Central Bank to limit amount banks lend for home purchase

mr_seer

gaius c wrote: »

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.

Even if people do manage to get around the LTV ratio, they will still have the LTI to contend with and there is no easy way around that. The combined impact of the two measures will have a considerable effect on house prices

impr0v

gaius c wrote: »

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.

it's a small point, but only the mortgage loan will be secured on the property. It's more a concern about affordability/risk of default than it is about their right of recourse to the property.

Bob24

mr_seer wrote: »

Even if people do manage to get around the LTV ratio, they will still have the LTI to contend with and there is no easy way around that. The combined impact of the two measures will have a considerable effect on house prices

Good point.

I am wondering if banks will be able to work around this by being more flexible with how the take people's income into account.

For exemple today if two people want a mortgage and one of them is in a fixed term contract, my understanding is that in many case the income of that person will either not be taken into account or only half of it will be.

Possibly they could start taking the full income into account if the second borrower is in full time employment?

Do we know if the CBI rules defines what type of income qualifies for the LTI ratio?

dr.fuzzenstein

gaius c wrote: »

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.

Nope, it was rather easier in 2006. We didn't have a lot of savings (OK, none), got money from both sets of parents, maxed out credit cards and I approached my bank (we got the mortgage from somewhere else) and asked for a loan for, errrm, stuff...
Both of us lost our jobs at one point or another, the redundancies helped pay off a lot of the various loans and credit card bills. It wasn't always easy, but we managed. I'm very glad I got my house when I got it, those where the days when you got a letter stating the bank increased the limit on your credit card for no reason at all and you didn't even ask for it. At some stage I actually played a game of "how big a limit will those guys give me?" and started asking for more and more and got near 10k (I didn't max that out, it was just for sh*ts and giggles). I think the two of us could have gotten a combined €20k out of our credit cards. When you can see how much money you can get that way, you start to dream of taking the banks for everything they will give you and do a runner to South America. Who needs to rob banks, when they will give you the money willingly?
It was a bit of a gamble, it was never reckless as we never where in negative equity and it paid off nicely. My hope will be to trade down, i.e. sell this place and buy a fixer-upper in the countryside and live mortgage free.

edit:

One thing I learnt is that you don't want a massive mortgage hanging round your neck like a curse, but the way to get that is not always to start small and take no risks.

Gumbo

gaius c wrote: »

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.

We just got approved last week and the banks wanted to know about lodgements last July when I sold my car, bought another one and sold again within a week or two. So you are completely correct in that they are asking the questions about lodgements.

ec18

Does anyone have any guesses as to when the new rules might be seen to have an effect on house prices......my guess is the end Sept-October time?

The_Conductor

ec18 wrote: »

Does anyone have any guesses as to when the new rules might be seen to have an effect on house prices......my guess is the end Sept-October time?

Definitely having an effect already in certain areas already- such as West Dublin....... It depends- there are quite a few factors at play- though it looks like Ireland topping the European league for house price increases- is a thing of the past........

by the seaside

The_Conductor wrote: »

Definitely having an effect already in certain areas already- such as West Dublin....... It depends- there are quite a few factors at play- though it looks like Ireland topping the European league for house price increases- is a thing of the past........

Don't worry. In another 5 to 10 years we get to do it all over again

super_furry

So for a first time buying couple looking to get a house for €350,000 what kind of deposit would they need now?

stevedublin

super_furry wrote: »

So for a first time buying couple looking to get a house for €350,000 what kind of deposit would they need now?

I calculate €48,000 to conform to the new rules.

by the seaside

super_furry wrote: »

So for a first time buying couple looking to get a house for €350,000 what kind of deposit would they need now?

(10% x 220,000) + (20% x 130,000) = 48,000.

Assuming both are first time buyers,

youcancallmeal

by the seaside wrote: »

(10% x 220,000) + (20% x 130,000) = 48,000.

Assuming both are first time buyers,

And their combined income would need to be 100k

Mr.McLovin

ec18 wrote: »

Does anyone have any guesses as to when the new rules might be seen to have an effect on house prices......my guess is the end Sept-October time?

with some banks giving 10 month approvals it maybe 2016 before you see any obvious effect, vendors can be a reluctant bunch but you also have a government committed to rising prices so who knows what they may come up with just in time for this factor to have any effect

Greyian

youcancallmeal wrote: »

And their combined income would need to be 100k

They'd need a combined salary of €86,286. They'd only need a mortgage for €302,000, not for the full €350,000.

johnp001

super_furry wrote: »

So for a first time buying couple looking to get a house for €350,000 what kind of deposit would they need now?

