Income Multiple Limits on Mortgages

Permabear

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Saipanne

Permabear wrote: »

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Why should they be the same? Are both markets identical?

Frank Lee Midere

Saipanne wrote: »

Why should they be the same? Are both markets identical?

Good catch. If it's bad for boom time buyers in negative equity it can only be because prices fall. Which would be good for FTBs.

Permabear

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Saipanne

Permabear wrote: »

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I dunno. There may well be compelling economic reasons for the difference. But I'm too vegitated to look into the reasons now.

Frank Lee Midere

Permabear wrote: »

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And tax. The actual metric should be "percentage of take home pay after taxes and property related charges." The top uk tax rate is 40% and comes in at a higher rate than here. The much abused Irish civil servant is paying 60% marginal. I think the UK has mortgage interest relief.

Frank Lee Midere

Saipanne wrote: »

Why, the mortgage is already approved?

True. It was probably an online estimate. He wasn't clear. In any case they have a few months to screw themselves for 35 years.

Larry Wildman

Frank Lee Midere wrote: »

And tax. The actual metric should be "percentage of take home pay after taxes and property related charges." The top uk tax rate is 40% and comes in at a higher rate than here. The much abused Irish civil servant is paying 60% marginal. I think the UK has mortgage interest relief.

How is he/she paying 60% marginal?!

Frank Lee Midere

Larry Wildman wrote: »

How is he/she paying 60% marginal?!

Pension levy. Details here.

http://m.rte.ie/news/2009/0203/113483-economy/

Up to 9%. So the marginal can be as high as 42% + USC + PRSI + LEVY.

For me, in the private sector, it's 52%.

Larry Wildman

Frank Lee Midere wrote: »

Pension levy. Details here.

http://m.rte.ie/news/2009/0203/113483-economy/

Up to 9%. So the marginal can be as high as 42% + USC + PRSI + LEVY.

For me, in the private sector, it's 52%.

You cannot classify the pension levy as a tax. They're getting something major in return.

Dannyboy83

Scofflaw wrote: »

I don't see that lending levels will decline. I think they'll rise from the current lows more slowly under these rules than they would have otherwise

I don't understand, if you require a 20% deposit to step up to the casino table, how will lending levels not decline?

Do you mean the overall level of lending will not decline?
As opposed to FTBs?

- because there's a big difference between a rule set that makes it clear a house is a long-term investment that has to be worked for, as against a rule set where as long as the banks feel daring, you can gamble in the property casino with next to no cash stake - but I don't see that as a bad thing.

Personally I see this is a bit like WW2 Generals fighting the last war instead of the current one.

I bought in April this year after 3 years living with my parents. (It wasn't possible to save enough while renting, but my mortgage is a fraction of what I was paying in rent prior to that.)
I was aiming to pay off debt, then save 8% and associated costs - solicitor, stamp duty etc.

I lived an extremely frugal lifestlye (still do). I assure you I was under no illusions about the long-term investment being undertaken. I just wanted a home, not an investment.

Of 4 siblings, I'm the only one still here. If I had to save an insurmountable 20%, I honestly would have packed my bags and followed my sister over to England.

I think the rate for FTBs should be 10%.


These arguments make sense in economic terms, but lack 'people' variable.
We are running dangerously low on incentives for educated people to stay here. We already have the highest emigration rate in Europe, among the highest taxes and so on.
I feel like this could be an especially deep nail in the coffin for our professional class.


I don't think this rule will last long - and if it does, I expect it will be bypassed Greek style with brown envelopes

Frank Lee Midere

Larry Wildman wrote: »

You cannot classify the pension levy as a tax. They're getting something major in return.

I can since it is obligatory and taken by the State from gross income. I am also supposed to get something for my PRSI which I also consider a tax.

But that's to derail the thread. The main point I was making is that loan to income is a very crude measure.

Saipanne

Dannyboy83 wrote: »

I don't understand, if you require a 20% deposit to step up to the casino table, how will lending levels not decline?

Do you mean the overall level of lending will not decline?
As opposed to FTBs?



Personally I see this is a bit like WW2 Generals fighting the last war instead of the current one.

I bought in April this year after 3 years living with my parents. (It wasn't possible to save enough while renting, but my mortgage is a fraction of what I was paying in rent prior to that.)
I was aiming to pay off debt, then save 8% and associated costs - solicitor, stamp duty etc.

I lived an extremely frugal lifestlye (still do). I assure you I was under no illusions about the long-term investment being undertaken. I just wanted a home, not an investment.

Of 4 siblings, I'm the only one still here. If I had to save an insurmountable 20%, I honestly would have packed my bags and followed my sister over to England.

