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Central Bank to limit amount banks lend for home purchase
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desertcircus wrote: »First I get criticised for leaving out car costs even though I was responding to someone who'd treated them separately. Then I get criticised for forgetting bin charges and the TV licence even though I accounted for them. I can't win.
That someone was me. I did treat the car expenses separately and never mentioned them thereafter. From reading your previous post it looks like you didn't include the TV License and bins in your original figure and my point was that when you included them later your estimate was less than the actual cost.desertcircus wrote: »To answer the question of what we'd do if we lost everything in a fire: we'd use a chunk of our savings to replace the essentials and push back our planned house purchase. That's all. We don't have enough stuff to ruin us if we had to replace it.
And what about potential structural damage and the cost of housing yourself in the interim? A fire doesn't just burn your possessions, it burns your house too. And most fires will leave the house uninhabitable for a period of time at least, if not also requiring a certain amount of rebuilding. The vast majority of home insurance is about the structure itself and not the possessions within.0 -
And what about potential structural damage and the cost of housing yourself in the interim? A fire doesn't just burn your possessions, it burns your house too. And most fires will leave the house uninhabitable for a period of time at least, if not also requiring a certain amount of rebuilding. The vast majority of home insurance is about the structure itself and not the possessions within.
But someone saving for a house who's renting has no interest in structural damage. Desertcircus, as far as I can tell is a FTB who's renting, and has based their calculations on their own experience. Contents is the only insurable cost for their home.0 -
Michael D Not Higgins wrote: »But someone saving for a house who's renting has no interest in structural damage. Desertcircus, as far as I can tell is a FTB who's renting, and has based their calculations on their own experience. Contents is the only insurable cost for their home.
Correct. I should also point out that my licence-plus-bins estimate isn't off: we've put out our black bin four times in two and a half years and our brown bin twice.0 -
I think people need to also realise that interest rates are considerably higher than they were in 2005 onwards when we had great low trackers. Unfortunately new mortgages are a good bit more expensive0
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I think people need to also realise that interest rates are considerably higher than they were in 2005 onwards when we had great low trackers. Unfortunately new mortgages are a good bit more expensive
And as opposed to tracker mortgages where banks are tight to a mathematical formula to calculate the rate, I believe today's variable mortgages are giving banks total freedom to set whatever rate they want anytime they want (as long as the rules are the same for all borrowers). This means much more uncertainty for today's borrowers as one bank could in theory decide to hike their rates if they need quick cash or see the market will allow them to get away with it.0 -
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Mind you, these low rates were one of the reasons prices were able to go so crazy. The fact that prices in Dublin at least are half way back to crazy already is quite depressing.I think people need to also realise that interest rates are considerably higher than they were in 2005 onwards when we had great low trackers. Unfortunately new mortgages are a good bit more expensive0 -
desertcircus wrote: »Correct. I should also point out that my licence-plus-bins estimate isn't off: we've put out our black bin four times in two and a half years and our brown bin twice.
So in other words when you tried to compare your own situation to mine you basically failed to mention that it's completely different?
And only putting your bin out 4 times in 2 1/2 years is anything but the norm. That's an average of once every 7 1/2 months. How exactly you accomplish this I have no idea.
So the whole conversation was an utter waste of time.0 -
So in other words when you tried to compare your own situation to mine you basically failed to mention that it's completely different?
And only putting your bin out 4 times in 2 1/2 years is anything but the norm. That's an average of once every 7 1/2 months. How exactly you accomplish this I have no idea.
So the whole conversation was an utter waste of time.
My apologies; I mistakenly thought you were a renter and didn't realise my error.0 -
desertcircus wrote: »Correct. I should also point out that my licence-plus-bins estimate isn't off: we've put out our black bin four times in two and a half years and our brown bin twice.
How much does refrigerating the bins so they don't turn in to putrid, vermin-infested stinking messes in that time cost, then :pac:You don't have health insurance either. What if there was an accident?
Health insurance is of minimal to no use in Ireland for critical care.0 -
How much does refrigerating the bins so they don't turn in to putrid, vermin-infested stinking messes in that time cost, then?