€48k to buy a €350k house now.
Another scenario to consider is that the €350k house was attaining €350k because that was the maximum that the person with the most money who wants to buy it could borrow due to deposit restrictions.
(e.g. €28k=8%*€350k assuming 92% LTV mortgage)
In this case, assuming other variables remain the same, the €350k house would be sold to the same buyer with €28k deposit and the sale price would have to be €250k to meet the new lending restrictions (22k deposit at 90% LTV for 220k and further 6k deposit at 80% LTV making €250k in total)

This ignores LTI restrictions, does not account for market sentiment, timing etc. but it is an interesting example of the changes that the CB rules could have on the market that should be considered before buying into a market with a lot of downside possibilities at the moment.

jaffa20

BOI haven't updated their calculator. I was trying to see what i could borrow based on my salary and it was alot less than 3.5 times my gross salary. Wish i was earning 100k:)

https://www.uploady.com/download/kAnFgdTRJR_/nN0E8xWoIZbJlbgG

flintash

johnp001 wrote:

€48k to buy a €350k house now. Another scenario to consider is that the €350k house was attaining €350k because that was the maximum that the person with the most money who wants to buy it could borrow due to deposit restrictions. (e.g. €28k=8%*€350k assuming 92% LTV mortgage) In this case, assuming other variables remain the same, the €350k house would be sold to the same buyer with €28k deposit and the sale price would have to be €250k to meet the new lending restrictions (22k deposit at 90% LTV for 220k and further 6k deposit at 80% LTV making €250k in total)

sounds too good to be true. i think there are vendors who either accept jockpot price or let the house ruin to the ground and you can put your fair price offer there the sun doesnt shine.

mr_seer

johnp001 wrote: »

€48k to buy a €350k house now.
Another scenario to consider is that the €350k house was attaining €350k because that was the maximum that the person with the most money who wants to buy it could borrow due to deposit restrictions.
(e.g. €28k=8%*€350k assuming 92% LTV mortgage)
In this case, assuming other variables remain the same, the €350k house would be sold to the same buyer with €28k deposit and the sale price would have to be €250k to meet the new lending restrictions (22k deposit at 90% LTV for 220k and further 6k deposit at 80% LTV making €250k in total)

This ignores LTI restrictions, does not account for market sentiment, timing etc. but it is an interesting example of the changes that the CB rules could have on the market that should be considered before buying into a market with a lot of downside possibilities at the moment.

They'll also need another €3,500 for stamp duty and €1,500 for legal fees. They may also need a couple of grand to furnish the house

johnp001

flintash wrote: »

sounds too good to be true. i think there are vendors who either accept jockpot price or let the house ruin to the ground and you can put your fair price offer there the sun doesnt shine.

I agree with you 100% There are even vendors who won't sell even at 2014 second bubble prices as they feel shortchanged from 2006 prices. There are also motivated sellers, probate sales etc which will sell for whatever the market will bear at the time (probably more of them in future as banks are put under pressure to deal with arrears). I think it is important to consider the new CB rules from this "competitive market" point of view as well as the "I'll have to save for another 10 years for my deposit" viewpoint.

Bob24

johnp001 wrote: »

I agree with you 100% There are even vendors who won't sell even at 2014 second bubble prices as they feel shortchanged from 2006 prices. There are also motivated sellers, probate sales etc which will sell for whatever the market will bear at the time (probably more of them in future as banks are put under pressure to deal with arrears). I think it is important to consider the new CB rules from this "competitive market" point of view as well as the "I'll have to save for another 10 years for my deposit" viewpoint.

I am on the same page as well. Supply was already restricted before the new rules do to the lack new builds and the facts that current owners don't want to take a loss, what is it going to be like now if buyers budgets are shrinking?

What do people think? Supply and demand should in there drive prices up ... but that is only if enough people can pay. Are sale volumes going to shrink until either side of the supply/demand equation blinks?

P. Breathnach

Bob24 wrote: »

... Are sale volumes going to shrink until either side of the supply/demand equation blinks?

I'd imagine some vendors are holding back until they see how the market is going. But that is likely to be a short-term thing. The people who have properties to sell still have properties to sell, and they are not going to leave them vacant for long, or delay indefinitely their wishes to trade up, or to downsize, or to try to disinvest from a BTL.

The Spider

P. Breathnach wrote: »

I'd imagine some vendors are holding back until they see how the market is going. But that is likely to be a short-term thing. The people who have properties to sell still have properties to sell, and they are not going to leave them vacant for long, or delay indefinitely their wishes to trade up, or to downsize, or to try to disinvest from a BTL.

This is nonsense, people don't have to sell anything, and if they can't get the price they thought they'd get, it may stop the plans they had. The properties aren't vacant, for the most part people still live in them they're just taken off the market.

Does anyone seriously think someone is going to sell at a loss? Someone is going to sell up, have no asset and a lot of debt?

And as for the houses that are for sale with no mortgage outstanding from older people, they more than likely we're going to downsize and have a chunk of money for a pension, if it looks like that chunk of money is going to be drastically smaller, then the cost benefit may not add up for those guys and they'll more than likely decide to stay put.

Sorry, new rules are going to destroy the supply side.

Bob24

The Spider wrote: »

Does anyone seriously think someone is going to sell at a loss?

