Central Bank to limit amount banks lend for home purchase

RecordStraight

Michael D Not Higgins wrote: »

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

Don't be confusing the argument with hard facts.

RecordStraight

Deleted User wrote: »

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.

So...every property buyer was an investor?

molloyjh

Ah look anyone can post random graphs without context. Inflow will be far more heavily dictated by new builds than individual property sales so that graph is pretty blood meaningless in the context of this discussion. Going back to the report that I referenced earlier:

In summary, the overall conclusion is that property investors are now significant enough, in terms of their activity in the housing market as well as their level of borrowing, such that their ongoing behaviour appears to be important for the continuing health of both the housing market and the banking sector.

That "ongoing" behaviour was always going to be contingent on positive growth in the market.

The below graph illustrates that in 8 years the proportion of property sales for investment purposes doubled. That quite obviously drove house prices. It created speculation in the market as a whole and all of this combined to have a detrimental effect on the market as a whole.

RecordStraight

molloyjh wrote: »

The below graph illustrates that in 8 years the proportion of property sales for investment purposes doubled. That quite obviously drove house prices. It created speculation in the market as a whole and all of this combined to have a detrimental effect on the market as a whole.

You've just posted evidence that investment drove supply, not prices.

molloyjh

RecordStraight wrote: »

You've just posted evidence that investment drove supply, not prices.

Haha, you're right I did. Whoops. Ah sure I'll leave it there for the amusement factor.

RecordStraight

molloyjh wrote: »

Haha, you're right I did. Whoops. Ah sure I'll leave it there for the amusement factor.

Fair play

Barney Stone

molloyjh wrote: »

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.

Bottom line, what we've seen here is the central bank opening people's eyes and reminding people of the simple fact, if you are on a low income then you can't buy an expensive house... and if you are an a high income you can.

That seems to be fairly sensible and hard to pick holes in from a financial perspective (social take being different).

Yes we may see property prices fall to allow an "average" earner to buy an "average" house but I really dont see how anyone can argue with this being a good strategy for the country. The alternative being you allow low income households to buy expensive houses (by lending 5x+ income) that they wont be able to pay off over the life of the mortgage.

molloyjh

Barney Stone wrote: »

Bottom line, what we've seen here is the central bank opening people's eyes and reminding people of the simple fact, if you are on a low income then you can't buy an expensive house... and if you are an a high income you can.

That seems to be fairly sensible and hard to pick holes in from a financial perspective (social take being different).

Yes we may see property prices fall to allow an "average" earner to buy an "average" house but I really dont see how anyone can argue with this being a good strategy for the country. The alternative being you allow low income households to buy expensive houses (by lending 5x+ income) that they wont be able to pay off over the life of the mortgage.

But all of this can be accomplished with the 90% LTV and 3.5 times salary limit. That's my whole point. I'm not arguing with what the outcome should be, I'm simply saying we can get to the same place without such drastic measures. And that these drastic measures ultimately put greater pressure on people that ultimately doesn't need to happen.

dubrov

If property prices drop 15%, those with a 20% deposit are more likely to continue to pay their mortgage.
Banks would also be able to recover their capital on non-performing loans by selling the underlying asset (although it seems that there is currently no political appetite to let them do this).

Bob24

molloyjh wrote: »

But all of this can be accomplished with the 90% LTV and 3.5 times salary limit. That's my whole point. I'm not arguing with what the outcome should be, I'm simply saying we can get to the same place without such drastic measures. And that these drastic measures ultimately put greater pressure on people that ultimately doesn't need to happen.

Lets keep in mind that 90% is actually was is being implemented up to 220000.

Even for a property worth 400K, the required deposit is is actually 10% of 220k and 20% of 180k, a total of 54k. That is an overall deposit of 13.5% of 400k, or a LTV of 86.5%.

In summary, most people will actually need a deposit somewhere between 10 and 15% - and only very expensive properties will require to a deposit coming close to 20%.

wowy

Bob24 wrote: »

Lets keep in mind that 90% is actually was is being implemented up to 220000.

Even for a property worth 400K, the required deposit is is actually 10% of 220k and 20% of 180k, a total of 54k. That is an overall deposit of 13.5% of 400k, or a LTV of 86.5%.

In summary, most people will actually need a deposit somewhere between 10 and 15% - and only very expensive properties will require to a deposit coming close to 20%.

90% up to €220K only applies to FTBs. Trader-uppers need the 20%.

RecordStraight

wowy wrote: »

90% up to €220K only applies to FTBs. Trader-uppers need the 20%.

Yes, good point. The discussion is bouncing from FTBs to trader-uppers and back again the whole time.

molloyjh

Bob24 wrote: »

Lets keep in mind that 90% is actually was is being implemented up to 220000.

Even for a property worth 400K, the required deposit is is actually 10% of 220k and 20% of 180k, a total of 54k. That is an overall deposit of 13.5% of 400k, or a LTV of 86.5%.

In summary, most people will actually need a deposit somewhere between 10 and 15% - and only very expensive properties will require to a deposit coming close to 20%.

That is only true for FTBs. The rest of us don't get that.

Bob24

molloyjh wrote: »

That is only true for FTBs. The rest of us don't get that.

Fair enough. However the following exceptions should leave quite a lot of space to break the rules for non first time buyers:

"- The cumulative monetary value of loans for principal dwelling purposes which breach either of these limits should not exceed 15 per cent of the euro value of all PDH loans on an annual basis.

- Housing loans for borrowers in negative equity who wish to obtain a mortgage for a new property are not within the scope of the LTV limits."

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

El_Dangeroso

I'm changing my prediction outlined earlier in this thread as that was predicated on the full 20% rule being implemented.

