Central Bank to limit amount banks lend for home purchase

molloyjh

gaius c wrote: »

Post on the pin suggests carnage at the higher end of the market.

Long story short
€260k household income
2 kids
€110k deposit saved
Max mortgage of €545k with savings assumed to have increased to €150k by then

That's a 2.1 LTI ratio. Going to be interesting times ahead if that is typical.

Yeah but isn't that based on the deposit as well. Looks like the FTB thing wasn't taken into account no?

A deposit of €110k with a LTV of 80% would mean a total house price of €550k and a mortgage of €440k which is pretty much what KBC were offering. The BoI figures look like they are talking about a specific house worth €685k. So to me it looks like the LTV bit is the problem there, not the LTI.

keane2097

Cuddlesworth wrote: »

The only actual data points in that article besides hearsay.

"This year alone our website had 85,000 visits from 1,101 locations across the UK, accounting for 8pc of the total site traffic,"

85k hits in a year is not a big number. Its sounds big but its not. Websites measure in unique visitors but when that totals around 1k it doesn't sound so good.

I run a GAA website which has had 83,181 sessions from the UK since the turn of the year, accounting for 23.5% of my total traffic in that time. I'm worried the UK are planning a hostile takeover of Croke Park.

MayBea

gaius c wrote: »

Post on the pin suggests carnage at the higher end of the market.

Long story short
€260k household income
2 kids
€110k deposit saved
Max mortgage of €545k with savings assumed to have increased to €150k by then

That's a 2.1 LTI ratio. Going to be interesting times ahead if that is typical.

It is €200K income in fact, with 60k bonus which is not taken into account.
Agree with molloyjh, the issue is in their LTV - under the new rules with the deposit of 110k the maximum mortgage portion you get as a FTB is 550k (220K under 10% = 22K; 440K under 20% = 88K). Therefore, the maximum purchase price would be 660K.

seamus

The_Conductor wrote: »

To be brutally honest Gaius- a 260k household income is *not* normal.

gaius can correct me if I'm wrong, but I think that's half the point.
Here are two people with exceptional levels of income - quarter of a million euro p.a. - and an enormous deposit, and they can't raise the funds to go above €550k.

There are 3,000 houses in Dublin on myhome.ie at present, of which 800 are priced above €550k. That's 27% of the properties for sale in Dublin out of the range of a couple with a combined salary of €250k.

So someone's clearly doing their sums wrong, and I don't think it's this couple.

However from another angle, you could argue this couple are typical - in their bracket. A couple on joint €250k are likely to be 35+, which means they probably have 2 kids, if not more, in creche. And with about five years' savings. So if that's all that they can get, it means that vendors are going to need to re-evaluate these family homes for €600k+, because there will be very few people out there to buy them.

Though I do find it interesting that only 34% of properties have mortgages on them. It means there's potentially a lot of equity releasable into the market. How many parents are going to start selling or remortgaging to hand over large deposits to their children.

I think whatever article said, "Sell now, it'll be a bloodbath by the end of the summer" probably has it spot on.

gaius c

The_Conductor wrote: »

The article is pretty accurate- as many of us who are looking for property can confirm. The vibrant property market is in the sub 300k bracket. Its probably stable up to around 450k- and after that- may god have mercy on your soul if you're trying to sell.




To be brutally honest Gaius- a 260k household income is *not* normal. It is probably in the top 1-2% of all incomes. The reason why your LTI is lowered- is because of the two children. Your childcare bill could very well be similar to the repayments on your mortgage- perhaps as high as 3k a month each (but you probably net 12k a month- leaving you with 6k over after mortgage and childcare costs).

You could legitimately argue that you could comfortably afford a significantly higher mortgage- it depends entirely on your lifestyle and how you might propose to rejiggle your outgoings.

I wish that was my income!

by the seaside

seamus wrote: »

gaius can correct me if I'm wrong, but I think that's half the point.
Here are two people with exceptional levels of income - quarter of a million euro p.a. - and an enormous deposit, and they can't raise the funds to go above €550k.

There are 3,000 houses in Dublin on myhome.ie at present, of which 800 are priced above €550k. That's 27% of the properties for sale in Dublin out of the range of a couple with a combined salary of €250k.

So someone's clearly doing their sums wrong, and I don't think it's this couple.

However from another angle, you could argue this couple are typical - in their bracket. A couple on joint €250k are likely to be 35+, which means they probably have 2 kids, if not more, in creche. And with about five years' savings. So if that's all that they can get, it means that vendors are going to need to re-evaluate these family homes for €600k+, because there will be very few people out there to buy them.