Less of a problem than you'd think! We wash and recycle every food container that can be recycled, raw vegetable waste goes in the brown bin, and we minimise cooked food waste to near zero (and leave cooked meat waste out for the local cat). Very little that's biological goes in our black bin. It takes a fair bit of effort to get used to, but once you're in the habit, it's easy to keep going.0 -
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I think I mentioned it previously on this thread, but I'm of the opinion that this was the central bank bulling on with plans, knowing that rental market reform was needed, but not having any power to do anything about it.So I support the idea that we need to move to a more stable property market. I'm a first hand example of exactly why it needs to happen. But this move is so drastic and sudden that it's screwing over the people who most need help right now. It was a lazy answer to a complicated problem. And that the rental market wasn't dealt with first I find utterly baffling as it forces others (not me) to rent for longer in a market that is out of control. Which hinders their ability to save. As I said, a lazy answer to a complicated problem.
I suspect Honohan's goal was to force the government to do something about the rental sector, rather than waiting on failed promises from TDs to do something.
To a certain extent, yes the move is drastic, but any change is always going to have an effect on somebody. There is no way you can change the rules and not impact anyone.
There's relative fairness in these rules because their intention is to get trader-uppers to use their equity to fund the 20% rather than take 10% for themselves to go to Disneyworld and buy a new car. However the rules acknowledge a whole section of the market for whom trading up is moving from negative equity, so will have 10% saved at best.
The short-term effect here is that people selling properties, like myself, will intentionally sell the property for less than my mortgage balance, in order to benefit from the relaxed lending rules for negative equity.
But overall, there's a fair argument that such bending of the rules is actually a good thing for the market by putting a dampener on prices; where someone may push their asking price €20k over their mortgage to take a small profit, they will now refuse offers above asking so as to remain in negative equity when they sell.
The next 12-24 months will be an interesting time in the property market.0 -
The whole deposit thing is a nonsense and I can't understand why more people are not up in arms about it. I can still remember the whole 'soft landing' speech that every TD and CEO was spouting in 2006/2007. Yet here we are in 2015 with the central bank telling us that a 20% deposit will cure every problem we have ever had. What Tosh.
The deposit scheme benefits the central bank by forcing people to invest hard cash into the system reducing the risk to lenders and reducing the need for the central bank to intervene of support risky loans.
You could of reduced property inflation just through the 3.5 times salary cap alone and given the purchaser the choice on how much to save and invest. 95% mortgages could of been the maximum and there could of been a sliding scale reducing towards more expensive property so bigger risks need greater investments. You could of done all sorts of other things to benefit people looking to buy and try to provide a degree of stabilisation.
There has been no tackling of the commercial property market which was a major part of Irelands troubles. Private investors buying multiple properties, buying large office blocks and sites for development and hotels.
Coming back to the idea that large deposits can prevent property bubbles I would like to hear examples of where if it is so cut and dry and a tried and tested method. I have not heard a single example of a country where this has been successfully implemented and they suddenly become immune to economic disaster.
This is probably because its totally false. If the tech industry were to take a fall tomorrow then thousands would lose their jobs and no amount of deposit would help when you have no money to pay your mortgage. Economic cycles will be totally unaffected by property deposits as they operate at a macro level.
The future will be very interesting indeed. I would imagine that estate agents are going to get very quiet in the coming weeks if not already as people are faced with years of further saving just to take the pressure off the central bank. Banks as the primary lenders are also going to be hit as they see lending drop which will hit their bottom line and put tremendous pressure on them.
Lets hope the central bank reduce this to a reasonable 10% if they insist on it at all towards the end of the year after the worst year of property sales ever and we then all see first hand that they didn't really know what the hell they were doing in the first place.0 -
I hope so myself!!!
Got AIP yesterday. Have a more than adequate deposit but the 3.5 time my wage rule has killed my chances0 -
It's tosh alright, but you made it up.The whole deposit thing is a nonsense and I can't understand why more people are not up in arms about it. I can still remember the whole 'soft landing' speech that every TD and CEO was spouting in 2006/2007. Yet here we are in 2015 with the central bank telling us that a 20% deposit will cure every problem we have ever had. What Tosh.
Indeed. Financial stability is what the central bank is there for. I don't think any of us enjoyed having €40 billion of bank debt heaped on us.The deposit scheme benefits the central bank by forcing people to invest hard cash into the system reducing the risk to lenders and reducing the need for the central bank to intervene of support risky loans.
