Central Bank to limit amount banks lend for home purchase

kippy

quadrifoglio verde wrote: »

As much as I hate state interferance, sadly there are people in society who are too willing to overstretch themselves to buy a property that they can't afford and need protecting from themselves.
One only has to look at the levels of arrears to realise this, there's a lot of people in arrears simply because they borrowed more than they could afford too.

This is not the entire story. At the time some may well have been able to repay however as the recession set in jobs were lost/paycuts were implemented. All of a sudden those repayments were no longer possible. Who is to blame here?

QuadLeo

I'm in a bit of a predicament it seems. I'm currently bidding on a small house in the Terenure area. Asking price was €250k the highest bid is currently ~€275k. It's early days and imagine the bidding will continue. Would I be better off pulling out and waiting until these new rules are implemented?

I like the house and luckily I could still afford it or something similar if the rules come in. Is it likely there will be a lot of panic buying/bidding in the coming months? I haven't fallen in love with the house but it is pretty much exactly what I was looking for and I can comfortably afford it. But I'd hate to pay too much because of people panic buying/bidding before the end of the year. Or for the house to drop in value in January.

Do people predict house prices to drop significantly in 2015 because of the new rules? I understand it's impossible to predict market prices really but any insight from anyone out there is appreciated.

Frank Lee Midere

schmittel wrote: »

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.

Nobody on this thread who is worried about prices and supply have mention repossessions. Are we so PC?

There are still 33,000 landlords in arrears. While not affecting rent prices throwing them on the market will help the much vaunted FTB.

realweirdo

realweirdo wrote: »

And who is going to buy the houses?...

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'll give you 180,000 for two of them.

Frank Lee Midere

QuadLeo wrote: »

I'm in a bit of a predicament it seems. I'm currently bidding on a small house in the Terenure area. Asking price was €250k the highest bid is currently ~€275k. It's early days and imagine the bidding will continue. Would I be better off pulling out and waiting until these new rules are implemented?

I like the house and luckily I could still afford it or something similar if the rules come in. Is it likely there will be a lot of panic buying/bidding in the coming months? I haven't fallen in love with the house but it is pretty much exactly what I was looking for and I can comfortably afford it. But I'd hate to pay too much because of people panic buying/bidding before the end of the year. Or for the house to drop in value in January.

Do people predict house prices to drop significantly in 2015 because of the new rules? I understand it's impossible to predict market prices really but any insight from anyone out there is appreciated.

Do you think you are competing against people with 7% deposit and 4 times salary or higher? If so and you can afford to put the required deposit might be worth waiting.

However there is also cash. That's gone on longer than anyone imagined. If you think it's cash buyers it may not help.

hometruths

Frank Lee Midere wrote: »

Nobody on this thread who is worried about prices and supply have mention repossessions. Are we so PC?

There are still 33,000 landlords in arrears. While not affecting rent prices throwing them on the market will help the much vaunted FTB.

Whether its PC or not my view is that everybody who is in arrears of more than 90 days, whether its a buy to let or the sacred family home, should be given 6 months to get their arrears sorted out or face repossession in the 7th month, and the bank should be liable for the shortfall in any negative equity.

This will mean strategic defaulters will get their act together, and anyone else will have to seriously weigh up whether or not they can afford the house they live in. If they can't afford they will have to move out and allow somebody who can afford it to buy it.

In the future I believe banks should be allowed to lend whatever they want to whomever they want with the caveat they are only entitled to the security offered. I.e they cannot chase for the balance.

This will ensure that the banks only lend to people that they feel can pay them back and only only lend at realistic LTVs. If they make a bad lending decision then they can enforce the security.

This will bring lower house prices, lower mortgage rates, sensible lending etc etc - all the things that make a functioning property market.

A bit like what happens in most of the rest of the developed world!

Frank Lee Midere

According to this in a frothy world market for housing Ireland was 3rd highest gainer in the world.

http://www.globalpropertyguide.com/investment-analysis/Q2-2014-Global-house-price-boom-continues-led-by-Middle-East-Europe-and-the-Pacific

The highest was Dubai which is just a city and Dublin prices are higher. It's just totally nuts.

In many of these countries they have introduced "cooling measures". So have we.

It's a bit off topic but I believe there will be a worldwide property collapse next year, particularly in Dubai, Asia and London if the Fed increases rates.