Though I do find it interesting that only 34% of properties have mortgages on them. It means there's potentially a lot of equity releasable into the market. How many parents are going to start selling or remortgaging to hand over large deposits to their children.

I think whatever article said, "Sell now, it'll be a bloodbath by the end of the summer" probably has it spot on.

But these expensive homes are affordable to people who already have substantial equity. The whole structure is built on credit availability and at some point it will go. Whether it's 2015 or 2020, I don't know.

BoatMad

I think whatever article said, "Sell now, it'll be a bloodbath by the end of the summer" probably has it spot on.

I agree, Fitch has stated that house prices will fall, The current bubble is a function of cash based buyers, and also carpet baggers rushing to get the last minute deals. Once the cash supported buyers are out of the market and the market relies on mortgage based purchasers , prices will tumble.

Houses have no intrinsic value, just what people will pay for them. if you have struggling buyers, you have falling prices ( or nominal inflated prices that never sell (

gaius c

MayBea wrote: »

It is €200K income in fact, with 60k bonus which is not taken into account.
Agree with molloyjh, the issue is in their LTV - under the new rules with the deposit of 110k the maximum mortgage portion you get as a FTB is 550k (220K under 10% = 22K; 440K under 20% = 88K). Therefore, the maximum purchase price would be 660K.

Correct but interesting that the bank were not willing to put them in their 15% of "leeway" cases.

The_Conductor

gaius c wrote: »

Correct but interesting that the bank were not willing to put them in their 15% of "leeway" cases.

Its along the lines of- if you owe the banks 200k and cannot pay- you have a problem........ If you owe the bank 500k (or more) and cannot pay- the bank have a problem........

Its not necessarily in a bank's interest to give out large loans- there is an inherent level of risk that grows, the bigger the mortgage is- totally independent of a borrowers capacity to repay the loan.

molloyjh

gaius c wrote: »

Correct but interesting that the bank were not willing to put them in their 15% of "leeway" cases.

You would think with the ability to save €3k a month after paying €1.2k rent that they would be prime candidates for the leeway thing. That's €4.2k of income that could go towards mortgage repayments.

I think we will see a reduction in certain sections of the market, i.e. the higher end. Just looking at South County Dublin in general and the absolute cheapest 3 bed semi is €295k. A more reasonable guide price as it stands for SCD would be around €425k. The deposit required for that would be €85k for home owners and €63k for FTBs. If a couple in Dublin saved €1k a month it would take over 5 years to get the FTB deposit together. For home owners they'd really need a good bit of equity behind them to supplement their savings and that is only going to be the case for people who bought 15+ years ago.

People moving home after 15+ years would be a fairly small section of the market. You're generally looking at people trading up from start homes to family homes, i.e. the natural progression of the market. And most of those people will have bought in the last 10 years or so and as a result won't have equity behind them. So the market for those SCD houses will be fairly limited. They'll simply have to come down in price to sell.

For commuter belt homes at the moment you're looking at around the €150k mark for a 2 bed and €200k for a 3 bed. For FTBs that would require between €15-20k deposit and combined salaries of €38-50k. There most likely won't be a drop in those prices you would think.

seamus

by the seaside wrote: »

But these expensive homes are affordable to people who already have substantial equity. The whole structure is built on credit availability and at some point it will go. Whether it's 2015 or 2020, I don't know.

This is the thing though. The vast majority between 25 and 40 do not have substantial equity to play with. They bought in the boom and at best have five figures of equity in their property.

Now, maybe there are a subset of people out there sitting on €300k in equity and €250k per annum. But they don't make up 27% of the market

MayBea

gaius c wrote: »

Correct but interesting that the bank were not willing to put them in their 15% of "leeway" cases.

Yes, but my gut feeling tells me this option is left for the public sector workers.
What puzzles me is why BOI didn't suggest them to get another 5K on top of their existing deposit to fund a mortgage of 570K to ultimately finance a purchase of 685K house.

Balmed Out

Have to wonder about that example. I would have thought a couple on those earnings who are first time buyers regardless of two kids would have saved far more. One would wonder are there other factors reducing the amount approved.

Glenbhoy

MayBea wrote: »

Yes, but my gut feeling tells me this option is left for the public sector workers.
What puzzles me is why BOI didn't suggest them to get another 5K on top of their existing deposit to fund a mortgage of 570K to ultimately finance a purchase of 685K house.

