Central Bank to limit amount banks lend for home purchase

L1011

hmmm wrote: »

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.

Because their parents or grandparents did - but when those areas were new build and not the mature desirable areas they are now.

People only ever assume the lending to other people was reckless, not them.

Skatedude

So 3.5 times my salary would be 100k, then the 20 % deposit. so 120k.
the best i could ever hope for is a tent? So in that case i will never, ever be able to buy even the cheapest 1 room apartment?

matt-dublin

Skatedude wrote: »

So 3.5 times my salary would be 100k, then the 20 % deposit. so 120k.
the best i could ever hope for is a tent? So in that case i will never, ever be able to buy even the cheapest 1 room apartment?

Exactly! The banks reckon this will force housing prices down but in reality people will just not sell.

This makes the only available properties new builds and executor sales. But we won't be able to afford them so investors will get them and rent them to us for €100 more or less than the mortgage.

johnp001

Zamboni wrote: »

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.

The main way in which Ireland is being bought by international investors is entirely driven by the unregulated credit expansion of the last decade leading to bad debts which are now being bought by "vulture funds" as described by David McWilliams last week...
www. davidmcwilliams .ie/2014/09/29

I agree that prudent lending is required. It is in everyone's interest and in the interest of the country that credit not be allowed to expand completely unfettered by any regulation. As it stands the measures introduced today were positive and well timed. Depending on how their effects play out in the market other means should be used too.

vinylbomb

From the IT report today:

Certain exemptions are proposed to the new rules. These cover residual debt from home loans in negative equity, switcher mortgages, and home loans in arrears. Buy-to-let borrowers will also be exempt from the income restrictions.

http://www.irishtimes.com/business/personal-finance/new-mortgage-loan-rules-mean-most-house-buyers-to-need-20-deposit-1.1954732


This TOTALLY screws FTBs.

johnp001

vinylbomb wrote: »

From the IT report today:

Certain exemptions are proposed to the new rules. These cover residual debt from home loans in negative equity, switcher mortgages, and home loans in arrears. Buy-to-let borrowers will also be exempt from the income restrictions.

This TOTALLY screws FTBs.

The LTV restrictions are far more restrictive than the LTI restrictions for current lending as descibed in Table 1 in the CB paper released today.
The limits for BTL loans exceeding LTV guidelines are also more restrictive than those for owner occupiers.
As BTL property is in itself a source of income, it would not make sense to apply the same LTI restrictions on the purchasers income before a BTL is purchased and rented out because the income level which is relevant to making repayments on the mortgage is dependent on the income from the BTL.

FTBs are those with most to gain from these new regulations designed to curb house price inflation and ultimately lower house prices. Everyone who owns property already, owner-occupiers, BTL landlords etc... stands to lose.

Skatedude

K, so the solution for the banks not sorting out the spiralling housing costs is to completely limit the chance of the current generation ever owning a home. Couples might has a chance with 2 paychecks.

but single people will end up leaving the country as there is no other option?

I've worked hard all my life, saved up every penny to try and get a deposit, but still need about 5 times my salary on top of that for the cheapest 1 room apartment? ps, i'm on 30k, but took 20 years to get there.

johnp001

Skatedude wrote: »

K, so the solution for the banks not sorting out the spiralling housing costs is to completely limit the chance of the current generation ever owning a home. Couples might has a chance with 2 paychecks.

but single people will end up leaving the country as there is no other option?

I've worked hard all my life, saved up every penny to try and get a deposit, but still need about 5 times my salary on top of that for the cheapest 1 room apartment? ps, i'm on 30k, but took 20 years to get there.

The cheapest 1 room apartment only costs as much as it does because someone is willing to indebt themselves to pay that amount.
The intention of the regulations is to get rid of the situation where 1 person borrows more from the bank than they can afford to repay, inflating the price of the property and setting unrealistic expectations on price for future sellers.
In consequence, property can only sell for 3.5x the income of whoever wants to buy it.

Theboinkmaster

As an ftb I welcome these changes and hope they will help ease prices

on_my_oe

The problem is, these measures don't help the average FTBs- they just cut out a section of society, leaving properties for investors - thereby delivering a second screwing through increased renting. It won't cool down the market as the issue is supply. The government has an opportunity to fix that by demanding resolution to mortgage arrears within 180 days, forcing the flow of property onto the market where the mortgage is non performing. Instead it's looked after investors and freeloaders.

quadrifoglio verde

As a future first time buyer I strongly welcome these changes. Not because it might reduce prices or anything like that, but simply because it will help
Protect people from screwing themselves over, taking out unsustainable mortgages. One only has to read this thread, to see what I mean, so many people willing to stretch themselves to get a house.
An income multiple of 3x income is safe. Yeah you mightn't be able to afford to buy that 3 bed semi in rathfarnham, but hey, if you need much more than that, you couldn't really afford to anyway.
This idea that you can save for a few months for a deposit is stupid as well, if you're paying a mortgage for the next 20 years, you should be able to demonstrate regular savings over the last few years, not months.

mortimer33

If someone had been granted approval in principle prior to Jan-2015 based on a 10% deposit, would the banks block the mortgage if you were to go sale agreed in Jan-2015?

mariaalice

Skatedude wrote: »

So 3.5 times my salary would be 100k, then the 20 % deposit. so 120k.
the best i could ever hope for is a tent? So in that case i will never, ever be able to buy even the cheapest 1 room apartment?