Not sure how it would affect here as I don't believe anybody but Irish people are buying property here but it might affect credit.

QuadLeo

Frank Lee Midere wrote: »

Do you think you are competing against people with 7% deposit and 4 times salary or higher? If so and you can afford to put the required deposit might be worth waiting.

However there is also cash. That's gone on longer than anyone imagined. If you think it's cash buyers it may not help.

Thanks for reply Frank. I don't really know the position of the other bidders. But I was deducing that as the property is towards the cheaper end of the market for Dublin it would be mainly FTB with lower savings and salaries, who may me more inclined to panic now as they could be squeeze out in January. Maybe not. Maybe the other bidders are cash. Who knows. I suppose I'd be more concerned if prices dropped by 10%-15% in the new year. Would be some kick in the teeth. But on the other hand I've no intention of selling the property in the future. At least for 10 years anyway, so does it really matter.

Dr Turk Turkelton

Frank Lee Midere wrote: »

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.

You do realise that because of step one that step two will not happen.
Why would a developer build houses when no one can afford to get a mortgage to pay the price he needs to sell at ie cost of land,cost of labour,cost of materials and finally all the costs associated with getting planning in the first place.
Any developer with land sitting idle is now going to leave it sit there and do nothing until whichever government is in power in a couple of years realises what a monumental fcuk up this is and changes things again.

El_Dangeroso

QuadLeo wrote: »

Thanks for reply Frank. I don't really know the position of the other bidders. But I was deducing that as the property is towards the cheaper end of the market for Dublin it would be mainly FTB with lower savings and salaries, who may me more inclined to panic now as they could be squeeze out in January. Maybe not. Maybe the other bidders are cash. Who knows. I suppose I'd be more concerned if prices dropped by 10%-15% in the new year. Would be some kick in the teeth. But on the other hand I've no intention of selling the property in the future. At least for 10 years anyway, so does it really matter.

As an anonymous internet poster you should take my advice with a huge grain of salt, but if it were me and I liked it and could afford it, I'd go ahead and buy it now. It's a fools errand to predict the value of a house in the medium term only especially when you're keeping it long term.

jay0109

Dr Turk Turkelton wrote: »

You do realise that because of step one that step two will not happen.
Why would a developer build houses when no one can afford to get a mortgage to pay the price he needs to sell at ie cost of land,cost of labour,cost of materials and finally all the costs associated with getting planning in the first place.
Any developer with land sitting idle is now going to leave it sit there and do nothing until whichever government is in power in a couple of years realises what a monumental fcuk up this is and changes things again.

The vacant site levy and the upcoming Budget (which I think will throw a few juicy bones to the building industry) will more than overcome any restrictions on borrowings, IMO

Miss_Caprice

Does anyone think this new move will drive rent prices even higher? People who could previously get a mortgage based on 8% deposit will now be forced to continue renting until they save more and earn more salary.

Victor

spockety wrote: »

A worrying few hours ahead for people who have gone sale agreed and are just in the process of a sale without having yet drawn down a mortgage. If these proposals are enacted immediately there is inevitably going to be some short term heartache.

Based on the article on RTE, this won't be a problem. - "Today's proposed measures will require banks to restrict lending above 80% of the value of a home to no more than 15% of the aggregate value of all housing loans." from: http://www.rte.ie/news/business/2014/1007/650641-central-bank-mortgages/

Frank Lee Midere wrote: »

Patrick Honohan is the first public servant in living memory who seems to believe that housing prices rises are not necessarily a good thing. He should probably have a word with NAMA.

The motivations of the Central Bank and NAMA don't necessarily coincide.

Recondite49 wrote: »

Houses aren't a financial asset, they're a liability.

Hopefully, every liability has a corresponding asset.

Zamboni

What about everyone who bought in 2014 who are in negative equity in 2015.

WHERE'S THEIR NAMA?

:eek::D

p38

I know we cant go back to the crazy loan days that nearly crippled the country but will the new proposed measures create a two tier society those that can have the house and those pushed together in cheap affordable housing estates.

mileycactus

Anybody know is the restriction applied to loan offers or when actually drawing down the mortgage?

My situation: mortgage approval/loan offer running out and in process or re-submitting as house build was delayed. Prob be ready in December/jan but Once we have a loan offer for 6 months should be fine

Right/wrong?