I think, from recall that the poster on the pin mentioned that boi are actually running with 25% deposits required on properties above 450k. I'll check when I get a chance, anyone else hear similar?

Glenbhoy

Balmed Out wrote: »

Have to wonder about that example. I would have thought a couple on those earnings who are first time buyers regardless of two kids would have saved far more. One would wonder are there other factors reducing the amount approved.

Not necessarily, could have travelled, been abroad, probably earned much smaller wages until recently anyway (most professionals do), could have gifted money to parents etc etc.... there are many reasons as to why they have level of savings they do.

Balmed Out

Glenbhoy wrote: »

Not necessarily, could have travelled, been abroad, probably earned much smaller wages until recently anyway (most professionals do), could have gifted money to parents etc etc.... there are many reasons as to why they have level of savings they do.

Their both 35. Sure they would have been on smaller wages and sure they could have travelled etc but still at the moment they earn more then a quarter of a million a year and yet have saved a relative pittance.
Id imagine its more likely one or both lack job security and have spent time unemployed, they are frivolous with money, gamble etc.

The Spider

Balmed Out wrote: »

Their both 35. Sure they would have been on smaller wages and sure they could have travelled etc but still at the moment they earn more then a quarter of a million a year and yet have saved a relative pittance.
Id imagine its more likely one or both lack job security and have spent time unemployed, they are frivolous with money, gamble etc.

I don't think those salaries are fantastically high, they're probably about right for anyone at mid management level in any company that's doing well. There's a lot of people out there who don't even need mortgages, it's funny it may seem a lot to you, but if those guys are surrounded by people earning more, their salaries may seem low to them personally.

I know a lot of people who would be in similar positions, what they do with their money I don't know, all I can say is that there may be a tendency not to slum it shall we say.

As for the levels of debt, I'd be wary my salary is pretty decent, and when I bought I had a substantial deposit. However I'd lose sleep with the kind of debt those guys are looking at, even on the great salaries, for one thing if they lose any of those jobs it may be difficult to find another job paying the same rate, the more money you earn the more potential to end up in trouble if it all goes tits up.

The mortgage repayments on top of the crèche fees look like madness to me. Those bonuses are taxed at a straight up rate of 52% still not to be sniffed at, but I haven't seen a mention of a car there, safe to assume it's a two car household, be curious about what type of cars, I could be wrong but unlikely, 3 grand a month savings is 1.5 grand each a month, not a huge amount, but I honk if they did have to suddenly repay 2800 a month instead of 1200 rent, they'd struggle.

No mention of furniture etc, which wouldn't be cheap, or maintenance, like I say I personally wouldn't like to take on that kind of debt.

Michael D Not Higgins

They mention they saved 3k a month for the last year, that's roughly equivalent to them not spending their bonus. In other words, ALL of their core income is going on their current bills and lifestyle expenses.

Sala

Balmed Out wrote: »

Have to wonder about that example. I would have thought a couple on those earnings who are first time buyers regardless of two kids would have saved far more. One would wonder are there other factors reducing the amount approved.

It looks like they have 2-3 kids based on the childcare amount. Possible that one parent was not working for a period of time so they may have lived on one salary (and possibly a smaller salary). Their salaries at this point in time seem huge. That's not to say in 2008 etc they weren't hit. Could be lots of reasons.

On an aside, childcare of 2200! 😳 shocking

molloyjh

Balmed Out wrote: »

Have to wonder about that example. I would have thought a couple on those earnings who are first time buyers regardless of two kids would have saved far more. One would wonder are there other factors reducing the amount approved.

You're assuming that they have been consistently earning that amount of money for a number of years which is almost certainly not the case. For starters the wife will have been out of work for at least 2 years due to the children and a good chunk of that she would not have been earning at all. Secondly there's the fact that they were probably on lower wages that built up to their current levels over time. There was more than likely a wedding, which isn't cheap. You simply don't know their circumstances or what other expenses they may have incurred over the years. To have saved €110k while having 2 kids and being in your mid-30s is pretty good considering we're coming off the back of a serious recession.

Michael D Not Higgins wrote: »

They mention they saved 3k a month for the last year, that's roughly equivalent to them not spending their bonus. In other words, ALL of their core income is going on their current bills and lifestyle expenses.

€3k a month for 1 year is only €36k though. If there's €60k in bonuses I'd assume (and it is an assumption) that the bonuses went straight into the savings as well.