You could have, but the LTI limits don't give the borrower or lender any sort of cushion should the borrower lose their job. A 20% LTV gives quite a good cushion.You could of reduced property inflation just through the 3.5 times salary cap alone and given the purchaser the choice on how much to save and invest. 95% mortgages could of been the maximum and there could of been a sliding scale reducing towards more expensive property so bigger risks need greater investments. You could of done all sorts of other things to benefit people looking to buy and try to provide a degree of stabilisation.
New Zealand for one. But then the limits do no claim to make a country 'immune to economic disaster' - that would just be silly. It does reduce the risk of property bubbles and the the risk of banks collapsing beneath the weight of bad loans. It also reduces the rate of strategic default.Coming back to the idea that large deposits can prevent property bubbles I would like to hear examples of where if it is so cut and dry and a tried and tested method. I have not heard a single example of a country where this has been successfully implemented and they suddenly become immune to economic disaster.
These are all good things.
20% equity (plus whatever equity you have built up due to HPI and paying off your mortgage) is quite a good cushion that would tide most people over for a couple of years before they get into negative equity, even if they make no mortgage payments at all.This is probably because its totally false. If the tech industry were to take a fall tomorrow then thousands would lose their jobs and no amount of deposit would help when you have no money to pay your mortgage. Economic cycles will be totally unaffected by property deposits as they operate at a macro level.
Let us hope not.Lets hope the central bank reduce this to a reasonable 10% if they insist on it at all towards the end of the year after the worst year of property sales ever and we then all see first hand that they didn't really know what the hell they were doing in the first place.
Your whole argument is like suggesting that there's no point in wearing a seatbelt in your car because if you hit a truck at 100mph, you will die anyway.0 -
The whole deposit thing is a nonsense and I can't understand why more people are not up in arms about it. I can still remember the whole 'soft landing' speech that every TD and CEO was spouting in 2006/2007. Yet here we are in 2015 with the central bank telling us that a 20% deposit will cure every problem we have ever had. What Tosh.
The deposit scheme benefits the central bank by forcing people to invest hard cash into the system reducing the risk to lenders and reducing the need for the central bank to intervene of support risky loans.
You could of reduced property inflation just through the 3.5 times salary cap alone and given the purchaser the choice on how much to save and invest. 95% mortgages could of been the maximum and there could of been a sliding scale reducing towards more expensive property so bigger risks need greater investments. You could of done all sorts of other things to benefit people looking to buy and try to provide a degree of stabilisation.
There has been no tackling of the commercial property market which was a major part of Irelands troubles. Private investors buying multiple properties, buying large office blocks and sites for development and hotels.
Coming back to the idea that large deposits can prevent property bubbles I would like to hear examples of where if it is so cut and dry and a tried and tested method. I have not heard a single example of a country where this has been successfully implemented and they suddenly become immune to economic disaster.
This is probably because its totally false. If the tech industry were to take a fall tomorrow then thousands would lose their jobs and no amount of deposit would help when you have no money to pay your mortgage. Economic cycles will be totally unaffected by property deposits as they operate at a macro level.
The future will be very interesting indeed. I would imagine that estate agents are going to get very quiet in the coming weeks if not already as people are faced with years of further saving just to take the pressure off the central bank. Banks as the primary lenders are also going to be hit as they see lending drop which will hit their bottom line and put tremendous pressure on them.
Lets hope the central bank reduce this to a reasonable 10% if they insist on it at all towards the end of the year after the worst year of property sales ever and we then all see first hand that they didn't really know what the hell they were doing in the first place.
Exactly. Take that logic and apply it to an "average" couple, i.e. a couple on the average wage.
Average Wage:|€35,000
Combined Average Wage:|€70,000
|
Max. Mortgage Allowed:|€245,000
Max House Price:|€272,222
Deposit Required:|€27,222
|
Monthly Mortgage Repayments:|Approx €1,245
This will force house prices down because they will need to sell, is a manageable mortgage for those earnings and a manageable deposit.
Now let's look at an average SCD home of around €450k (not what I've been looking at in case anyone gets any ideas):
House Price:|€450k
Max Mortgage Allowed:|€405k
Deposit Required:|45k
|
Monthly Mortgage Repayment:|Approx €2,050
|
Combined Required Wage:|€115,714
Individual Required Wage:|€57,857
Again this is all very doable. And by tying the house price to salary it will force the prices down to a manageable level and maintain some stability on them. We don't need these drastic measures and introducing them is only making the whole thing more difficult.0 -
And the LTV limits won't bring prices down?Again this is all very doable. And by tying the house price to salary it will force the prices down to a manageable level and maintain some stability on them. We don't need these drastic measures and introducing them is only making the whole thing more difficult.
