Property Market 2015

Seems very volatile out there right now. Some houses are sitting on the market since before Christmas with no bids or bids well below asking. But others, if there's one or two bidders whose mortgage approval has a best-before date on it, are going beyond the asking price.

P. Breathnach

gaius c wrote: »

.... If the end of CGTE has affected cash buyers, that will have a much bigger effect on the market....

My guess is that not many cash buyers will be affected by the CGT change, because not that many of them would be factoring in a possible capital gain when making a purchasing decision.

Cash buyers include people purchasing homes for themselves (perhaps funded by an inheritance) and people investing savings in BTLs because returns on other investments are so poor.

With so much uncertainty over future property prices, it would take an unusually brave or reckless investor to purchase in an effort to make a capital gain.

P. Breathnach

P. Breathnach wrote: »

My guess is that not many cash buyers will be affected by the CGT change, because not that many of them would be factoring in a possible capital gain when making a purchasing decision.

Cash buyers include people purchasing homes for themselves (perhaps funded by an inheritance) and people investing savings in BTLs because returns on other investments are so poor.

With so much uncertainty over future property prices, it would take an unusually brave or reckless investor to purchase in an effort to make a capital gain.

I have no more evidence than you do but I'd have guessed that a good number of cash buyers were investors and that the tax break was worth something to them.

Cash or not, surely investors would actually care about capital gains when investing in property. If they did the sums and plan on keeping the property for at least seven years, it would be a bad move to buy in March 2015 vs October 2014 - all else being equal. They'd lose 1/3 of their capital appreciation if prices are higher in seven years time.

But I suppose if you don't put much weight on that, maybe others don't either.

There's a chance that some amateur investors don't care or are barely aware of capital gains tax rules but if they got any professional advice over the past 12 months they would have been told to get it done before last Christmas.

Granted, if you inherit money today or get a redundancy windfall, last year's tax break makes no odds.

johnp001

seamus wrote: »

There is some sense of panic in the market with some buyers though.

We went in just over asking on a property. A little more than we thought it was worth, but we told the EA it was being offered on the basis that we wanted to lock it down rather than drag on the bidding for weeks and we'd close on it within weeks (we knew the vendor is eager to close). It was beating out the next bidder by €10k.

Within an hour the other bidder had come back and thrown another €10k on it, the EA said they too were looking to close quickly.

The property now being priced well above what it's worth, we left them to it

In this case we don't suspect any dodginess on the part of the EA, probably a buyer with approval about to run out.

Will be interesting to see if you get a call back from the EA in a couple of weeks if this is the case. I suspect that the pre-CB-rules approvals are going to prove hard to actually draw down on.

gaius c

P. Breathnach wrote: »

My guess is that not many cash buyers will be affected by the CGT change, because not that many of them would be factoring in a possible capital gain when making a purchasing decision.

Cash buyers include people purchasing homes for themselves (perhaps funded by an inheritance) and people investing savings in BTLs because returns on other investments are so poor.

With so much uncertainty over future property prices, it would take an unusually brave or reckless investor to purchase in an effort to make a capital gain.

Just from personal experience we sold an apartment last year (after a sustained bidding war between two cash buyers) and the CGTE was a big factor in their decision making and the eventual buyer was raging that the sale didn't go through in time for them to avail of the LPT exemption, which would probably account for a much smaller sum of money.

gaius c

johnp001 wrote: »

Will be interesting to see if you get a call back from the EA in a couple of weeks if this is the case. I suspect that the pre-CB-rules approvals are going to prove hard to actually draw down on.

In practice, banks were actually being very tight on drawdown limits anyway, much tighter than their AIP limits. The new rules only means a moderate tightening of the already tight credit funnel.

50% of the market was cash last year. Cash buyers dwindle and the market goes with them.

handlemaster

With talk of CG exemption what if investors hold after 7 years and The value remains the same on year 10 as year 7. Are they upon selling on year 10 going to be charged CGT on just 30% of that increase. Put another way all capital gain was gained within 7 years with no capital growth after.

johnp001

handlemaster wrote: »

With talk of CG exemption what if investors hold after 7 years and The value remains the same on year 10 as year 7. Are they upon selling on year 10 going to be charged CGT on just 30% of that increase. Put another way all capital gain was gained within 7 years with no capital growth after.

Yes, they get 7/10 exemption for selling after 10 years.
So 0% exemption for anything up to 7 years.
100% exemption for selling after 7 years and reducing on a sliding scale after that.
A lot of CGT exempt property could start going on the market from December 2018 on. In this case the properties bought in 2011/2012 probably were the best deal as supply would then be significantly higher by the time the last tranche of CGT exempt properties become eligible for the exemption.

johnp001

gaius c wrote: »

In practice, banks were actually being very tight on drawdown limits anyway, much tighter than their AIP limits. The new rules only means a moderate tightening of the already tight credit funnel.