There are apartments for under 100k. in Dublin This proposed measure is causing too much panic.

timetogo

Skatedude wrote: »

So 3.5 times my salary would be 100k, then the 20 % deposit. so 120k.
the best i could ever hope for is a tent? So in that case i will never, ever be able to buy even the cheapest 1 room apartment?

Not many people would be able to buy a house by themselves anymore. I think that ship has sailed a long time ago. Edit: though after I typed that I did a search on Daft. There are places for less than €120K

So you're on 33K.
If you're able to buy with a spouse I'll assume conservatively and say she's on 20K

€55K * 3 gives €185K with a 20% deposit of €37K.

Those aren't mental numbers. You won't be buying a house in Dublin city centre but I live in Swords and there are plenty of reasonable places for that money.
They're not mansions but you're not highly paid. In a few years as your income grows you can revisit it.

Zamboni

Theboinkmaster wrote: »

As an ftb I welcome these changes and hope they will help ease prices

It might do and that would be great.
On the other hands any drops could simply be offset by investors coming in as the return becomes more favourable and could simply push ownership outside the realms of many Irish citizens.

Zamboni

mortimer33 wrote: »

If someone had been granted approval in principle prior to Jan-2015 based on a 10% deposit, would the banks block the mortgage if you were to go sale agreed in Jan-2015?

Approval in principle can easily be reneged on.
I'd imagine loan offers will be honoured.

L1011

mortimer33 wrote: »

If someone had been granted approval in principle prior to Jan-2015 based on a 10% deposit, would the banks block the mortgage if you were to go sale agreed in Jan-2015?

Approval in principle isn't worth anything - considering its generally given as a basic calculation of income x multiplier and nothing more. So yes, if you're outside the requirements when its actually calculated the banks won't let you draw down - now or after the new rules comes in.

pwurple

I don't know what the furore is about. Those measures are entirely sensible, and what we stuck to ourselves when buying our first home.

If people are baulking at the idea of saving 20% of the cost of a house, how do they think they will ever be able to pay down a mortgage?

Everyone wants it all... and they want it now. New cars, foreign holidays and a large house in a swishy area. You don't get to HAVE it all, you make your choices and pick which you want most. We have a house in a nice area, it's small, but we could extend in the future. The car is 12 years old and we haven't had a foreign holiday in years because we were saving. I know people who tell me they would love to live in my area, but could never afford it. Thing is, they earn more than we do, but they go skiing and on a sun holiday every year, have a 141 car on the go, etc. We will get back to the position of being able to afford a holiday again in a few years, but we SAVED for where we are now.

mileycactus

Zamboni wrote: »

Approval in principle can easily be reneged on.
I'd imagine loan offers will be honoured.

This is the piece i trying to figure out. I have a loan offer, Probably closing the sale in January. I have signed contracts on the basis of this 90% LTV offer. If this gets pulled back i am legally exposed. Are loan offers from the banks legally binding?

GinaI

Frank Lee Midere wrote: »

Oh FFS. The sheer financial illiteracy of it all. Let me so spell it out for you. If you increase credit without increasing supply you increase prices. If you curtail credit you curtail prices. If prices rise you won't be able to afford the houses anyway.

The fact is if there are 10000 houses for sale only 10000 houses will sell. If you give everybody 100% mortgages at 6x the average salary only 10,000 houses will sell but they will cost more than 500k.
If you curtail credit only 10,000 houses will sell but they will be much cheaper.

It's that illiteracy which caused the last crash.

Yes we need more supply. Which wouldn't be a problem if there were a political will.

Thank you kindly for you answer. it didn't answer my question though.

Zamboni

mileycactus wrote: »

This is the piece i trying to figure out. I have a loan offer, Probably closing the sale in January. I have signed contracts on the basis of this 90% LTV offer. If this gets pulled back i am legally exposed. Are loan offers from the banks legally binding?

I wouldn't be worried in this case.
Banks are not completely restricted to do this across the board. They will honour your loan offer even if the closing is in 2015.
However, I would of course ring them to confirm.
Let us know how you get on.

mariaalice

I feel sorry for first time buyer in Dublin, however a lot of it is to do with wanting a certain area and thats it, for example there is house ( a very nice house ) on myhome, its in Grove park road Glasnevin, and it for sale for 249k, now as soon as some one asked here what do you think,... you would get that's near Finglas!!!! or if you suggested to a single buyer look at Finglas where there are apartment for under 100k you get the same reaction.

I am not saying Finglas is perfect but its not bad either.

The media has a lot to blame for what's happening in the housing market, there is too much panic about property.

GinaI

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.

I reckon so

on_my_oe

Zamboni wrote: »

I wouldn't be worried in this case.
Banks are not completely restricted to do this across the board. They will honour your loan offer even if the closing is in 2015.
However, I would of course ring them to confirm.
Let us know how you get on.

