Central Bank to limit amount banks lend for home purchase

seamus

dearg lady wrote: »

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

In my defence, those FAQs weren't there when I posted

P. Breathnach wrote: »

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.

I think that's a pretty good summary.

My gut feeling here is that the 90% threshold will have a tempering effect on house prices in the same way that the tax bands temper wages. With tax bands, the average wage tends to hover at or just above the higher tax rate band. This is because there are diminishing returns the higher above the band you go.

Likewise with the 90% threshold, the effort involved to go beyond the €220k band increases the further past that band you go. So getting in FTBs for properties much above €220k will always be a struggle; it will probably pin the average house price across the country to something like €250k, increasing over time of course as the central bank gradually increases this threshold.

In the short-term my concern is that we'll see a return to the days of throwing up two-bed shoeboxes pitched at FTBs in an effort to capitalise on the demand for property versus what €200k can realistically build, but I suppose higher density housing, especially in Dublin, is not a bad thing.

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

That's still a €66k deposit though. Reachable for a small number of FTBs, but the vast majority are going to be mid/late twenties who've been working between 5 and 7 years and have managed to put away around €5k a year. The parent contribution can't be understated, but that's the marginal part of the market, not the bulk of it.
Even if they do have the €66k minimum deposit, the LTI rules means they'll need to be earning €107k between them. Which is unlikely for a couple under 30.

makeorbrake

flogen wrote: »

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.

I agree - given that it wasn't implemented across the board - for all buyers from zero up - not from 220K.


of course the other thing is that this is only one instrument. It was never going to bring prices down in and of itself regardless of the overall environment.

The Spider

I don't think this is going to have a major effect in desirable locations like SCD, however it may have an effect in the western parts of the city, I stand by my contention that this will push up prices in the commuter counties as the deposits that people have saved will get them a lot more house for their buck and those deposits will easily cover the cost of houses outside Dublin.

I do think it's going to restrict supply, especially in Dublin, as people decide to hang in there, unless ordered to by the bank no one is going to sell a property and be left with a huge debt and no asset, just won't happen, conversley there may be an increase in supply of rental properties as the people who were going to sell decide to rent them out instead, it may drive down rents.

Builders still wont build not if the costs associated with the risk deliver little profit, Ronan Lyons was on the radio and said developers will have to look at wages etc, that won't fly builders will leave the country.

What no one is taking into account here is the effect Quantitive easing will have on all this, if it behaves as it should and creates inflation, then that means peoples wages will rise, so let's do a hypothetical and say that wages went up by a third in the next couple of years to keep in line with inflation (I know but it's fantasy economy speculation) that 20 percent deposit becomes easier and 220,000 may seem low.

That's my opinion on it, so we'll wait and see I suppose.

by the seaside

seamus wrote: »

In my defence, those FAQs weren't there when I posted

I think that's a pretty good summary.

My gut feeling here is that the 90% threshold will have a tempering effect on house prices in the same way that the tax bands temper wages. With tax bands, the average wage tends to hover at or just above the higher tax rate band. This is because there are diminishing returns the higher above the band you go.

Likewise with the 90% threshold, the effort involved to go beyond the €220k band increases the further past that band you go. So getting in FTBs for properties much above €220k will always be a struggle; it will probably pin the average house price across the country to something like €250k, increasing over time of course as the central bank gradually increases this threshold.

In the short-term my concern is that we'll see a return to the days of throwing up two-bed shoeboxes pitched at FTBs in an effort to capitalise on the demand for property versus what €200k can realistically build, but I suppose higher density housing, especially in Dublin, is not a bad thing.

That's still a €66k deposit though. Reachable for a small number of FTBs, but the vast majority are going to be mid/late twenties who've been working between 5 and 7 years and have managed to put away around €5k a year. The parent contribution can't be understated, but that's the marginal part of the market, not the bulk of it.
Even if they do have the €66k minimum deposit, the LTI rules means they'll need to be earning €107k between them. Which is unlikely for a couple under 30.

