Central Bank to limit amount banks lend for home purchase

RecordStraight

mortimer33 wrote: »

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?

Less credit = lower prices. It's pretty simple. You might have noticed what happened when credit got very lax there a few years back.

The economic illiteracy of the public and much of the press is depressing. Many FTBs seem convinced that if they were allowed to borrow more, they could land the property they want. They don't seem to realise that if they can borrow more, so can everyone else. The same person gets the property, just at a much higher price.

Basic Economics should be obligatory in school.

RecordStraight

Muahahaha wrote: »

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 since

No. I think it's 30%, subject to correction.

Bob24

Muahahaha wrote: »

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 since

No.

http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankannouncesnewregulationsonresidentialmortgagelending.aspx

"BTL mortgages are subject to a limit of 70 per cent LTV. "

molloyjh

mortimer33 wrote: »

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?

It's hard to say with any certainty. My gut says that certain houses prices will probably increase. For example a small 2 bed where I am is currently worth around €160-180k. I can't see those decreasing. And if anything they could probably get slightly more expensive. Maybe getting up to around €200k. That would mean a mortgage of around €915 a month and a deposit of €20k. Very doable on a combined salary of €50k, which is below average but at the moment is fairly representative of a lot of younger people who would be FTBs. And it's a reasonable approach to the FTB. They spend several years in that house and they'll have paid off €20-25k of the mortgage and can put that towards the deposit for their next home assuming they look to trade up. In the interim they don't have to kill themselves saving another €10-15k for the rest of the deposit required.

Other houses in more expensive parts of the city/country would probably drop a small bit. For example some of the houses in and around Sandyford that are going for €450k+ will probably need to drop their prices a little to attract buyers. As I pointed out earlier €450k would require a minimum combined salary of €116k a year and the number of potential buyers on that salary probably isn't high enough to sustain those prices. If you get up to the €500k mark the combined salary required would be over €128k. And suddenly the market for those houses is getting smaller and smaller.

It would probably have the overall effect of evening things out a little more while also providing an affordable and reasonably stable market. And it would still be stricter than the OECD recommended approach of 90% LTV and 4.5 times salary.

As for the Donegal house, you have to factor in that the average salary in Donegal is lower than that in, say, Dublin. So you'd need to localise the wage levels etc to get an accurate picture of what could happen there. Not to mention the buying habits of the locality. The market will only increase prices if there is a market for increased prices. And while these controls can limit just how high those increases go they don't completely dictate the market. If people in Donegal can afford €200k but won't pay above €180k the then houses won't sell for €200k.

molloyjh

farrerg wrote: »

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.

For starters arrears is the exception and not the rule.

Secondly, strict LTV limits and links to salary levels should stabilise the market as you won't get the 100% mortgages and people won't be able to buy what they can't afford. The boom and bust wasn't just caused by home owners though. Investors and speculators had a far bigger hand in it than home owners did. And if they can be controlled this kind of crisis shouldn't happen again. That is what we should be trying to get to. A situation where huge booms and busts are a thing of the past and we have a sustainable and affordable model for all.

This can be achieved with the 90% LTV and 3.5 times salary limits as I've tried to show above.

RecordStraight

molloyjh wrote: »

Secondly, strict LTV limits and links to salary levels should stabilise the market as you won't get the 100% mortgages and people won't be able to buy what they can't afford. The boom and bust wasn't just caused by home owners though. Investors and speculators had a far bigger hand in it than home owners did.

How so?

molloyjh

RecordStraight wrote: »

How so?

They were a fairly large part of the market during the boom years. You had people buying multiple properties to rent and then sell off once the price increased enough. I worked with people who had multiple investment properties at the time. It was crazy.

Michael D Not Higgins

RecordStraight wrote: »

How so?

Principal Dwellings
in arrears over 720 days: €8billion
total balance owed on all loans: €105billion

Buy to Let
in arrears over 720 days: €4.8billion
total balance owed on all loans: €29billion

Says it all to me

Source: Central Bank stats Q3 2014

RecordStraight

molloyjh wrote: »

They were a fairly large part of the market during the boom years. You had people buying multiple properties to rent and then sell off once the price increased enough. I worked with people who had multiple investment properties at the time. It was crazy.

Oh yes, I'm aware of that, but I doubt investors ever exceeded those buying PPRs. They certainly played a large part in exacerbating the bubble, but I wouldn't say they were the main problem.

MayBea

molloyjh wrote: »

Other houses in more expensive parts of the city/country would probably drop a small bit. For example some of the houses in and around Sandyford that are going for €450k+ will probably need to drop their prices a little to attract buyers. As I pointed out earlier €450k would require a minimum combined salary of €116k a year and the number of potential buyers on that salary probably isn't high enough to sustain those prices. If you get up to the €500k mark the combined salary required would be over €128k. And suddenly the market for those houses is getting smaller and smaller.