So if this is a buyer trying to use an expiring AIP who would not be eligible under the new LTV or LTI limits there is a strong chance that they might have to pull out of the purchase due to difficulties drawing down their finance.

gaius c wrote: »

50% of the market was cash last year. Cash buyers dwindle and the market goes with them.

This is definitely what could have been expected and appears to be happening.

seamus

johnp001 wrote: »

Will be interesting to see if you get a call back from the EA in a couple of weeks if this is the case. I suspect that the pre-CB-rules approvals are going to prove hard to actually draw down on.

Unfortunately we'll be gone. We have mortgage approval till August, but we have other reasons for moving quickly.

Sala

Just got mortgage approved today under the new CBI rules, but they have made an exception for us, so we got what we would have gotten last year anyway

Interesting stuff Sala - congrats! Not to pry (too much!) but how did you convince them to make an exception?

Seamus, can I not pry too much into your situation either by asking how big a difference you'd be looking at post-August?

Sala

Deleted User wrote: »

Interesting stuff Sala - congrats! Not to pry (too much!) but how did you convince them to make an exception?

Seamus, can I not pry too much into your situation either by asking how big a difference you'd be looking at post-August?

I didn't. We hadn't got our stuff in (payslips and the like) so they said get them in today or else tomorrow the new CBI rules kick in and we have to redo your application. We didn't coz we're a bit lazy and really didn't care about the rules, but they decided to assess the old application and rang to say it has been to underwriters, am approved with 10% deposit. When I queried this they said you are falling under our exception. It gives us a bit of wiggle room but to be honest I can't see us borrowing over the 3.5 times income

Bob24

johnp001 wrote: »

So if this is a buyer trying to use an expiring AIP who would not be eligible under the new LTV or LTI limits there is a strong chance that they might have to pull out of the purchase due to difficulties drawing down their finance.


This is definitely what could have been expected and appears to be happening.

I am puzzled about this though.

If the CBI and the banks were planning mass refusals for people trying to use IAPs established under the old rules and not meeting the new requirements, why did they give everyone the expectations that these AIPs would remain valid? I don't see how it is benefiting anyone (banks, sellers, or buyers)

johnp001

Bob24 wrote: »

I am puzzled about this though.

If the CBI and the banks were planning mass refusals for people trying to use IAPs established under the old rules and not meeting the new requirements, why did they give everyone the expectations that these AIPs would remain valid? I don't see how it is benefiting anyone (banks, sellers, or buyers)

Banks have to compete for customers so they will tell them what they want to hear in order that they choose "that" bank for their mortgage approval.
They can then cherrypick the best risks from among those they have issued AIP to let in under the old rules, refusing the less desirable customers who can then go take their business to their competitors.
Any bank that didn't broadly and indiscriminately issue AIPs pre-Feb 2015 would be left with the slim pickings of those rejected by the banks that did!
Mortgage approval figures for the last few months would suggest that all the banks used this ploy.

seamus

Deleted User wrote: »

Seamus, can I not pry too much into your situation either by asking how big a difference you'd be looking at post-August?

We actually wouldn't be looking at that big a difference because if we had to apply again we'd be exempt from new LTV rules due to negative equity. What we'd be permitted to borrow under the new LTI rules would be about 92% of what we're currently approved for.

I'm looking to get in quickly because the sooner I can draw down, the sooner I can change jobs

Glenbhoy

Bob24 wrote: »

I am puzzled about this though.

If the CBI and the banks were planning mass refusals for people trying to use IAPs established under the old rules and not meeting the new requirements, why did they give everyone the expectations that these AIPs would remain valid? I don't see how it is benefiting anyone (banks, sellers, or buyers)

The CBI proposal document in Sept/Oct 2014 specifically stated that they expected banks to take the proposals into account from the day that proposal was published. Banks did indeed take it into account, but not in the way the CBI suggested, they decided to encourage as many applicants as possible before the new rules kicked in. I think it's too early to tell if pre-approved people will/are having difficulty with actual drawdowns, but it wouldn't be a shock at all.

Eugene Norman

Sounds to me like it's worth waiting until August or later.

Sala

If AIPs are not honoured at draw down stage I would expect the effect of this will be visible earlier than the AIPs run out. If we were expecting a surge of people to buy before they run out and a subsequent slowdown in say July when they are gone, if they are actually refusing to allow people drawdown on them then any effect should be visible earlier?

Yeah, if you have AIP which runs out in the summer and your situation changes significantly after that, you'd be bidding fairly vigorously right now in the hope of winning a bidding war, sewing up a deal and drawing down the mortgage. So maybe it should show up fairly soon.