I understand that you find yourself in a difficult situation, but the rules can't be made to suit the exceptions, and the past. They have to be made for the good of the many, and for the future.0 -
You could of reduced property inflation just through the 3.5 times salary cap alone and given the purchaser the choice on how much to save and invest. 95% mortgages could of been the maximum and there could of been a sliding scale reducing towards more expensive property so bigger risks need greater investments. You could of done all sorts of other things to benefit people looking to buy and try to provide a degree of stabilisation.
Your understanding of risk is strange. It is riskier to give a 90% LTV 3.5 LTI mortgage to someone on a lower income than a higher income.Coming back to the idea that large deposits can prevent property bubbles I would like to hear examples of where if it is so cut and dry and a tried and tested method. I have not heard a single example of a country where this has been successfully implemented and they suddenly become immune to economic disaster.
Looks like another person who hasn't read the consultation paper. There are 11 examples of countries using LTV limiting ratios, and the paper also says:the most widely-used tool is the limit on LTV ratios, followed by sectoral capital requirements and LTI caps or a combination of LTV and LTI limitsHong Kong has had a LTV cap in place since 1994 and suffered very low mortgage losses after the Asian crisis even though housing prices fell more than 60 per cent.
It's worth noting that HK also apply Keynesian economics to counter-cyclically apply the limits.0 -
Exactly. Take that logic and apply it to an "average" couple, i.e. a couple on the average wage.
Average Wage:|€35,000
Combined Average Wage:|€70,000
|
Max. Mortgage Allowed:|€245,000
Max House Price:|€272,222
Deposit Required:|€27,222
|
Monthly Mortgage Repayments:|Approx €1,245
This will force house prices down because they will need to sell, is a manageable mortgage for those earnings and a manageable deposit.
Now let's look at an average SCD home of around €450k (not what I've been looking at in case anyone gets any ideas):
House Price:|€450k
Max Mortgage Allowed:|€405k
Deposit Required:|45k
|
Monthly Mortgage Repayment:|Approx €2,050
|
Combined Required Wage:|€115,714
Individual Required Wage:|€57,857
Again this is all very doable. And by tying the house price to salary it will force the prices down to a manageable level and maintain some stability on them. We don't need these drastic measures and introducing them is only making the whole thing more difficult.
Why would you compair the average wage for the whole country against average house price in one of the most expensive parts of the country?0 -
RecordStraight wrote: »And the LTV limits won't bring prices down?
I understand that you find yourself in a difficult situation, but the rules can't be made to suit the exceptions, and the past. They have to be made for the good of the many, and for the future.
Who was talking about exceptions? As you can see above I've taken the average into account, and then looked at a couple who are better off as a comparator. The LTV limits will bring house prices down, nobody is arguing that. What I am arguing is that the LTV limits don't need to be that extreme to bring house prices down. You can have the same impact on house prices without the same LTV limit.
Take for example my own situation, which is closer to the SCD example I gave above than the average wage example.
Combined Wage:|€100,000
|
Max. Mortgage Allowed:|€350,000
Max House Price:|€388,889
Deposit Required:|€38,889
|
Monthly Mortgage Repayments:|Approx €1,780
So I've given 3 different examples. None of which are extremes, all of which will force house prices down and all of which are manageable for the levels of income we're looking at. Can you explain what exactly is wrong with the logic?0 -
The LTV limits aren't intended to bring prices down. The LTV limits are there to act as a cushion for both lenders and borrowers. Bringing prices down is just a side effect.Who was talking about exceptions? As you can see above I've taken the average into account, and then looked at a couple who are better off as a comparator. The LTV limits will bring house prices down, nobody is arguing that. What I am arguing is that the LTV limits don't need to be that extreme to bring house prices down. You can have the same impact on house prices without the same LTV limit.
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So I've given 3 different examples. None of which are extremes, all of which will force house prices down and all of which are manageable for the levels of income we're looking at. Can you explain what exactly is wrong with the logic?0 -
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Prices wont necessarily come down with these imposed limits but they may well rise to the most affordable level possible and just stay there. As wages rise they will rise to suit. Bear in mind that many properties are still in negative equity so reducing property values is not really an option for most sellers. Otherwise we would all of just sold our 1 bed apartments and other no longer suitable property years ago?