By looking at the loan data supplied by Central Bank (I can't post the link, but there is a graph in post number #1237), over 85% of all home purchasers in 2013 were either cash buyers (every second purchaser) or had less than 3.5 LTI mortgage. Therefore only 2 out of 10 prospective buyers are affected..And if we take a housing shortage (in Sandyford) in consideration, it's easy to see that the effect of 3.5 LTI requirement is unlikely to reduce the prices at this stage.
It can slow down the price growth though.

RecordStraight

MayBea wrote: »

By looking at the loan data supplied by Central Bank (I can't post the link, but there is a graph in post number #1237), over 85% of all home purchasers in 2013 were cash buyers (every second purchaser) or had less than 3.5 LTI mortgage. Therefore only 2 out of 10 prospective buyers are affected..And if we take a housing shortage (in Sandyford) in consideration, it's easy to see that the effect of 3.5 LTI requirement is unlikely to reduce the prices at this stage.
It can slow down the price growth though.

I suppose it depends on whether the number of cash buyers can be sustained. The evidence suggests that the number of cash buyers is tailing off, unsurprisingly. There aren't that many people around would hundreds of thousands in the bank, looking for a house.

molloyjh

I never said there were more investors than home owners. That would be madness. They accounted for around 20% of the market though which is quite a sizeable portion of the market. Don't believe me, have a read of this section of the Financial Stability Report published by the Central Bank in 2007. The first line says the same thing I was saying:

Residential property investors have grown in importance in recent years and now play a significant role in both the housing market
and as borrowers from the banking system.

http://www.centralbank.ie/publications/Documents/Part%202%20-%20The%20Significance%20of%20Residential%20Property%20Investors%20by%20Allan%20Kearns.pdf

RecordStraight

molloyjh wrote: »

I never said there were more investors than home owners. That would be madness. They accounted for around 20% of the market though which is quite a sizeable portion of the market. Don't believe me, have a read of this section of the Financial Stability Report published by the Central Bank in 2007. The first line says the same thing I was saying:



http://www.centralbank.ie/publications/Documents/Part%202%20-%20The%20Significance%20of%20Residential%20Property%20Investors%20by%20Allan%20Kearns.pdf

That's pretty uncontroversial. I'm wondering though why you think the following:

molloyjh wrote: »

The boom and bust wasn't just caused by home owners though. Investors and speculators had a far bigger hand in it than home owners did.

Bob24

Michael D Not Higgins wrote: »

Principal Dwellings
in arrears over 720 days: €8billion
total balance owed on all loans: €105billion

Buy to Let
in arrears over 720 days: €4.8billion
total balance owed on all loans: €29billion

Says it all to me

Source: Central Bank stats Q3 2014

Maybe a way to get everyone to agree (maybe :-):
- a BTL mortgage given to an "amateur" landlord has more chances than an owner occupier mortgage to become under-performing or fuel price increases if not regulated
- on the other hand there are much less BTL mortgages than owner occupier ones, so in absolute value BTL are not the ones with the highest impact

Looking at it that way I think what the central bank did makes sense:
- tighter control for BTL mortgages as individually they could cause more issues
- but still some kind of control for owner occupiers as they represent much higher numbers

RecordStraight

RecordStraight wrote: »

Less credit = lower prices. It's pretty simple. You might have noticed what happened when credit got very lax there a few years back.

The economic illiteracy of the public and much of the press is depressing. Many FTBs seem convinced that if they were allowed to borrow more, they could land the property they want. They don't seem to realise that if they can borrow more, so can everyone else. The same person gets the property, just at a much higher price.

Basic Economics should be obligatory in school.

The economic illiterate would the one who appears to believe that FTBs are only in competition with other FTBs.

I think it's too early to say what the effect of these changes will be. They may have a marginal downward effect on prices. Alternatively prices may simply stabilise at the level required to deliver satisfactory rental income - a level way above what most 'normal' people can realistically afford, meaning property is purchased by institutional investors.

molloyjh

RecordStraight wrote: »

That's pretty uncontroversial. I'm wondering though why you think the following:

It's quite simple. The increase in investment buying drove the demand up, which drove the prices up. The number of investment properties that hit the market at the time of the crash flooded the supply, which drove prices further down. A far higher percentage of investment buys will sell at that point than owner occupier.

RecordStraight

molloyjh wrote: »

It's quite simple. The increase in investment buying drove the demand up, which drove the prices up. The number of investment properties that hit the market at the time of the crash flooded the supply, which drove prices further down. A far higher percentage of investment buys will sell at that point than owner occupier.

So they helped bring prices down more than they pushed them up?

RecordStraight

Deleted User wrote: »

The economic illiterate would the one who appears to believe that FTBs are only in competition with other FTBs.

If you find someone who believes that, please point them out. Meanwhile, you should probably keep your strawmen to yourself.

Deleted User wrote: »

I think it's too early to say what the effect of these changes will be. They may have a marginal downward effect on prices. Alternatively prices may simply stabilise at the level required to deliver satisfactory rental income - a level way above what most 'normal' people can realistically afford, meaning property is purchased by institutional investors.

So you think that supernormal profits will be available to landlords indefinitely? With no market response?