We have our mortgage offer signed etc and are hoping to close in November; I was worried about 'start implementing now' message and losing our deposit. so called to ask and was told if you have a loan offer in place eg contracts signed, mortgage acceptance signed etc, you will be fine as otherwise the banks will be leaving themselves open to being sued for reneging.

Obviously this is just what I was told, so please don't take it as gospel, but it did reassure me.

seamus

pwurple wrote: »

If people are baulking at the idea of saving 20% of the cost of a house, how do they think they will ever be able to pay down a mortgage?

People aren't baulking so much because they think they can never save that amount, it's because of the time it will take to save it.

For example, your payments on a 25-year mortgage of €240k @ 5% will be around €1,500/month. @ 80% that means your deposit is €60k, which will take 40 months to save up for if you're putting away that same money.

But of course, you're not putting away that same money. You're probably paying €1,200/month on rent (which will go directly to your mortgage payments when you buy) and €800/month in savings. Suddenly that €60k deposit is now 7 years away instead of 3.5.

So while clearly these people are well capable of servicing the mortgage they want to go for, these new rules effectively lock them out of the market in the medium to long term.

That's what people are baulking at. It's not a matter of affordability, it's a matter of time.

It's what will cause rents to skyrocket in the short-term; rather than buying family homes, people will be renting them instead while they save.

Of course having €2k/month for rent and savings before any other costs assumes that the person/couple are earning €70k+, which is earning power that most couples don't hit until their late 20s/early 30s and a single person doesn't hit until their mid-30s, if at all. Which means they've no hope of buying until their mid-to-late 30s.

Of course, the central bank proposals are probably intentionally conservative and will be relaxed once the consultation period is finished. It's also not necessarily the CB's problem that people have to save for so long; in the real world it should mean that prices level out into something more affordable, until most people can get that 20% deposit together in 3-5 years.

matt-dublin

seamus wrote: »

People aren't baulking so much because they think they can never save that amount, it's because of the time it will take to save it.

For example, your payments on a 25-year mortgage of €240k @ 5% will be around €1,500/month. @ 80% that means your deposit is €60k, which will take 40 months to save up for if you're putting away that same money.

But of course, you're not putting away that same money. You're probably paying €1,200/month on rent (which will go directly to your mortgage payments when you buy) and €800/month in savings. Suddenly that €60k deposit is now 7 years away instead of 3.5.

So while clearly these people are well capable of servicing the mortgage they want to go for, these new rules effectively lock them out of the market in the medium to long term.

That's what people are baulking at. It's not a matter of affordability, it's a matter of time.

It's what will cause rents to skyrocket in the short-term; rather than buying family homes, people will be renting them instead while they save.

That's exactly the point I'm trying to make. Very clearly presented.

Daith

mariaalice wrote: »

I am not saying Finglas is perfect but its not bad either.

Oh not Finglas. Maybe Charlestown or Meakstown....

matt-dublin

Plus bearing in mind that some people will be on the upper limits of mortgage terms. so people who had been planning on getting a 25 year mortgage who have to save for another year or two now can only get a 22/23 year mortgage thus reducing affordability.

NewCorkLad

seamus wrote: »

People aren't baulking so much because they think they can never save that amount, it's because of the time it will take to save it.

So while clearly these people are well capable of servicing the mortgage they want to go for, these new rules effectively lock them out of the market in the medium to long term.

That's what people are baulking at. It's not a matter of affordability, it's a matter of time.

Exactly thats what is annoying me about the new rules. I have no problem with the 3.5 times salary element, its the 20% deposit that I find unnecessary. If you can save a 10% deposit while renting, surely that shows a repayment capacity to service a loan of 3.5 times your salary.

yellowlabrador

seamus wrote: »

People aren't baulking so much because they think they can never save that amount, it's because of the time it will take to save it.

For example, your payments on a 25-year mortgage of €240k @ 5% will be around €1,500/month. @ 80% that means your deposit is €60k, which will take 40 months to save up for if you're putting away that same money.

But of course, you're not putting away that same money. You're probably paying €1,200/month on rent (which will go directly to your mortgage payments when you buy) and €800/month in savings. Suddenly that €60k deposit is now 7 years away instead of 3.5.

So while clearly these people are well capable of servicing the mortgage they want to go for, these new rules effectively lock them out of the market in the medium to long term.

That's what people are baulking at. It's not a matter of affordability, it's a matter of time.

It's what will cause rents to skyrocket in the short-term; rather than buying family homes, people will be renting them instead while they save.

Of course having €2k/month for rent and savings before any other costs assumes that the person/couple are earning €70k+, which is earning power that most couples don't hit until their late 20s/early 30s and a single person doesn't hit until their mid-30s, if at all. Which means they've no hope of buying until their mid-to-late 30s.

Of course, the central bank proposals are probably intentionally conservative and will be relaxed once the consultation period is finished. It's also not necessarily the CB's problem that people have to save for so long; in the real world it should mean that prices level out into something more affordable, until most people can get that 20% deposit together in 3-5 years.

don't forget that interest rates are at a record low.