I think the rate for FTBs should be 10%.


These arguments make sense in economic terms, but lack 'people' variable.
We are running dangerously low on incentives for educated people to stay here. We already have the highest emigration rate in Europe, among the highest taxes and so on.
I feel like this could be an especially deep nail in the coffin for our professional class.


I don't think this rule will last long - and if it does, I expect it will be bypassed Greek style with brown envelopes

He means as the economy recovers, lending levels will increase, relative to now.

Dannyboy83

Saipanne wrote: »

He means as the economy recovers, lending levels will increase, relative to now.

That would capacity to lend, as opposed to actual lending?

Frank Lee Midere

Dannyboy83 wrote: »

I don't understand, if you require a 20% deposit to step up to the casino table, how will lending levels not decline?

Do you mean the overall level of lending will not decline?
As opposed to FTBs?



Personally I see this is a bit like WW2 Generals fighting the last war instead of the current one.

I bought in April this year after 3 years living with my parents. (It wasn't possible to save enough while renting, but my mortgage is a fraction of what I was paying in rent prior to that.)
I was aiming to pay off debt, then save 8% and associated costs - solicitor, stamp duty etc.

I lived an extremely frugal lifestlye (still do). I assure you I was under no illusions about the long-term investment being undertaken. I just wanted a home, not an investment.

Of 4 siblings, I'm the only one still here. If I had to save an insurmountable 20%, I honestly would have packed my bags and followed my sister over to England.

I think the rate for FTBs should be 10%.


These arguments make sense in economic terms, but lack 'people' variable.
We are running dangerously low on incentives for educated people to stay here. We already have the highest emigration rate in Europe, among the highest taxes and so on.
I feel like this could be an especially deep nail in the coffin for our professional class.


I don't think this rule will last long - and if it does, I expect it will be bypassed Greek style with brown envelopes

This rule is not open for the government to change. I'd bet it was ECB mandated.

In any case if people pull out of the market it will become cheaper. Cash buyers won't buy into a declining market and supply will increase next year. Getting 20% might be easy enough.

Frank Lee Midere

Dannyboy83 wrote: »

That would capacity to lend, as opposed to actual lending?

The amount of lending not an increase in mortgage prices per applicant.

Saipanne

Dannyboy83 wrote: »

That would capacity to lend, as opposed to actual lending?

No, actual lending will increase. Despite the new rules.

Dannyboy83

Frank Lee Midere wrote: »

The amount of lending not an increase in mortgage prices per applicant.

That's the part I don't get.
If you require 20% to be eligible, who is there to lend to?

(20% for an FTB is actually more like 23% when you account for solicitors fees, stamp duty etc.)

Saipanne

Dannyboy83 wrote: »

That's the part I don't get.
If you require 20% to be eligible, who is there to lend to?

(20% for an FTB is actually more like 23% when you account for solicitors fees, stamp duty etc.)

It just means that people have to save for longer. It will slow the rate at which lending increases, as the economy recovers, but it will not stop lending from increasing. Which is exactly what its meant to do.

Dannyboy83

Frank Lee Midere wrote: »

In any case if people pull out of the market it will become cheaper. Cash buyers won't buy into a declining market and supply will increase next year. Getting 20% might be easy enough.

The supply increase is going to be very small as far as I can see, and mostly Local Authority housing.
Ignoring the fact that the market is not getting cheaper and the effect of the hedge funds etc., presumably that would still drive up rents.

I'm not sure people would take another 20% hit on their property if they're creaming it on rental income? Might be better to clean up on rent and wait for the market to recover ?

Frank Lee Midere

Dannyboy83 wrote: »

The supply increase is going to be very small as far as I can see, and mostly Local Authority housing.
Ignoring the fact that the market is not getting cheaper and the effect of the hedge funds etc., presumably that would still drive up rents.

I'm not sure people would take another 20% hit on their property if they're creaming it on rental income? Might be better to clean up on rent and wait for the market to recover ?

I am not saying that recent cash buyers will cash in but new cash buyers won't buy if prices fall or are anticipated to. Also given the paucity of supply any historically small increase will have a big effect even if it is council housing, which takes people out of the rental market at the very least.

Hedge funds and Irish property? Not significant. Except the stuff that NAMA is selling. And that's a political decision.

Dannyboy83

Saipanne wrote: »

It just means that people have to save for longer. It will slow the rate at which lending increases, as the economy recovers, but it will not stop lending from increasing. Which is exactly what its meant to do.

8% to 20%
i.e. E16,000 to E40,000 on a 200k property

When I was saving my deposit, I was saving 1k per month,
so that's 40 months, + 2 for stamp duty, + 3 for solicitors fees, + 1 for search fees,valuation etc.