My take:: it's incorrect focusing on people only have to save 10% right now... Where does the stamp duty, solicitor fees and furnishing the house come from? That's easily another 5-10% so families are already saving 20ish%..

johnp001

p38 wrote: »

I know we cant go back to the crazy loan days that nearly crippled the country but will the new proposed measures create a two tier society those that can have the house and those pushed together in cheap affordable housing estates.

Purpose of the measures is to make more of the housing stock affordable.
This can only act to lessen the "two-tieredness" of the housing market.
Due to lack of these measures in the last decade there is a tier in the housing market of purchasers who over-extended their borrowing beyond their ability to pay and are now not paying their mortgages. This causing the current problems of lack of supply and excessive cost of credit from banks relative to ECB interest rates.
The overall property market would be much better for everyone if purchasers had only been only able to obtain sufficient credit for such property as was affordable to them and if excessive availability of credit had not been allowed to inflate the price of property.

seamus

mileycactus wrote: »

Anybody know is the restriction applied to loan offers or when actually drawing down the mortgage?

Theoretically it's on draw-downs, but looking further into this, the devil is in the detail.

It's not a hard-and-fast restriction on each individual borrower. The restriction places rules on what a bank's overall loan book is supposed to look like; 15% of their loanbook can be over 80% LTV, the rest needs to be below that.

So if BOI's average LTV on their loanbook is 60%, then they have some room to offer 92% or even 100% mortgages until they hit their 15% "quota" at which point they pull it back again.

Same with the 3.5-times-salary. I don't know how they calculate the specific figures, but basically what it means is that the banks will have scope for offering mortgages outside of the specific restrictions.

I suspect these loans will be available to specific customers with an exceptionally good history of being able to prove ability to repay, and civil servants. They'll probably pay a slightly loaded interest rate for the privilege though.

Zamboni

I'm all for prudent lending practices but if the goal is reducing house prices I think there are better means.
I'm not sure this is going to have the massive downward pressure that would appear obvious on the surface.
Reducing credit nationally will of course have an impact on property prices but it will also simultaneously draw in international investment as the return becomes more favourable.

Ireland is slowly being bought from under our noses and the population is being driven into renting small high density units under wealthy Irish or foreign landlords.
If you want to stabilise house prices then drastically increase stamp duty on residential property for non owner occupiers in tangent with stricter lending practices.

jaffa20

Miss_Caprice wrote: »

Does anyone think this new move will drive rent prices even higher? People who could previously get a mortgage based on 8% deposit will now be forced to continue renting until they save more and earn more salary.

Less houses being sold=more houses available for rent. That's what i'm hoping until i can save 20%

matt-dublin

jaffa20 wrote: »

Less houses being sold=more houses available for rent. That's what i'm hoping until i can save 20%

Less houses sold = more people having to rent

More people having to rent = greater demand

Greater demand = inflated prices

The Spider

I would have argued or this back in 2005, ( funnily enough I hadn't bought then). However all I see this doing now is preventing supply, so any houses that do come up for sale are still going to be expensive because the only ones buying them don't need a mortgage anyway.

This isn't rocket science you only have to look at what happened after the crash, no one put their houses up for sale because they felt they wouldn't get what it was worth, same thing'll happen again no one will put their houses up for sale, supply restricted.

As for anyone saying developers can make a profit at reduced prices, I don't know their margins but I do know that after 2008 virtually no building took place because there was no profit in it, that's why there's no supply now. developers don't have to build, no one vp an make them and if there's no profit they won't.

And finally it's happy days for landlords, if you thought rents were expensive now wait until you see them after this, looks like a lot of those negative equity btl's will get paid off early after all....

on_my_oe

jaffa20 wrote: »

Less houses being sold=more houses available for rent. That's what i'm hoping until i can save 20%

That theory would work better if we didn't have squatters freeloading all over Ireland in the types of properties purchasers are screaming out for (which is building up prices). If repossessions were taking place, buyers would be able to buy widely rather than competing for a small pool of properties.

The experience in NZ has been more would be buyers trapped renting for longer, affecting the low income renters who struggle to compete for rentals.

hmmm

p38 wrote: »

I know we cant go back to the crazy loan days that nearly crippled the country but will the new proposed measures create a two tier society those that can have the house and those pushed together in cheap affordable housing estates.