Interesting thoughts, seamus. I think one effect of this will be to put pressure against the widening of the gulf between Dublin / high cost areas and lower cost areas.

johnp001

The Spider wrote: »

I don't think this is going to have a major effect in desirable locations like SCD, however it may have an effect in the western parts of the city, I stand by my contention that this will push up prices in the commuter counties as the deposits that people have saved will get them a lot more house for their buck and those deposits will easily cover the cost of houses outside Dublin.

I do think it's going to restrict supply, especially in Dublin, as people decide to hang in there, unless ordered to by the bank no one is going to sell a property and be left with a huge debt and no asset, just won't happen, conversley there may be an increase in supply of rental properties as the people who were going to sell decide to rent them out instead, it may drive down rents.

Builders still wont build not if the costs associated with the risk deliver little profit, Ronan Lyons was on the radio and said developers will have to look at wages etc, that won't fly builders will leave the country.

What no one is taking into account here is the effect Quantitive easing will have on all this, if it behaves as it should and creates inflation, then that means peoples wages will rise, so let's do a hypothetical and say that wages went up by a third in the next couple of years to keep in line with inflation (I know but it's fantasy economy speculation) that 20 percent deposit becomes easier and 220,000 may seem low.

That's my opinion on it, so we'll wait and see I suppose.

What inflation?
http://www.cso.ie/en/releasesandpublications/er/cpi/consumerpriceindexdecember2014/index.html#.VMjZsf7kc38

Also, I really wish I could believe that the QE money was going to trickle down far enough to make any difference to anyone's wages outside of the 1%

El_Dangeroso

There's another element you haven't mentioned Spider (probably 'cos you are talking short term (<3 years) - which is fair enough) is the upcoming demographic crash.



30-34 age range is by far the biggest and this is prime FTB age. Look at the sharp drop off after that.

Immigration is not going to plug the whole that much unless it vastly increases.

by the seaside

Here's an interesting bit:

Loan to Value (LTV) for Buy to Let mortgages (BTLs)

BTL mortgages are subject to a limit of 70 per cent LTV.
This limit can only be exceeded by no more than 10 per cent of the euro value of all housing loans for non PDH purposes during an annual period.

Does anyone know what LTV BTL mortgages typically are, and what proportion are >70% LTV. Could be another crutch kicked from under high prices.

flogen

The Spider wrote: »

I do think it's going to restrict supply, especially in Dublin, as people decide to hang in there, unless ordered to by the bank no one is going to sell a property and be left with a huge debt and no asset, just won't happen.

Hang in there for what? Sure - some might be less inclined to sell but those who need to sell for personal or economic reasons won't benefit much by hanging around (unlike in cases where prices dip for other reasons but have the prospect of recovering down the line).

skallywag

mrmitty wrote: »

We all created this mess

Wise words.

The Spider

flogen wrote: »

Hang in there for what? Sure - some might be less inclined to sell but those who need to sell for personal or economic reasons won't benefit much by hanging around (unlike in cases where prices dip for other reasons but have the prospect of recovering down the line).

Seriously, they'll rent them out, how many times have we heard the term accidental landlord?

digitalninja

skallywag wrote: »

Wise words.

As a FTB I didn't create any mess.

flogen

The Spider wrote: »

Seriously, they'll rent them out, how many times have we heard the term accidental landlord?

Maybe... but with property prices now effectively linked to incomes, they'll find themselves in that position for a long time.

PixieOD

The Central Bank will tighten new mortgage restrictions if they prove not to be tough enough or if there is evidence of a property bubble emerging, Governor Patrick Honohan said today.

.... could get worse for FTBs

skallywag

digitalninja wrote: »

As a FTB I didn't create any mess.

I can't comment on your particular circumstances as I do not know them.

