Central Bank to limit amount banks lend for home purchase

New news:

A senior economist with the Central Bank has expressed concern about the potential cost of mortgage insurance, warning that it could “act counter” to the recently published restrictions on mortgage lending.

ec18

Deleted User wrote: »

The idea of mortgage insurance was floated in the Govt's Construction 2020 strategy. As I understand it, one of the options was for FTBs to get insurance to cover, say, 10% of the mortgage. So they would need a 10% deposit with the other 10% covered by insurance. If you were only borrowing 50% LTV (or whatever) then you wouldn't need it anyway because if you default on the loan the bank probably actually makes a profit by selling you/their house.

Honohan said this kind of insurance would be a bad idea if it just moved risk around the system i.e. if the Irish govt were insuring mortgages given out by Irish banks who are either part-owned by the govt or otherwise guaranteed by the state. Equally, having an Irish insurance company insure Irish mortgages means that if there were a collapse all the risk would be carried by Irish institutions - which, worst case scenario, would need to be bailed out by Ireland.

This left open the idea of a private insurance policy offered by international insurers. Step forward Genworth with an immaculately timed report recommending insurance for buyers with high LTVs. They already offer this in Canada and elsewhere.

It wouldn't be cheap, by the way. FTBs with the least cash - i.e. those who take out high LTV mortgages - would have to pay insurance premiums for the privilege of taking on more debt.

As things stand, there is to be some kind of (Oireachtas Finance?) committee report on the matter but any company selling this kind of project would have to be regulated by the CB itself. My impression from Honohan's statements on this is that he doesn't particularly like mortgage insurance but, as a regulator, might not actually block it.

Short answer: nothing has happened yet but the idea is not dead.

Deleted User wrote: »

New news:

Thanks. :cool::o

seamus

jay0109 wrote: »

This delay is allowing the banks to get a lot of AiP's out! A sop to the Govt for bringing in the new rules?

Actually the AIP is irrelevant. You need full mortgage approval to be exempt from the new rules.

AIP is simple calculations based on what you tell the bank, without any comprehensive review of your status.

Glenbhoy

seamus wrote: »

Actually the AIP is irrelevant. You need full mortgage approval to be exempt from the new rules.

AIP is simple calculations based on what you tell the bank, without any comprehensive review of your status.

No, that's not correct, the document states that AIP based on verification of financial documentation are exempt.

"The Regulations apply to a housing loan that is secured on a residential property in the State, excluding the exemptions listed below, and where the borrower had not received an approval in principal based on a credit assessment supported by verified financial information before the effective date of these Regulations."

In saying that however, the initial document issued in Sept/Oct stated that they wouldn't have any truck with banks trying to circumvent the proposals by rushing through approvals after that document had been issued (ie Sept 14), that has clearly happened, AIP's have been increased from 3 months in many cases to 10 months in most cases.

I'm guessing that allowing this was the price negotiated by the CBI in order to get the regulations through (not that they are actually through yet, although Noonan has stated that they don't actually need Dail approval??).

RecordStraight

Glenbhoy wrote: »

No, that's not correct, the document states that AIP based on verification of financial documentation are exempt.

"The Regulations apply to a housing loan that is secured on a residential property in the State, excluding the exemptions listed below, and where the borrower had not received an approval in principal based on a credit assessment supported by verified financial information before the effective date of these Regulations."

That sounds pretty much like full approval to me? Where you've brought in your documents and they've picked through them to verify them?

Glenbhoy

RecordStraight wrote: »

That sounds pretty much like full approval to me? Where you've brought in your documents and they've picked through them to verify them?

The difference is that full approval is on a specific property and is followed by a loan offer, an actual Approval in Principle (as opposed to the nonsense 10 minute approval in principle offered by PTSB or the online approval by some other banks) is a letter which says that subject to certain conditions (essentially that income and savings etc remain consistent with the information proffered in obtaining the AIP) being met, then the bank will issue a loan offer when you find the specific property (again subject to conditions such as satisfactory valuation being obtained etc) . To obtain an AIP you must provide all docs etc, it just means that the full approval and drawdown should be formalities (not always the case, but certainly the process will be much more streamlined).

seamus

Approval in Principle is followed by credit approval and/or full approval.

AIP is practically meaningless these days.

You don't necessarily have to apply for full approval on a specific property. You can get a loan offer before then (I have one), it just comes with stipulations such as having the bank assess the property and so forth.

Michael D Not Higgins

http://www.irishstatutebook.ie/pdf/2015/en.si.2015.0047.pdf

Published statutory instrument.

seamus

Michael D Not Higgins wrote: »

http://www.irishstatutebook.ie/pdf/2015/en.si.2015.0047.pdf

Published statutory instrument.

Signed on the 9th of February. I wonder does that mean it comes into effect from the 9th, or it still doesn't come into effect until reviewed by the Oireachtas.