In any case, given that the summer seems to be when the full implementation of the Central Bank rules come in, you'd think a good chunk of those with time-limited AIPs would be relieved to take themselves off the market (and into their new homes) asap. That points to an effect on the spring selling season but it should drain away thereafter.

Bob24

Glenbhoy wrote: »

The CBI proposal document in Sept/Oct 2014 specifically stated that they expected banks to take the proposals into account from the day that proposal was published. Banks did indeed take it into account, but not in the way the CBI suggested, they decided to encourage as many applicants as possible before the new rules kicked in. I think it's too early to tell if pre-approved people will/are having difficulty with actual drawdowns, but it wouldn't be a shock at all.

Maybe that was the stance in September, but when they announced the regulation in January they were pretty clear: "If you have approval in principle, supported by a full credit assessment, prior to the effective date of the Regulations, you will not be impacted by these regulations for the duration of your mortgage approval."

Not sure why they would have written this if they expected banks to act differently.

Bob24

johnp001 wrote: »

Banks have to compete for customers so they will tell them what they want to hear in order that they choose "that" bank for their mortgage approval.
They can then cherrypick the best risks from among those they have issued AIP to let in under the old rules, refusing the less desirable customers who can then go take their business to their competitors.
Any bank that didn't broadly and indiscriminately issue AIPs pre-Feb 2015 would be left with the slim pickings of those rejected by the banks that did!
Mortgage approval figures for the last few months would suggest that all the banks used this ploy.

Fair enough, I get the commercial argument. But what I don't get is why would the banks apply the new rules on these AIPs if the CBI are saying they don't have to. These mortgages would be making them money and before the CBI regulations they were happy to lend 92%.

Glenbhoy

Bob24 wrote: »

Maybe that was the stance in September, but when they announced the regulation in January they were pretty clear: "If you have approval in principle, supported by a full credit assessment, prior to the effective date of the Regulations, you will not be impacted by these regulations for the duration of your mortgage approval."

Not sure why they would have written this if they expected banks to act differently.

Yeah, that is pretty explicit, my take on it is that they agreed that pre-existing aip's could stand in an effort to facilitate the changeover with as little fuss from the banks as possible. As I said, they pretty much told the banks in the discussion document, not to do exactly what the banks did, but, banks being banks...
Re likelihood of drawdown etc, it's hard to know, banks obviously want to lend where possible, but they weren't too vociferous in their objections to the new rules and in my experience, lti ratios haven't changed, I think the cherry pick theory is as good as any, throw out plenty of approvals and cream off the best.

Glenbhoy

Bob24 wrote: »

Fair enough, I get the commercial argument. But what I don't get is why would the banks apply the new rules on these AIPs if the CBI are saying they don't have to. These mortgages would be making them money and before the CBI regulations they were happy to lend 92%.

Aib had stipulations in place that one bed apts had Max LTV of 75% and properties valued at more than 400k had max LTV of 85% (although they offered me 88% on a plays 400k property, lti I was offered was about 3.0).
So things haven't changed quite as much as people make out.

johnp001

Bob24 wrote: »

Fair enough, I get the commercial argument. But what I don't get is why would the banks apply the new rules on these AIPs if the CBI are saying they don't have to. These mortgages would be making them money and before the CBI regulations they were happy to lend 92%.

The banks will be having their lending audited from now on for compliance to the new rules.
Banks favour a return to the light touch, non-regulation that existed before.
The CB regulations said ""While the regulations are not yet in place, regulated lenders are instructed to take account of the likely introduction of such a regime and to begin to adapt their lending practices already in anticipation of its introduction. "

No bank is going to want to be seen by the CB as the bank that proved the need for the regulation by flagrantly ignoring the directive above and circumventing the new rules wherever possible.

I agree with Glenbhoy above that the intention of the pre-existing AIP rule was only to faciltate the changeover, banks issued lots of AIP for the reason that the alternative would be a responsible bank putting off potential buyers by being more reticent with their AIPs.
The buyers would then flock to their competitors who would cherrypick the best risks from among them and the responsible bank would be left with a choice between losing market share and taking on the poorer risks rejected by the other banks with their "sham" AIPs not worth the paper they are printed on.

Banks will be more afraid of being seen to be failing to uphold the new rules than of losing out on a few potentially lucrative 92% mortgages in this interim period.

Its a question of who blinks first and if one of the banks is reluctant to allow drawdown of high LTI/LTV mortgages approved under the old rules then they all will be.