Just shy of 4 years.

It's not a problem for a young couple imo.
I think my friends and colleagues will see that ship has sailed tho.

Saipanne

Dannyboy83 wrote: »

8% to 20%
i.e. E16,000 to E40,000 on a 200k property

When I was saving my deposit, I was saving 1k per month,
so that's 40 months, + 2 for stamp duty, + 3 for solicitors fees, + 1 for search fees,valuation etc.

Just shy of 4 years.

It's not a problem for a young couple imo.
I think my friends and colleagues will see that ship has sailed tho.

Why?

mr_seer

Saipanne wrote: »

I dunno. There may well be compelling economic reasons for the difference. But I'm too vegitated to look into the reasons now.

The cost of living is way more expensive in Ireland. That means that banks should ring fence a higher portion of a borrowers net income to cover bills, food, car running expenses, childcare costs, socialising etc. 3.5x might even be a bit high relative to the UK's 4.5x when these are taken into account along with Ireland's more penal tax regime for PAYE workers

Dannyboy83

Saipanne wrote: »

Why?

For most of them to save 1k per month, they would have to move home (to their parents)
We're already in our thirties and didn't buy during the madness, have put off kids for so long.
Any you can't qualify for a mortgage if you have kids.

I guess I'm lucky I bought when I did!

Saipanne

Dannyboy83 wrote: »

For most of them to save 1k per month, they would have to move home (to their parents)
We're already in our thirties and didn't buy during the madness, have put off kids for so long.
Any you can't qualify for a mortgage if you have kids.

I guess I'm lucky I bought when I did!

You can't get a mortgage with kids.

Ok, I'm out...

Dannyboy83

Saipanne wrote: »

You can't get a mortgage with kids.

Ok, I'm out...

eh... you do realise applications are being refused simply because people have a 'Paddy Power' receipt in their bank records?

http://www.independent.ie/business/personal-finance/property-mortgages/couple-turned-down-for-mortgage-after-they-had-baby-scan-29253127.html
One mortgage expert reported a couple being turned down after the bank spotted in their financial records that they had a foetal scan carried out. The bank insisted this meant they were going to have a child – which would restrict their ability to repay a mortgage.
Bankers were also accused of turning down applicants who have children.

Lenders estimate that disposable income will be down €250 a month if you have one child. This means €50,000 less in approved borrowing for every child.

This is the problem I was talking about.
Too much theory, not enough real world application.

Why don't you go find an institution willing to lend to an FTB on an average industrial income with 2 kids and report back?

Saipanne

Dannyboy83 wrote: »

eh... you do realise applications are being refused simply because people have a 'Paddy Power' receipt in their bank records?




This is the problem I was talking about.
Too much theory, not enough real world application.

Why don't you go find an institution willing to lend to an FTB on an average industrial income with 2 kids and report back?

I said I'm done. You haven't a clue.

Dannyboy83

Saipanne wrote: »

Let them eat cake.

mm-hmm.

Godge

Frank Lee Midere wrote: »

Pension levy. Details here.

http://m.rte.ie/news/2009/0203/113483-economy/

Up to 9%. So the marginal can be as high as 42% + USC + PRSI + LEVY.

For me, in the private sector, it's 52%.

When you add superannuation the marginal rate for civil servants is close to 67%.

jank

Isn't the Pension Levy the same as Superannuation?
Plus there is a hell of a return on the pension levy with a state backed pension that would outstrip any private pension of similar payments. Most private sector works would take that.

Godge

jank wrote: »

Isn't the Pension Levy the same as Superannuation?
Plus there is a hell of a return on the pension levy with a state backed pension that would outstrip any private pension of similar payments. Most private sector works would take that.

No, before the pension levy, public servants paid 6.5% of salary towards their pensions. The pension levy adds another 10% on top of that at the higher salaries.

With 42% tax, 4% PRSI and 7% USC, total marginal deductions are 69.5%.

I would say that there are very few private sector workers contributing 16.5% of salary to their pension.

Frank Lee Midere

Dannyboy83 wrote: »

eh... you do realise applications are being refused simply because people have a 'Paddy Power' receipt in their bank records?




This is the problem I was talking about.
Too much theory, not enough real world application.

Why don't you go find an institution willing to lend to an FTB on an average industrial income with 2 kids and report back?

Of course having a child is an issue. Its odd that's its not automatically factored in for couples, but if you have a child it's an expense.

The indo is trying to create more panic.

EDIT:

And that was 2013. Given that people were and are anticipating 600K mortgages these days its probably not true now.