I can, however, say that I know several FTBers who borrowed much more than they could realistically expect to be able to pay back. Just because the bank gave them the money does not exonerate them personally from a lack of general cop on and logic.

RoboRat

digitalninja wrote: »

As a FTB I didn't create any mess.

As a current property owner, neither did I as I have never missed a repayment. I have also demonstrated the ability and willingness to pay a mortgage over a sustained period and have an excellent credit rating... but obviously that has no bearing on the CB or their lending practices.

handlemaster

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 !!

I think prices will move up from the 150 mark to the bench marking of 220. Alot of people are not taking into account the expectations of sellers will have. It doesnt have to be an exact science setting the house price ,the sentiment can be enought to push the lower priced housing up as it is only 10% deposit

by the seaside

handlemaster wrote: »

I think prices will move up from the 150 mark to the bench marking of 220. Alot of people are not taking into account the expectations of sellers will have. It doesnt have to be an exact science setting the house price ,the sentiment can be enought to push the lower priced housing up as it is only 10% deposit

But overall across the market, there will be less credit available and this will depress prices.

Michael D Not Higgins

by the seaside wrote: »

But overall across the market, there will be less credit available and this will depress prices.

Assuming supply remains the same, which it's not.

matt-dublin

all i can say is that I'm devastated....

Flem31

I think setting a threshold of 220k is all well and good but I don't think it will have a long lasting effect on the market. The market will simply move towards the price point in the short term and if economy remains stable, the prices will move above this threshold

In the early part of the last decade, there was a 190k threshold for first time buyers buying second hand homes for stamp duty purposes.
Under the limit, no stamp duty.
Over the limit it was 3% on the entire purchase price up to 254k, and was payable within one month of getting the keys.


So to compare the two decades
Example Buy a house for 230k in 2015 compared to 2003

2015
Deposit Required
10% of 220k plus 20% of 10k is 24,000


2002
Deposit required
8% typically of 230k is 18,400
Stamp Duty
3% of 230k is 6,900
Total Cost 25,300

So if the 190k wasn't much of a hurdle in 2002, why would 220k now be any bigger obstacle. The market moved quickly on from the 190k and I believe the threshold earmarked now could be irrelevant in 18 months

TrishSimon

matt-dublin wrote: »

all i can say is that I'm devastated....

Alot of people are I think, personally my plan was to buy a house this year as I had the 10% but now I am looking at 2017 when I will be 41 either that or leave and emigrate to Canada or Australia where there is a better chance in life.

matt-dublin

completely agree, and am in the same boat. was about to sell. have the 10%, have our eve on a property. bank ready to approve once sold.

the kelt

matt-dublin wrote: »

all i can say is that I'm devastated....

That more or less sums up how im feeling today to be honest.

Things were beginning to look up and now i honestly feel more trapped than ever. Feeling trapped is a horrible feeling.

kippy

TrishSimon wrote: »

Alot of people are I think, personally my plan was to buy a house this year as I had the 10% but now I am looking at 2017 when I will be 41 either that or leave and emigrate to Canada or Australia where there is a better chance in life.

You'd want to take a long hard look at the cost of housing in any area with jobs in Canada or Aus before making that decision.

johnp001

These rules also prohibit >90% lending for any class of buyer.
>90% lending figures (blue line) as given in the CB report

PRAF

the kelt wrote: »

That more or less sums up how im feeling today to be honest.

Things were beginning to look up and now i honestly feel more trapped than ever. Feeling trapped is a horrible feeling.