As prices almost certainly will not decrease the 3.5 LTV and deposit will probably stagnate the property market to the point of destruction. A lot of estate agents are already in the rental market for income streams but the drop of house sale income could well push a few off the cliff as they fail to bring in enough revenue to make their businesses viable.
House builders will probably start to pull out and renovations will cease significantly as the 2nd hand market is even less marketable.
The real opportunity here is to start manufacturing homes as high quality products in a factory and have them assembled by robots on site in a few hours rather than weeks. Solves the affordability issue as prices would be a fraction but also creates another industry where humans are no longer needed.0 -
Why would you compair the average wage for the whole country against average house price in one of the most expensive parts of the country?
I didn't. They are totally separate examples. What I was illustrating was the affordability of the mortgage and deposit of the two examples under the 3.5 times salary and 90% LTV set-up. And also the fact that it will force house prices down because of the way mortgages are linked to salary to strictly and definitively.0 -
RecordStraight wrote: »The LTV limits aren't intended to bring prices down. The LTV limits are there to act as a cushion for both lenders and borrowers. Bringing prices down is just a side effect.
But if you stabilise the market (which was my other point) that cushion isn't required to the same degree.
The biggest issue here was the massive increase in house prices and subsequent massive drop in prices. Tie the LTV to salary and that doesn't happen as much. Especially if you can control the investment market.0 -
The market cannot be relied on to remain 'stable'. We're looking at a second bubble in 10 years.But if you stabilise the market (which was my other point) that cushion isn't required to the same degree.
It will play a part in moderating it. The LTV limits will also play a part in moderating it.The biggest issue here was the massive increase in house prices and subsequent massive drop in prices. Tie the LTV to salary and that doesn't happen as much. Especially if you can control the investment market.0 -
RecordStraight wrote: »The market cannot be relied on to remain 'stable'. We're looking at a second bubble in 10 years.
It will play a part in moderating it. The LTV limits will also play a part in moderating it.
I'm not saying that you rely on the market itself to stabilise. Maybe you missed me saying it but I'm one of the people who has suffered for it now so you really, really don't need to tell me that.
I'm saying that the 90% LTV limit will stabilise the market every bit as much as the 80% LTV will. It'll do it at slightly higher prices, but as my examples above show it will do it at manageable prices.0 -
And also the fact that it will force house prices down because of the way mortgages are linked to salary to strictly and definitively.
I don't see from your post how you've shown that it will force house prices down?
Using the same analysis would the average price of houses in Donegal rise to 245K?0 -
I'm not saying that you rely on the market itself to stabilise. Maybe you missed me saying it but I'm one of the people who has suffered for it now so you really, really don't need to tell me that.
I'm saying that the 90% LTV limit will stabilise the market every bit as much as the 80% LTV will. It'll do it at slightly higher prices, but as my examples above show it will do it at manageable prices.
I think a big part of the LTV limits purpose is also around the issue of can't pay / won't pay. In a negative equity scenario, once the LTV goes above about 130%, there is a sharp increase in arrears, even in those with the financial means to pay.
The higher deposit requirements mean that if there were another crisis and property price collapse, less people are in the situation where there is little or no incentive to pay back the loan.0 -
I think a big part of the LTV limits purpose is also around the issue of can't pay / won't pay. In a negative equity scenario, once the LTV goes above about 130%, there is a sharp increase in arrears, even in those with the financial means to pay.
The higher deposit requirements mean that if there were another crisis and property price collapse, less people are in the situation where there is little or no incentive to pay back the loan.
Ding ding ding. I was half way typing up a similar response but I'm just getting disheartened that people haven't realised this yet.0 -
Can anyone confirm how the new rule s effect investors wanting to get BTL mortgages? Im sure I read in the paper last week that they now have to have a 75% cash deposit to buy a premises which means a 25% mortgage. Is this true or did I dream it? If it is true then its hard to see many investors with 75% cash deposits lining up, the rules should effectively remove them from the market and allow FTBers a free run?0
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is it true that investors seeking BtL mortgages need 75% cash desposits under the new rules? I was sure I read that somewhere last week but havent heard anything since0
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