When did we get the idea that FTBs could go straight into buying the mansion in South Dublin, and not have to buy a house they could afford/rent? The bubble lending practices meant that people barely out of nappies were heading out with unsustainable mortgage offers of 7 and 8 times their income to bid for houses, complete with Neff appliances and the Range Rover to go with it.

We've listened to people going on for years about banks and their "reckless" lending. That's solved now.

hmmm

The Spider wrote: »

And finally it's happy days for landlords, if you thought rents were expensive now wait until you see them after this, looks like a lot of those negative equity btl's will get paid off early after all....

Housing is zero sum, if someone buys a house it's one more rental available and vice versa. Unless you think property owners are going to sit on empty houses and not try to rent or sell them, where's the idea that this will "drive up rent prices" coming from?

_Kaiser_

hmmm wrote: »

Housing is zero sum, if someone buys a house it's one more rental available and vice versa. Unless you think property owners are going to sit on empty houses and not try to rent or sell them, where's the idea that this will "drive up rent prices" coming from?

Less people able to buy = higher demand for rental property = higher rents

Things are bad enough in the rental sector as is due to a lack of supply.. dump more people into that market and rents can only increase even more and wider as people are pushed out and forced to commute

Cuddlesworth

Dr Turk Turkelton wrote: »

You do realise that because of step one that step two will not happen.
Why would a developer build houses when no one can afford to get a mortgage to pay the price he needs to sell at ie cost of land,cost of labour,cost of materials and finally all the costs associated with getting planning in the first place.
Any developer with land sitting idle is now going to leave it sit there and do nothing until whichever government is in power in a couple of years realises what a monumental fcuk up this is and changes things again.

The cost of land is the problem in city regions, especially Dublin. A housing estate built in large enough numbers is a pretty fixed cost, in around 100k per finished Semi-D unit from what I remember. Apartments/town houses can work out far cheaper in a per unit basis. As long as the cost to build + the cost of land sells at a profit, you will have developers developing.

The problem is that building property takes time and in a volatile market like we currently have, its too much risk to sink millions into a estate that could be worth less then when you started. That's why a proper crash and price stabilization would have been a good thing for us years ago. Everybody would have a good idea of where we were at and going to.

At the moment it costs nothing to hold land, even in areas which badly require it. And in a environment where land which has practically 0 ongoing cost and is near guaranteed to drastically rise in value over a 10+ year period, you will see larger and larger plots of land sitting idle as the city spreads. Its very possible that the upcoming levys will push for a better utilization of our space, in conjunction with some decent planning guidelines. It all depends on its implementation though, if the cost of ownership is a paltry amount or there are cheap methods to bypass the issue then the problem will remain.

The Spider

hmmm wrote: »

Housing is zero sum, if someone buys a house it's one more rental available and vice versa. Unless you think property owners are going to sit on empty houses and not try to rent or sell them, where's the idea that this will "drive up rent prices" coming from?

Of course it'll drive up rent prices, fewer people being able to buy means they're going to have to rent, even if prices drop back to 2012, say a four bed in church town for 345000, at twenty percent deposit that's seventy grand, now unless you have a bunch of shares that did well or were left some money, that's going to be difficult for a lot of people to get.

Property owners will sit on houses and not sell them, as has been proven by the complete lack of supply at the moment, that exists because people wouldn't sell their houses for below the perceived value.

They may well rent them out, and it may give a boost to supply, but the volumes of people who are going to be stuck long term renting will soon eat that up.

So let's see, no one selling houses as prices drop.

Developers not building houses because they can't make a profit.

People stuck long term renting and cutting off the supply of rentals for other couples/young people as they reach moving out age.

Landlords hike rents because let's face it you have to live somewhere and as there's no building going on because of a lack of profit, well put up with it.

Longer commutes for those who do get deposits together, 30 grand may not be twenty percent of the price in Dublin but it will be in commuter counties, those that want to own a house will be forced to look at this option.

_Kaiser_

The Spider wrote: »

Longer commutes for those who do get deposits together, 30 grand may not be twenty percent of the price in Dublin but it will be in commuter counties, those that want to own a house will be forced to look at this option.

Hey look, it's 2006 again

matt-dublin

Supporting evidence from Korea to prove rental increases and sub sequential property market failures:

http://mobile.bloomberg.com/news/2013-09-05/seoul-no-singapore-as-korea-housing-bears-raise-rents.html