You're not the only one. I'm sure the politicians will be under more pressure than ever to do something now. Unfortunately:
1. Most TDs are from rural areas where prices are much lower and these rules will have a less severe impact. I fear lots of TDs won't see this as a priority
2. Lots of TDs are in the 50-65 age bracket, have mortgages paid off, and are not intrinsically motivated to do much about this
3. The govt TDs have a vested interest in seeing NAMA succeed and seeing the Banks sold off for as much as possible. It's in their interest for property prices to rise
4. I'm not sure that easing things for upwardly mobile 30 somethings is high on the priority list for the socialists or the AAA. They are more concerned with a 160e annual charge for water

Hopefully the likes of Varadkar, Coveney, Donoghue, or White will try to do something. More importantly, hopefully they address the supply side problems and rental market rather than a quick fix solution (such as increased mort. int relief of FTB grants).

MayBea

MayBea wrote: »

According to The Irish Times (Wed, Aug 13, 2014):
The latest IBF/PwC Mortgage Market profile for the second quarter of the year shows that some 8,228 new mortgages were drawn down in the six months to June 30th. However, according to the Property Price Register, 15,435 properties were actually sold during this period, indicating that 47 per cent of all property purchases were funded without a mortgage.
On top of that (Independant, 27/11/2014 ):
Mr Honohan told an Oireachtas Committee yesterday... that last year 2013, the number of loans of more than 80pc to first-time buyers was 2,800

Therefore we have 15,435 properties sold in 6 months with only approx. 1,400 being sold to FTB with mortgages exceeding 80% LTV.
It would be right to say that around 9% of all purchases were made by the FTB with 85%-90% mortgages.

It is quite interesting to look at the last year stats and to get down to the numbers again.
As per Independant (28/01/2015 ):
In 2014, 44pc of home loans were for more than the 80pc loan-to-value ratio proposed by the Central Bank.
We can apply this ratio to the figures above: Out of 8,228 new mortgages that were drawn down in the first six months of 2014, around 3,620 we loans for more than the 80%.
Knowing that approx. 1,400 being sold to FTB we have can conclude that the remainder was sold to second (third?)-time buyers (with mortgages exceeding 80% LTV), and this is approx. 2,220 properties.
Bringing all the data together it is interesting to see that out of 15,435 properties sold in the first half 0f 2014:
47% sold to cash buyer;
30% to loans <80%;
23% to loans > 80%.
If the new CB rules were introduced last year, around 3,620 homebuyers would have either not being able to buy or would have need to reevaluate their finances.

CarpeDiem85

I was aiming to buy a house in the next 4-5 years. Hopefully the rules will have changed by then because even a 10% deposit seems a long way off at the minute.

by the seaside

PRAF wrote: »

3. The govt TDs have a vested interest in seeing NAMA succeed and seeing the Banks sold off for as much as possible. It's in their interest for property prices to rise

You may be right about the vested interest, but free and easy credit is what drove the last boom, and the credit crunch following the boom drove the last bust.

Restricting credit is not a way of pushing prices up, but of dampening the upward pressure that may otherwise cause the next bubble.

johnp001

Flem31 wrote: »

I think setting a threshold of 220k is all well and good but I don't think it will have a long lasting effect on the market. The market will simply move towards the price point in the short term and if economy remains stable, the prices will move above this threshold

In the early part of the last decade, there was a 190k threshold for first time buyers buying second hand homes for stamp duty purposes.
Under the limit, no stamp duty.
Over the limit it was 3% on the entire purchase price up to 254k, and was payable within one month of getting the keys.


So to compare the two decades
Example Buy a house for 230k in 2015 compared to 2003

2015
Deposit Required
10% of 220k plus 20% of 10k is 24,000


2002
Deposit required
8% typically of 230k is 18,400
Stamp Duty
3% of 230k is 6,900
Total Cost 25,300

So if the 190k wasn't much of a hurdle in 2002, why would 220k now be any bigger obstacle. The market moved quickly on from the 190k and I believe the threshold earmarked now could be irrelevant in 18 months

For completeness, the 2015 pricing should also include stamp duty at 1%
I do not see that there is a threshold to raise the market towards €220k. It is not comparable to the stamp duty threshold above. The price vs deposit graph is a continuous function with an angle at €220k not discontinuous like the old stamp duty.