Two choice quotes from that S.I.:

In order for a housing loan to be excluded from the scope of these Regulations
under paragraph (1)(e), the lender must, prior to the lender issuing an
approval in principle to make the housing loan to the borrower, have undertaken
a full credit assessment of the borrower’s ability to repay the housing loan.

So according to this S.I., Approval in Principle must be written and must be a full credit assessment.

So anyone who currently has approval in principle only from the website or even a short conversation with someone in the bank, isn't exempt from the regulations. Only those who have been fully credit assessed are exempt.

This may also be a pain point for many people:

(3) Subject to paragraph (4), a lender shall ensure that the appraiser appointed
by that lender shall undertake a market valuation of a residential property which
is required under these Regulations not earlier than a period of two months
before the date on which the advance under the housing loan is made by the
lender.

So if you have a long closing you may have to pay for an appraiser twice - once to keep the bank happy that the house is properly valued, and again closer to the closing date.

The Spider

Karl Deeter predicts soaring rents thanks to the new central bank rules, has been talked about here of course.

http://www.independent.ie/irish-news/banks-tell-mortgage-defaulters-get-dig-out-from-parents-30975582.html

jay0109

Independent Karl Deeter who has 'skin in the game'!

matt-dublin

and they're in...

http://www.rte.ie/news/business/2015/0211/679414-mortgage-central-bank/

gaius c

matt-dublin wrote: »

and they're in...

http://www.rte.ie/news/business/2015/0211/679414-mortgage-central-bank/

Eclipse tonight and a plague of frogs tomorrow.
Bubonic plague is due next week.
Just read it on the Indo breaking news.

Bob24

"New Central Bank mortgage rules could drive up rents"

http://blog.myhome.ie/2015/02/13/new-central-bank-mortgage-rules-drive-rents/

I like the way estate agent's analysts are quick to point out that rent might see upwards pressure if people need longer to save for their deposit (which itself is arguable); but fail to mention that on the other end if the measures are lowering prices (or limiting increases) and forcing people to have a larger deposit and borrow less, they will likely be saving a lot of money in the long term with a lower property price and less interests to pay.

dr.fuzzenstein

Bob24 wrote: »

"New Central Bank mortgage rules could drive up rents"

http://blog.myhome.ie/2015/02/13/new-central-bank-mortgage-rules-drive-rents/

I like the way estate agent's analysts are quick to point out that rent might see upwards pressure if people need longer to save for their deposit (which itself is arguable); but fail to mention that on the other end if the measures are lowering prices (or limiting increases) and forcing people to have a larger deposit and borrow less, they will likely be saving a lot of money in the long term with a lower property price and less interests to pay.

Kinda makes sense. Higher deposit means more time needed to save. More pressure on the rental market drives up rent, making it harder to save and so on. So in the end people will forever be trapped in rental accommodation, which would be OK in a properly regulated market, but not in a market where the landlord can write you a letter that reads "Dear tenant, rent's going up 50% from today, if you don't like it, there's already a queue for your place outside, so kindly be gone by evening".
Don't believe for one second prices will go down. Prices only fell because demand was very low to non existent during the crash and on top of it banks weren't lending. What will happen is that maybe price increase will slow down, but it will still be going up. That whole idea that this will bring the price down is silly. Left nut and million bucks.

Bob24

dr.fuzzenstein wrote: »

Kinda makes sense. Higher deposit means more time needed to save. More pressure on the rental market drives up rent, making it harder to save and so on. So in the end people will forever be trapped in rental accommodation, which would be OK in a properly regulated market, but not in a market where the landlord can write you a letter that reads "Dear tenant, rent's going up 50% from today, if you don't like it, there's already a queue for your place outside, so kindly be gone by evening".
Don't believe for one second prices will go down. Prices only fell because demand was very low to non existent during the crash and on top of it banks weren't lending. What will happen is that maybe price increase will slow down, but it will still be going up. That whole idea that this will bring the price down is silly. Left nut and million bucks.

Yes how much it will affect prices is open to debate, but I think everybody agrees it will at least slow down the price increases a bit. And as I said, if your deposit is let's say 30k higher, that is 30k less on which you are paying interest. Assuming 4% interest rate it means 1200 euros per year ... Quite a lot over the whole duration of the mortgage. It might end up being a higher amount that the hypothetical effect of the regulation on rents.

I'm not saying the rule is all great and I agree the argument about rents is valid. But just pointing out that most commenters who have mesi access seem be on the same side of the argument and selecting only the potential effect that back up their point.

by the seaside

dr.fuzzenstein wrote: »

Kinda makes sense. Higher deposit means more time needed to save. More pressure on the rental market drives up rent, making it harder to save and so on. So in the end people will forever be trapped in rental accommodation, which would be OK in a properly regulated market, but not in a market where the landlord can write you a letter that reads "Dear tenant, rent's going up 50% from today, if you don't like it, there's already a queue for your place outside, so kindly be gone by evening".
Don't believe for one second prices will go down. Prices only fell because demand was very low to non existent during the crash and on top of it banks weren't lending. What will happen is that maybe price increase will slow down, but it will still be going up. That whole idea that this will bring the price down is silly. Left nut and million bucks.