Frank Lee Midere

Godge wrote: »

No, before the pension levy, public servants paid 6.5% of salary towards their pensions. The pension levy adds another 10% on top of that at the higher salaries.

With 42% tax, 4% PRSI and 7% USC, total marginal deductions are 69.5%.

I would say that there are very few private sector workers contributing 16.5% of salary to their pension.

I thought that one replaced the other? Are you sure that each 1K in salary increase for higher earners nets 300?

Larry Wildman

Godge wrote: »

When you add superannuation the marginal rate for civil servants is close to 67%.

How is a pension contribution "tax"?

If someone in the private sector contributes 20% of their salary their pension, are they paying 72% tax?

Godge

Frank Lee Midere wrote: »

I thought that one replaced the other? Are you sure that each 1K in salary increase for higher earners nets 300?

No, the pension related pay deduction was in addition to the superannuation deduction.

Larry Wildman wrote: »

How is a pension contribution "tax"?

If someone in the private sector contributes 20% of their salary their pension, are they paying 72% tax?

The difference is the public sector contributions are compulsory. If you are single with a family history of cancer that kills you before 60, tough, you still pay. You don't have the private sector option of reducing pension contributions if tax gets higher or your pay gets cut.

Larry Wildman

Godge wrote: »

No, the pension related pay deduction was in addition to the superannuation deduction.




The difference is the public sector contributions are compulsory. If you are single with a family history of cancer that kills you before 60, tough, you still pay. You don't have the private sector option of reducing pension contributions if tax gets higher or your pay gets cut.

That's a flawed argument.

And anyways, benefits are paid to dependents on death.

And in any event, anyone opting out of the public sector pension would be mad.

Dannyboy83

Frank Lee Midere wrote: »

Of course having a child is an issue. Its odd that's its not automatically factored in for couples, but if you have a child it's an expense.

That's the point I was making.

And it is now factored in automatically for couples.

As stated - I bought a house in April, I have been through the present system - the entire process has changed since '08.

In '08 I was approved for a 300k mortgage, which I refused because I knew I couldn't repay it.

In 2014, I had to jump through burning hoops of fire to quality for 128,800, on a bigger salary, with no debt.

These were the criteria I had to satisfy, but there were others:
A) Had to have a net disposable income of €1200
Had to save €1000 per month to prove I could handle stress tests .
C) Had to save 8% myself (could not be gifted/helicoptered to me)


And for the record, I don't have an issue with the banks refusing people based on their means assessment.
That's exactly what they're supposed to do.
(they combed my current account and questioned me on specific transactions, such as a Ryanair transaction from months earlier, where I bought both myself and my girlfriend's ticket. I don't gamble, but I was warned by the mortgage advisor that if there was even a single statement in my records, it constitutes an automatic failure)

If you're on an average industrial wage and you have 2 kids, you won't qualify for a mortgage, anymore than you would if you had 2 car loans.

The only people disputing this are people who haven't been through the process themselves! LOL

And that was 2013. Given that people were and are anticipating 600K mortgages these days its probably not true now.

It's positively true now.
My friend and her husband were rejected in June'14 because they have 2 kids.
Mortgage repayments are being heavily stress tested, so you need a substantial buffer in net/disposable income.

When they asked what options they have now, they were told, they should have thought about that before they had kids!
Anyone on an average industrial wage with children just cannot qualify.
.
.

A 600k mortgage is an edge case - I'd imagine that's a very high income couple with equity and a large deposit. Just the property tax on that alone would be crippling to anyone else.

Mongfinder General

Larry Wildman wrote: »

How is a pension contribution "tax"?

If someone in the private sector contributes 20% of their salary their pension, are they paying 72% tax?

1. It's a tax because a public servant doesn't have a choice in paying. Pension contributions in the private sector have been optional for a long time. No such luck in the public sector.

2. There is no guarantee that a 30 year old public sector worker will receive a pension, or part thereof when they retire. The money may not be there. It depends on the schemes ability to pay (the employer, ergo the government).

Scofflaw

Dannyboy83 wrote: »

That would capacity to lend, as opposed to actual lending?

No, I'd expect actual levels of lending to rise - even based on the hoops you've described. I'm just not expecting them to soar, if you see what I mean.

The market will find a new normal, in which the expectations of the majority are somehow satisfied.

cordially,
Scofflaw

Dannyboy83

Scofflaw wrote: »

No, I'd expect actual levels of lending to rise - even based on the hoops you've described. I'm just not expecting them to soar, if you see what I mean.

The market will find a new normal, in which the expectations of the majority are somehow satisfied.

cordially,
Scofflaw

Well, the first of my friends has started looking through job sites in England.