Bob24

johnp001 wrote: »

The banks will be having their lending audited from now on for compliance to the new rules.
Banks favour a return to the light touch, non-regulation that existed before.
The CB regulations said ""While the regulations are not yet in place, regulated lenders are instructed to take account of the likely introduction of such a regime and to begin to adapt their lending practices already in anticipation of its introduction. "

No bank is going to want to be seen by the CB as the bank that proved the need for the regulation by flagrantly ignoring the directive above and circumventing the new rules wherever possible.

I agree with Glenbhoy above that the intention of the pre-existing AIP rule was only to faciltate the changeover, banks issued lots of AIP for the reason that the alternative would be a responsible bank putting off potential buyers by being more reticent with their AIPs.
The buyers would then flock to their competitors who would cherrypick the best risks from among them and the responsible bank would be left with a choice between losing market share and taking on the poorer risks rejected by the other banks with their "sham" AIPs not worth the paper they are printed on.

Banks will be more afraid of being seen to be failing to uphold the new rules than of losing out on a few potentially lucrative 92% mortgages in this interim period.

Its a question of who blinks first and if one of the banks is reluctant to allow drawdown of high LTI/LTV mortgages approved under the old rules then they all will be.

Right, right, lets wait and if we start hearing of people failing to obtain what their AIPs were promising.

From a selfish perspective I would certainly be happy for you to be correct ... but call me naive even though I understand your commercial point, in the grand scheme of things I still don't see why the banks and especially the CBI would (in this case) write the opposite of what they intend to happen.

gmisk

I was at a viewing last night, I was there for a good 20 minutes. I would say 7 sets of people there including myself (House on at 180 offer of 177, this was 4th viewing).

Of those set of people
I would say 3 were investors (older couples), of the rest 2 said they had to get the house sale agreed asap as their AIP was running out (i.e. need to be sale agreed to get the amount they need).
So maybe May June time will give a better indication of exactly where we are?

johnp001

Bob24 wrote: »

Right, right, lets wait and if we start hearing of people failing to obtain what their AIPs were promising.

From a selfish perspective I would certainly be happy for you to be correct ... but call me naive even though I understand your commercial point, in the grand scheme of things I still don't see why the banks and especially the CBI would (in this case) write the opposite of what they intend to happen.

I don't understand how the CBI have written the opposite of what they intend to happen, could you clarify?

The CBI wanted to reduce the exposure of the banks that they regulate in a volatile property market. Their initial proposal and eventual rules were both unambiguously geared to this purpose.

It was an unfortunate knock-on effect (caused by commercial realities of a competitive banking sector) that this led to the vast swathes of AIPs that have been issued and further uncertainty/volatility for both buyers and sellers.
AIPs are always non-binding for the banks so it makes sense that the more they issue the more picky they can be about who is allowed the privilege of becoming a customer.

I have certainly seen several situations locally (from December on) where an agreed sale has fallen through due to failure to draw down finance but I don't know how this phenomenon is going to be captured by statistics.
Signs that it is happening may be EA starting to advise owners against accepting offers from buyers with pre-rule AIPs, Sale Agreed being re-advertised, asking price drops etc...

Apart from anecdotes and possible trends in properties going sale agreed before coming back to market, is there a good way to measure whether AIPs are or are not converting into drawdowns?

The Irish Banking Federation publishes monthly data on approvals and quarterly stats on mortgage lending. We could graph those and see if the trend in approvals leads to a similar trend in lending a few months later?

Funnily enough, I see mortgage approvals in Jan were actually 10% down on December but both are well up on last year (Jan 2015 is up 57% on Jan 2014).

They only put January figures for approvals online in March so we'll have to wait until April to see Feb.

The quarterly drawdown figures for the end of last year came out Feb 18th - i.e. about seven weeks after the end of the quarter.

So...we might get Q1 2015 drawdown data in mid-May and Q2 drawdown data in mid-July. Then we could make some fancy graphs and stare really hard at them looking for a trend.

Point is, for those of us looking to this for hard evidence of AIPs converting into lending, the info available will lag reality. Is it really useful if you're using it to inform your buying/bidding plans?

johnp001

gmisk wrote: »

I was at a viewing last night, I was there for a good 20 minutes. I would say 7 sets of people there including myself (House on at 180 offer of 177, this was 4th viewing).

Of those set of people
I would say 3 were investors (older couples), of the rest 2 said they had to get the house sale agreed asap as their AIP was running out (i.e. need to be sale agreed to get the amount they need).
So maybe May June time will give a better indication of exactly where we are?

Quite possibly the 3 older couples also had AIP that was running out but were wiser than to mention it. I would have thought telling the seller that you are in a rush to buy is an awful negotiating tactic.
The fact that there were 2 house viewers that openly admitted they had AIP for an amount that they could not get under the new rules is very significant.