.

What is highly relevant is that those people who now cannot afford to repay are being allowed to stay in their homes through debt write offs, interest only restructurings etc etc. This is a large factor in causing a restriction in supply.

In a normally functioning market these homes would be repossessed and sold on the open market. If the banks were allowed to enforce their security as per the terms of the contract buyers signed, there would be plenty of affordable houses for sale and the market would fix itself over time.

Everyone is now saying these latest massive increases is not a bubble because there is no easy credit in the market. That's garbage too. The tens of thousands of people who are living in houses when they have not paid their mortgage in over 2 years are benefiting from the cheapest, easiest credit imaginable!

Yes there is a human argument against evicting people from their houses but we cannot have it both ways.

If you are against the idea that banks could possibly repossess, you should be happy to accept the consequences i.e high property prices coupled with the highest mortgage interest rates in Europe.

If you want to see affordable housing in a properly functioning market you should embrace credit control and the fact that there are consequences to borrowing beyond your means - ie repossession.

RevOC

I only heard a week or two ago that they were going to asking for as little as 7% deposit and today I hear it could be a minimum 20%..?! Serious turn around in a matter of weeks

If this comes in on January 1, you'd want to be very quick wrapping up a sale if you want it over the line by Christmas.

If you're already sale agreed it's easily doable. But for houses coming on the market as soon as the end of this month, you'd be hard-pressed to agree a price, get all the legal stuff done and draw down the mortgage in time.

As we know, 'approval in principle' is meaningless when it comes to the crunch.

ixoy

How many house buyers right now are FTBs? How much of an impact is this policy going to have on the market that it's designed to calm? I can see people no longer selling their houses because they'll be hoping this policy is revoked - therefore causing a further supply crunch. While this is going on people will end up spending more renting and any additional savings they would have made by a price drop will be spent renting.
It really seems like a supply issue this time, not a credit one.

Frank Lee Midere

realweirdo wrote: »

I wonder what people think would happen if for example everyone had to put up 100% of the money of a house up front, no mortgage. Some people would believe this would drive down the price of houses, but it wouldn't really.

I would imagine, all things considered it costs on average 200k to build a half decent house in Dublin area, price of land included.

Also, how exactly do these new measures help people in negative equity trying to sell their homes, even if house prices come down. They are screwed again. I know there is a provision that it won't impact them buying another house, but what about selling? They will lose again.

The whole thing has so many basic flaws in it.

You are engaging in refuducto ad absurdism because you can't really argue that lowering credit will lower prices or stop them rising.

You know when our parents bought cheap housing? It was because of rules like these.

As for people in negative equity what helps them would be higher prices. We can't and shouldn't help them anymore than we are.