Of course noone wants to sell at a loss.

Only socialised capitalism where profits are private and losses are public allows for investors (i.e. any property owner) to never make any loss though.

A number of people who bought at the top of the boom thinking the only way was up and can't cope with their repayments have been protected by the rest of society and/or holding banks hostages so that they don't have to take their loss ... but can this last forever?

Also for someone who wants to trade for something more expensive, it actually is a smart thing to do it when the market is low. Sure you can wait for your current property to become more expensive, but then the differential with the one you are targeting is going to grow and you will end up spending more. This might provide some supply in the lower end of the market?

molloyjh

The Spider wrote: »

Does anyone seriously think someone is going to sell at a loss?

Some people could well look to sell at a loss so that they can claim negative equity and avoid the new rules. If you had a 10% deposit saved then selling at a minimal loss of €1k or so may be preferable to having to stay put until you save the 20%.

But the simple fact is that sometimes people do have to sell. A young family may not have room in a starter home they bought 5-6 years ago for example. There are always circumstances where people have to move.

seamus

The Spider wrote: »

Does anyone seriously think someone is going to sell at a loss? Someone is going to sell up, have no asset and a lot of debt?

I'm probably going to. It'll be a small loss, but I'll do it. Because the alternative is renting out my property and renting somewhere else.

Two big headaches that I don't want.

johnp001

The Spider wrote: »

This is nonsense, people don't have to sell anything, and if they can't get the price they thought they'd get, it may stop the plans they had. The properties aren't vacant, for the most part people still live in them they're just taken off the market.

Some (not all) people do have to sell. The prices they attain may now be limited by deposit and LTI restrictions. The knock-on effect of this is that the new "market price" of that property is lowered and the people holding out for a price that they can no longer attain find that price even more unattainable.

The Spider wrote: »

Does anyone seriously think someone is going to sell at a loss? Someone is going to sell up, have no asset and a lot of debt?

And as for the houses that are for sale with no mortgage outstanding from older people, they more than likely we're going to downsize and have a chunk of money for a pension, if it looks like that chunk of money is going to be drastically smaller, then the cost benefit may not add up for those guys and they'll more than likely decide to stay put.

Sorry, new rules are going to destroy the supply side.

What sort of supply inflow changes YoY from 2014 do you predict for 2015 and in what timeframe do you see the supply side being destroyed?
From what I have seen, new property listing volumes seem to be significantly up on last year.

by the seaside

The Spider wrote: »

This is nonsense, people don't have to sell anything, and if they can't get the price they thought they'd get, it may stop the plans they had. The properties aren't vacant, for the most part people still live in them they're just taken off the market.

Does anyone seriously think someone is going to sell at a loss? Someone is going to sell up, have no asset and a lot of debt?

And as for the houses that are for sale with no mortgage outstanding from older people, they more than likely we're going to downsize and have a chunk of money for a pension, if it looks like that chunk of money is going to be drastically smaller, then the cost benefit may not add up for those guys and they'll more than likely decide to stay put.

Sorry, new rules are going to destroy the supply side.

If somebody's house is worth 10% less than it had been the year before and the new house they want to buy is worth 10% less then where's the problem?

History shows that people do sell houses at prices below a prior peak.

But it sounds like you're saying that the new rules will drive prices down. Will be interesting to see.

The_Conductor

seamus wrote: »

I'm probably going to. It'll be a small loss, but I'll do it. Because the alternative is renting out my property and renting somewhere else.

Two big headaches that I don't want.

Same here. It was only when the bank advised that on health grounds they wouldn't give me a new mortgage on a different property- that I put pay to the idea- and managed to get a job closer to home instead.

Different things motivate different people. 'Profit' when you're more interested in a property as a place to live in- does not, and should not, enter the equation.

Even today- you have 90% of the population classifying their homes as an investment.................. it seems we haven't learnt anything..........

_Kaiser_

The_Conductor wrote: »

Even today- you have 90% of the population classifying their homes as an investment.................. it seems we haven't learnt anything..........

I really wish I could thank this more than once - it's 100% true.

A property bubble, new credit-fuelled cars everywhere, a scramble to get on the "property ladder" before it becomes unaffordable, rents out of control in Dublin, people being pushed into the surrounding counties and forced to commute, resultant traffic problems ... it's like it's 2005 again!

Slick50

The_Conductor wrote: »

Even today- you have 90% of the population classifying their homes as an investment.................. it seems we haven't learnt anything..........

_Kaiser_ wrote: »

I really wish I could thank this more than once - it's 100% true.

A property bubble, new credit-fuelled cars everywhere, a scramble to get on the "property ladder" before it becomes unaffordable, rents out of control in Dublin, people being pushed into the surrounding counties and forced to commute, resultant traffic problems ... it's like it's 2005 again!

Well it looks like the central bank has learnt something, which is why they have (re)introduced these lending restrictions. Buying your own home is an investment, it's an investment in your own, and your families future.