I'm trying to think this through. If someone is now renting rather than buying, isn't the increased demand in the rental sector of one house offset by the decreased demand in the owner occupied sector of one house? So one house transfers to the rental sector, increasing supply by one house.

Also, as there is less credit available for BTL, doesn't this mean that prices will fall until they reach the point when someone - owner occupier or investor - can buy? And lower house prices should mean lower rents. But then again maybe that's all nonsense.

jay0109

dr.fuzzenstein wrote: »

That whole idea that this will bring the price down is silly. Left nut and million bucks.

This could be 1 of the quotes of 2015 :rolleyes:

dr.fuzzenstein

jay0109 wrote: »

This could be 1 of the quotes of 2015 :rolleyes:

We'll see in 2016

The_Conductor

Keep in mind too- the BTL mortgages are now only for a max of 60%- aka a 40% deposit is called for on the BTL mortgages- far more onerous than for owner occupiers...... I don't see BTL buyers taking up the slack from owner occupiers.

The traditional reason for buying BTL properties- has been because the mortgage interest was deductible as an expense from the rental income- however, thats been reduced to 75%, and the max mortgage is 60% of the purchase price- so you need a 40% lumpsum upfront- and then you can only claim 75% of the interest on the 60% mortgage........... As a tax deductible expense- its no longer a major part of the purchase equation.........

Further- all the lenders are advising that as BTL mortgages are finally getting unjammed- there will be tens of thousands of those properties on the market before the end of 2016........

The_Conductor

The_Conductor wrote: »

Keep in mind too- the BTL mortgages are now only for a max of 60%- aka a 40% deposit is called for on the BTL mortgages- far more onerous than for owner occupiers...... I don't see BTL buyers taking up the slack from owner occupiers.

The traditional reason for buying BTL properties- has been because the mortgage interest was deductible as an expense from the rental income- however, thats been reduced to 75%, and the max mortgage is 60% of the purchase price- so you need a 40% lumpsum upfront- and then you can only claim 75% of the interest on the 60% mortgage........... As a tax deductible expense- its no longer a major part of the purchase equation.........

Further- all the lenders are advising that as BTL mortgages are finally getting unjammed- there will be tens of thousands of those properties on the market before the end of 2016........

+1
And CGTax exemption is no more

El_Dangeroso

The_Conductor wrote: »

Keep in mind too- the BTL mortgages are now only for a max of 60%- aka a 40% deposit is called for on the BTL mortgages- far more onerous than for owner occupiers...... I don't see BTL buyers taking up the slack from owner occupiers.

I thought it was only 70% LTV, I mean great if not, but is it really 60%?

audi12

El_Dangeroso wrote: »

I thought it was only 70% LTV, I mean great if not, but is it really 60%?

ts 70 dont know what that poster was on about 70 is bad enough as is

ElizKenny

Having worked in finance for a long time, one thing I am very sure of.
There are always ways around any financial rule.
You can bet that all of the financial institutions are already putting together their numerous workarounds.
And they will all be keeping their cards clsoe to their chests at the moment.
Ive heard a few already myself from some people i have worked with in various places in the past.

Gwan so ElizKenny. How can you get around this regulation?

handlemaster

[Deleted User] wrote: »

Gwan so ElizKenny. How can you get around this regulation?[/quot


+1

dr.fuzzenstein

One has already been mentioned, unofficial loans from parents. I'd say that would be the most popular one.

jay0109

dr.fuzzenstein wrote: »

One has already been mentioned, unofficial loans from parents. I'd say that would be the most popular one.

Like the Poor, that has always been with us:P

dr.fuzzenstein

dr.fuzzenstein wrote: »

One has already been mentioned, unofficial loans from parents. I'd say that would be the most popular one.

Family money or credit union loans are kind of a workaround but not really an ingenious trick by the banks. I'd be thinking more of how they might exploit the leeway built into the regulations.

For example, if they can make exceptions for 15% of the value of the loans, could they give out some 50% LTV mortgages at the higher end of the market (say, lend 500k for a 1m house), giving themselves huge leeway to make exceptions at the lower end (say, half a dozen 92% LTVs for houses in the sub-300k bracket).

I haven't done the maths(!) but you get the principle of how they can stick to the letter of the regulations without honouring the spirit.

(Am I close Eliz?!)

gaius c

dr.fuzzenstein wrote: »

One has already been mentioned, unofficial loans from parents. I'd say that would be the most popular one.

Not sure if you're dealing with banks of late but they would have a number of questions regarding the large lodgements into your account.

1. Where did these large sums of money come from?
2. Are they loans or gifts?
3. Can you provide us with evidence that these deposits are gifts?

If the answer to no 2 is "loan", the bank will politely say goodbye and good luck as they won't want competing loans on " their" property.