I genuinely think this is going to be a critical blunder.

We will social house those who need to be subsidised and export those who are needed to do the subsidising.

10% for an FTB makes sense, 20% is an over-reaction.

Brussels Sprout

Dannyboy83 wrote: »

That's the point I was making.

And it is now factored in automatically for couples.

As stated - I bought a house in April, I have been through the present system - the entire process has changed since '08.

........


......

When they asked what options they have now, they were told, they should have thought about that before they had kids!
Anyone on an average industrial wage with children just cannot qualify.
.
.

A 600k mortgage is an edge case - I'd imagine that's a very high income couple with equity and a large deposit. Just the property tax on that alone would be crippling to anyone else.

Very interesting and informative post but I call shenanigans on the bit in bold. Nobody would be so idiotic as to say this to someone's face for many different reasons.

Dannyboy83

Brussels Sprout wrote: »

Very interesting and informative post but I call shenanigans on the bit in bold. Nobody would be so idiotic as to say this to someone's face for many different reasons.

I know, I was sceptical myself, it's fairly politically incorrect, but I've heard it on a few different occasions now to be honest.

My experience was that a lot of the local branches around Cork are not lending and coming up with all manner of excuses - I heard a number of different slightly insulting things myself (in particular, the remarks about having funds 'helicoptered' to your account - this was put in a very disparaging manner).

I also tried to use connections and so on, as people alluded to earlier in the thread. It was all pissing in the wind.

I gave up dealing with the local incompetents and went to AIB Mortgages Direct (online) - it was night and day.

They just cut the crap, did a means assessment, and were up front about what was on the table, very quick to reply and competent at the job.
I'd recommend them to anybody. (they are very thorough tho, so don't bother chancing your arm if you don't qualify)

draiochtanois

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Julia85331

FreudianSlippers wrote: »

Tough. It's this entitlement culture that ruins this country.

What's sense of entitlement? Both myself and my partner work full time and we will never be able to save a 20% deposit. We are paying €16k a year rent and €10k childcare alone. That's before buying groceries or paying a bill.
Our rent at €1300 a month would be reduced to a mortgage payment of €750
More money back into the economy and a higher standard of living.
We've been renting for four years and have paid around €55k in rent and it's going up every year.
I really see no sense of entitlement in us or our friends in the same position.
The lady in the bank even told us not to go on holidays or buy Desiegner clothes ha! She referred to €150 I spent in next!
Really don't understand how this is a good thing for anyone .
It will see investors snapping up property's and a reduction in first time buyers

realitykeeper

Limiting the amount banks can lend is fine but in a way it is not the main concern. Irish banks are insolvent. Had the government not bailed them out they would not have been in a position to lend. As a consequence of the government bailout of the banks, the government itself had to be bailed out.
When people talk about a housing bubble they are missing the bigger picture. A far bigger bubble now exists in the from of government debt. The ECB may acquire some of this debt but that will not let Ireland off the hook because the debt has to be securitized.

djpbarry

Julia85331 wrote: »

Our rent at €1300 a month would be reduced to a mortgage payment of €750

Can I ask what you are basing that on? Because it seems like a huge discrepancy.

Larry Wildman

djpbarry wrote: »

Can I ask what you are basing that on? Because it seems like a huge discrepancy.

It's about right actually.

A mortgage of €160k is around €750 per month over 30 years.

The same €200k apartment can pretty easily be let for €1,300 a month.

Idbatterim

We will social house those who need to be subsidised and export those who are needed to do the subsidising.

10% for an FTB makes sense, 20% is an over-reaction.

agreed, a lot of the ones we want to stay are leaving due to no jobs and or the ridiculous taxation rates on average incomes. Property prices are another issue in Dublin in particular.

In relation to the gambling as they have such an issue with it, do they ask for a sworn oath that you dont go in and bet with cash, put it on PayPal? I go to vegas regularly enough, will they be asking for proof that I didnt gamble? :rolleyes:

serious bunch of hypocrites, their gambling cost us what 40 odd billion? My dad was looking for a mortgage in 1989, refused everywhere, for a 16,000 pound mortgage on a house in Dublin 14. Luckily he had worked on a bank managers house some years before and he approved the mortgage. He told the bank manager of the bank he was with at the time (after refusal), dont forgot who pays your wages, would love to have been there for that

djpbarry

Larry Wildman wrote: »

The same €200k apartment can pretty easily be let for €1,300 a month.

There's absolutely no way a flat being rented for €1,300 per month would be available to buy at €200k. You're undervaluing by about €50k, at least.