Why are people here so quick to try and judge situations that they know little to nothing about?

Cuddlesworth

molloyjh wrote: »

€3k a month for 1 year is only €36k though. If there's €60k in bonuses I'd assume (and it is an assumption) that the bonuses went straight into the savings as well.

Why are people here so quick to try and judge situations that they know little to nothing about?

After 33k, everything you earn is taxed at roughly 54%. So 60k bonus total for both is in the 28k after tax territory.

Michael D Not Higgins

molloyjh wrote: »

€3k a month for 1 year is only €36k though. If there's €60k in bonuses I'd assume (and it is an assumption) that the bonuses went straight into the savings as well.

Why are people here so quick to try and judge situations that they know little to nothing about?

Because they specifically said they saved 3k a month for the last year, not 3k a month and the bonus.

In the first case, the 60k bonus is taxed at the higher rate, so they'd have netted 29k from it. So they saved about 600/month or about 6% of their net income to bring that to 3k a month.

If it's the latter, they saved over half their deposit in one year. And if that's the case, they either only considered saving in the last year or there were a string of extenuating circumstances over the last, what, 10 years?

molloyjh

Michael D Not Higgins wrote: »

Because they specifically said they saved 3k a month for the last year, not 3k a month and the bonus.

In the first case, the 60k bonus is taxed at the higher rate, so they'd have netted 29k from it. So they saved about 600/month or about 6% of their net income to bring that to 3k a month.

If it's the latter, they saved over half their deposit in one year. And if that's the case, they either only considered saving in the last year or there were a string of extenuating circumstances over the last, what, 10 years?

Yeah I assumed 60k was net not gross. My bad.

Either way that then probably proves the point even more. If they saved €3k a month for a year that is €36k. Plus bonuses of €29k is €55k. So prior to 2014 they had €55k saved. Now obviously there's interest etc to factor in but you get the point. A couple in their early to mid 30s with 2 kids and most likely married having savings of €55k is hardly, what someone called here, "pittance". Especially when most of that was likely saved during a recession.

Greyian

molloyjh wrote: »

Yeah I assumed 60k was net not gross. My bad.

Either way that then probably proves the point even more. If they saved €3k a month for a year that is €36k. Plus bonuses of €29k is €55k. So prior to 2014 they had €55k saved. Now obviously there's interest etc to factor in but you get the point. A couple in their early to mid 30s with 2 kids and most likely married having savings of €55k is hardly, what someone called here, "pittance". Especially when most of that was likely saved during a recession.

Based on the original post, they don't seem to saving €3,000 per month, plus their bonuses, they just seem to be saving €3,000 per month total. So they saved €29,000 from their bonuses last year, then €7,000 from their basic pay.
Their basic wage works out to ~€120,000/year net, so they seem to be spending €113,000/year, then saving €7,000, then also saving the €29,000 (net) in bonuses.

Just to add: So they're spending €113,000, having rent and childcare costs of €3,400/month (or €40,800/year). So after childcare and rent, they're spending over €70,000/year?

Kinet1c

molloyjh wrote: »

Yeah I assumed 60k was net not gross. My bad.

Either way that then probably proves the point even more. If they saved €3k a month for a year that is €36k. Plus bonuses of €29k is €55k. So prior to 2014 they had €55k saved. Now obviously there's interest etc to factor in but you get the point. A couple in their early to mid 30s with 2 kids and most likely married having savings of €55k is hardly, what someone called here, "pittance". Especially when most of that was likely saved during a recession.

Net income for 200k is 10k/month. Should be able to save 5k of that a month easily, then add the bonuses results in about 90k/year saved. Time to stop dining out in the Shelbourne me thinks.

Michael D Not Higgins

Greyian wrote: »

Based on the original post, they don't seem to saving €3,000 per month, plus their bonuses, they just seem to be saving €3,000 per month total. So they saved €29,000 from their bonuses last year, then €7,000 from their basic pay.
Their basic wage works out to ~€120,000/year net, so they seem to be spending €113,000/year, then saving €7,000, then also saving the €29,000 (net) in bonuses.

Just to add: So they're spending €113,000, having rent and childcare costs of €3,400/month (or €40,800/year). So after childcare and rent, they're spending over €70,000/year?

And the difference between the mortgage repayment and their rent is 1600/month or 19k/year vs their savings of 7k/year. This is where I think they are saving the bonus on top of that, otherwise the bank wouldn't entertain them in the first place.

seamus

Kinet1c wrote: »

Net income for 200k is 10k/month. Should be able to save 5k of that a month easily, then add the bonuses results in about 90k/year saved. Time to stop dining out in the Shelbourne me thinks.