OK. :rolleyes:

Lantus

well the short term affect could be that buyers move out of Dublin to start securing property there again. The majority of houses in the intermediate range are still severely undervalued compared to Dublin and the prices bought at. I had a friend looking in Louth and Meath and there is an abundance of property in the 100-200 range for well sized houses and even lots sub 100. Rentals are still pretty good however so from an investment perspective there is still lots of opportunity.

You could well see these units rise in price significantly as buyers move to these areas. Kildare and Wicklow also offer lots of opportunity. life beyond Dublin and better roads and travel infrastructure make it more appealing.

RecordStraight

RecordStraight wrote: »

So they helped bring prices down more than they pushed them up?

Investors add volatility to a market - particularly in property where the alternative is the very non-volatile owner occupier (who take prices and don't tend to sell just because the market is going down)

RecordStraight

Deleted User wrote: »

Investors add volatility to a market - particularly in property where the alternative is the very non-volatile owner occupier (who take prices and don't tend to sell just because the market is going down)

1. Property is not so liquid that investors can pile out when prices start to dip.
2. Amateur investors (the vast majority in Ireland) are incredibly reluctant to crystalise a profit. The only BTL sellers I know of were forced sellers.

But I'm not sure that your point supports the argument that investors are were the biggest cause of the bubble.

RecordStraight

RecordStraight wrote: »

If you find someone who believes that, please point them out. Meanwhile, you should probably keep your strawmen to yourself.

So you think that supernormal profits will be available to landlords indefinitely? With no market response?

OK. :rolleyes:

So, your comment was this:

"Many FTBs seem convinced that if they were allowed to borrow more, they could land the property they want. They don't seem to realise that if they can borrow more, so can everyone else. The same person gets the property, just at a much higher price."

So who is "everyone else"? Who is "the same person"? The assumptions you are making are obviously those of an 'everyone is a FTB' world.

RecordStraight

RecordStraight wrote: »

1. Property is not so liquid that investors can pile out when prices start to dip.
2. Amateur investors (the vast majority in Ireland) are incredibly reluctant to crystalise a profit. The only BTL sellers I know of were forced sellers.

But I'm not sure that your point supports the argument that investors are were the biggest cause of the bubble.

Of course investors are the cause of the bubble.

Jesus, do you really think everyone in Ireland who just wants a roof over their head woke up in 1997 thinking "you know what, I'd love to have to pay 3 times more than I do now for a house".

Michael D Not Higgins

Bob24 wrote: »

Maybe a way to get everyone to agree (maybe :-):
- a BTL mortgage given to an "amateur" landlord has more chances than an owner occupier mortgage to become under-performing or fuel price increases if not regulated
- on the other hand there are much less BTL mortgages than owner occupier ones, so in absolute value BTL are not the ones with the highest impact

Looking at it that way I think what the central bank did makes sense:
- tighter control for BTL mortgages as individually they could cause more issues
- but still some kind of control for owner occupiers as they represent much higher numbers

There are stories here of accidental landlords all the time. How many of the underperforming BTL mortgages were also bought initially as PPR?

RecordStraight

Deleted User wrote: »

Of course investors are the cause of the bubble.

Well there you go, that's your case proven. :rolleyes:

Deleted User wrote: »

Jesus, do you really think everyone in Ireland who just wants a roof over their head woke up in 1997 thinking "you know what, I'd love to have to pay 3 times more than I do now for a house".

Yeah, that's what I think.

FFS. If you don't have an argument, just leave it. If you do, please make it.

RecordStraight

RecordStraight wrote: »

1. Property is not so liquid that investors can pile out when prices start to dip.
2. Amateur investors (the vast majority in Ireland) are incredibly reluctant to crystalise a profit. The only BTL sellers I know of were forced sellers.

But I'm not sure that your point supports the argument that investors are were the biggest cause of the bubble.

sorry - are you actually suggesting investors don't add volatility to a property market?

RecordStraight

RecordStraight wrote: »

Well there you go, that's your case proven. :rolleyes:

Yeah, that's what I think.

FFS.

So what do you think caused the bubble?

I am all ears

RecordStraight

Deleted User wrote: »

So what do you think caused the bubble?

I am all ears

Rising incomes, increasingly lax credit, future price expectations, poor regulation.

Michael D Not Higgins

molloyjh wrote: »

It's quite simple. The increase in investment buying drove the demand up, which drove the prices up. The number of investment properties that hit the market at the time of the crash flooded the supply, which drove prices further down. A far higher percentage of investment buys will sell at that point than owner occupier.

You're just speculating now. Where's the flood of the market that at the time of the crash?




It sure looks to me that the inflow was going down while the prices were dropping.

RecordStraight

RecordStraight wrote: »

Rising incomes, increasingly lax credit, future price expectations, poor regulation.

Of which - by a significant margin, "future price expectations" was the dominant factor (all the others chased it to an extent - rising incomes for example can help sustain a higher property price but nobody WANTS to spend half their income on a house - unless they think it will double in value in the next five years)

In other words - investors / investment.