I am relinquishing my bearish position for one of overall modest growth of 3-5%. But this will be borne out of a roaring lower end of the market. A further tightening of supply (due to trader uppers being further constrained) and a stagnation at the higher (>400K) end.

stevedublin

El_Dangeroso wrote: »

I'm changing my prediction outlined earlier in this thread as that was predicated on the full 20% rule being implemented.

I am relinquishing my bearish position for one of overall modest growth of 3-5%. But this will be borne out of a roaring lower end of the market. A further tightening of supply (due to trader uppers being further constrained) and a stagnation at the higher (>400K) end.

i'm suspecting you could be correct, the new rules will most likely boost prices of cheaper properties, while reigning in prices of more expensive properties.

RecordStraight

stevedublin wrote: »

i'm suspecting you could be correct, the new rules will most likely boost prices of cheaper properties, while reigning in prices of more expensive properties.

I don't really understand why people think the prices of cheaper properties will actually rise.

gaius c

RecordStraight wrote: »

I don't really understand why people think the prices of cheaper properties will actually rise.

Over half the market for the last couple of years has been cash buyers. The end of CGTE is likely to have much more of an effect in the short term.

Bob24

RecordStraight wrote: »

I don't really understand why people think the prices of cheaper properties will actually rise.

I think it boils down to whether sellers in the 220k-350k bracket are willing to lower their prices. If not, a decent number of people who would have been looking at these properties won't be able to afford them any more due to the new rules. These people will start looking at cheaper properties and biding against people who were already on the lower end of the market before the new rules.

P. Breathnach

stevedublin wrote: »

i'm suspecting you could be correct, the new rules will most likely boost prices of cheaper properties, while reigning in prices of more expensive properties.

The market is not as simple as "cheaper" or "more expensive". Yes, I think it likely that there will be some increase in demand for properties around the €220k breakpoint. That is demand that will switch from the €250-350k segment, so demand at that level will soften a bit. There will be small ripple effects beyond that, but I don't expect significant impact on the €400k+ segment.

RecordStraight wrote: »

I don't really understand why people think the prices of cheaper properties will actually rise.

Some people who might have been aiming at properties at around €300k may find their borrowing capacity squeezed, and will move to the more affordable end of the market.

RecordStraight

Bob24 wrote: »

I think it boils down to whether sellers in the 220k-350k bracket are willing to lower their prices. If not, a decent number of people who would have been looking at these properties won't be able to afford them any more due to the new rules. These people will start looking at cheaper properties and biding against people who were already on the lower end of the market before the new rules.

But presumably many of the people who would have been bidding for the lower-end properties will be out of the market entirely?

stevedublin

RecordStraight wrote: »

But presumably many of the people who would have been bidding for the lower-end properties will be out of the market entirely?

why? especially first time buyers who will only have to have a 10% deposit if property is <220K

RecordStraight

stevedublin wrote: »

why? especially first time buyers who will only have to have a 10% deposit if property is <220K

And and LTI of 3.5.

MayBea

RecordStraight wrote: »

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.

I agree, a fewer number of cash buyers in the market would definitely change the overall situation.

Trond

stevedublin wrote: »

why? especially first time buyers who will only have to have a 10% deposit if property is <220K

That bit isn't the issue unfortunately....

Bob24

RecordStraight wrote: »

But presumably many of the people who would have been bidding for the lower-end properties will be out of the market entirely?

Mostly, cheaper properties would be of interest for first time buyers (unless people move to a different location, they usually won't trade what they already have for something on the very low end of the market). To borrow 220k FTBs will be asked for a 10% deposit, not too far off the previous 8%. I don't think too many of them will be priced out by that change.

The fact that the new rule is more relaxed with people on the lower end of the market is effectively compressing demand at that price point as it is not pricing these people out but is bringing new competition who would have been able to afford something more expensive before.

RecordStraight

Bob24 wrote: »

Mostly, cheaper properties would be of interest for first time buyers (unless people move to a different location, they usually won't trade what they already have for something on the very low end of the market). To borrow 220k FTBs will be asked for a 10% deposit, not too far off the previous 8%. I don't think too many of them will be priced out by that change.

The fact that the new rule is more relaxed with people on the lower end of the market is effectively compressing demand at that price point as it is not pricing these people out but is bringing new competition who would have been able to afford something more expensive before.

Fair point, but I do think the phenomenon will be moderated by those who drop out entirely.

stevedublin

RecordStraight wrote: »

And and LTI of 3.5.

this would reduce the amount that borrowers can borrow, increasing the focus on cheaper properties.

Shedite27

Barney Stone wrote: »

Bottom line, what we've seen here is the central bank opening people's eyes and reminding people of the simple fact, if you are on a low income then you can't buy an expensive house... and if you are an a high income you can.

That seems to be fairly sensible and hard to pick holes in from a financial perspective (social take being different).

Totally agree with this.

There an argument on here that "working class areas of a city should be affordable to working class", but unfortunately this doesn't really hold true. House prices (rightly IMO) should be tied to a person's affordability, not class.

johnp001

molloyjh wrote: »

But all of this can be accomplished with the 90% LTV and 3.5 times salary limit. That's my whole point. I'm not arguing with what the outcome should be, I'm simply saying we can get to the same place without such drastic measures. And that these drastic measures ultimately put greater pressure on people that ultimately doesn't need to happen.

Is there research or statistics which state what the impact of 90%/3.5-LTI would be vs 80%/3.5-LTI?
The only hard data I found on this was http://www.centralbank.ie/press-area/press-releases/Documents/Assessing%20the%20impact%20of%20macroprudential%20measures.pdf