Depends. Childcare + Pension + Rent + Mortgage (on another property?) + car loan(s), etc.

The first three alone could easily account for €6.5k a month.

It doesn't really make any sense to extrapolate what they should have saved based on what they earn right now. One of them may only be back in the workforce 12 months. They may have made a series of bad investments before the boom that they've only just recovered from, etc etc. This time two years ago their combined salary could have been €120k, and they've only recently been moved to much better positions with bonusses and the like.

Greyian

Michael D Not Higgins wrote: »

And the difference between the mortgage repayment and their rent is 1600/month or 19k/year vs their savings of 7k/year. This is where I think they are saving the bonus on top of that, otherwise the bank wouldn't entertain them in the first place.

If we exclude the rent payments actually, their total spending per year is ~€98,000. The banks must surely be looking at that and seeing that if either person lost their job (or if both lost their bonuses), they wouldn't be able to afford the mortgage with their current lifestyle, and people who are used to a certain lifestyle are far more likely to struggle to make their repayments if it involves sacrificing their "quality of life" in the event of a salary cut, job loss etc.

I've always found it interesting when some people say something along the lines of "We've saved €1,000/month, while paying rent of €1,500/month for a year, so we can afford a mortgage of €2,500/month." People in that position have likely made sacrifices, in order to secure a mortgage (i.e. no foreign holidays, driving an older car etc.) While that is fine in the short-term, banks should be looking at those kinds of scenarios and seeing that people will not be happy to forgo foreign holidays etc for the 30-35 years they're repaying their mortgages.
I'm always baffled by people who think 1-2 years of saving while renting means they should be able to draw down a mortgage with similar/equal repayments as their combined rent+savings, as it simply isn't sustainable.

molloyjh

Greyian wrote: »

Based on the original post, they don't seem to saving €3,000 per month, plus their bonuses, they just seem to be saving €3,000 per month total. So they saved €29,000 from their bonuses last year, then €7,000 from their basic pay.
Their basic wage works out to ~€120,000/year net, so they seem to be spending €113,000/year, then saving €7,000, then also saving the €29,000 (net) in bonuses.

Just to add: So they're spending €113,000, having rent and childcare costs of €3,400/month (or €40,800/year). So after childcare and rent, they're spending over €70,000/year?

Bonuses are one off payments. They don't get them monthly. Why would they say they are saving €3k a month if they aren't saving €3k a month? It looks to me like you're trying to read something into this so that you can have a go at them over some imaginary issue.

Kinet1c wrote: »

Net income for 200k is 10k/month. Should be able to save 5k of that a month easily, then add the bonuses results in about 90k/year saved. Time to stop dining out in the Shelbourne me thinks.

Why should they deny themselves a few luxuries? Someone on that money invariably works hard and has earned it so they should be able to enjoy some of it without having people like you looking down your nose at them. When they started the process of saving the €3k a month that would have been a reasonable amount to save for a deposit for a house. That would have given them €55k after 12 months, but as I said above they obviously had savings prior to that. They wouldn't have known until late on that the LTV rules were changing.

And you also have no idea what other savings they have. Maybe they are saving €5k a month but the other €2k are for their kids future. That's a pretty common occurrence. It really is poor form that so many people feel the need to try and have a go at others, especially from a point of near complete ignorance.

Greyian

seamus wrote: »

Depends. Childcare + Pension + Rent + Mortgage (on another property?) + car loan(s), etc.

The first three alone could easily account for €6.5k a month.

It doesn't really make any sense to extrapolate what they should have saved based on what they earn right now. One of them may only be back in the workforce 12 months. They may have made a series of bad investments before the boom that they've only just recovered from, etc etc. This time two years ago their combined salary could have been €120k, and they've only recently been moved to much better positions with bonusses and the like.

Didn't the original post on thepropertypin say their rent was €1.2k/month? So childcare + rent of €3.4k per month. For their childcare+pension+rent to equal €6.5k, they'd need to be putting €3.1k/month into their pension (and that's from the net equivalent of their wage). Their actual pension contributions in that case would be €5,255 I believe (€5,255 - 41% tax = €3,100). I don't imagine they'd be putting over €5,000 a month into their pensions, as that would be over 25% of their gross wage, and in their mid-30s, they'd only be entitled to tax relief of 20% of their gross wage.