Central bank mortgage lending rate changes

ted1

Michael D Not Higgins wrote: »

Well let's say they got a 300k property in 2007 for a 35 year loan at 4.5%.

The monthly cost would be 1419 for a lifetime cost of just under 600k.

On the other hand, let's say they've rented shared accommodation for 9 years at €700 per month (fair average considering the drops around 09/10/11), then bought the same house for 250k for 26 year loan at 4.5% (1360/month). That's a lifetime cost of just under 500k.

Except in 2007 they would have got a tracker rate of .5% so the 600k becomes a much lower figure.

catrionanic

And when there's such a shortage of homes and we have this rental crisis, I don't think it's sensible to have first-time buyers living in 3- or 4-bed forever-homes when they only need one bedroom themselves anyway

LegallyAbroad

catrionanic wrote: »

And when there's such a shortage of homes and we have this rental crisis, I don't think it's sensible to have first-time buyers living in 3- or 4-bed forever-homes when they only need one bedroom themselves anyway

If the FTB has the cash, more power to them. It's a housing market based on your resources, not need.

mahoganygas

catrionanic wrote:

And when there's such a shortage of homes and we have this rental crisis, I don't think it's sensible to have first-time buyers living in 3- or 4-bed forever-homes when they only need one bedroom themselves anyway

There are a lot of cash buyers out there. I would argue that its preferable for landlords to buy 1 beds and rent them out.

It's safe to say most FTB are in their twenties and thirties - the usual age to start a family.

appfry

Michael D Not Higgins wrote: »

Well let's say they got a 300k property in 2007 for a 35 year loan at 4.5%.

The monthly cost would be 1419 for a lifetime cost of just under 600k.

On the other hand, let's say they've rented shared accommodation for 9 years at €700 per month (fair average considering the drops around 09/10/11), then bought the same house for 250k for 26 year loan at 4.5% (1360/month). That's a lifetime cost of just under 500k.

I would say the majority of people (the ones I know of anyway) who bought in 2007 are now actually on rates a hello of lot lower than 4.5%. But thats not likely to happen again.

Your demonstration requires that a person needs to be Clairvoyant. no?
Also that they need to share for 9 years. Hope they arent married with children during that time

ted1

catrionanic wrote: »

And when there's such a shortage of homes and we have this rental crisis, I don't think it's sensible to have first-time buyers living in 3- or 4-bed forever-homes when they only need one bedroom themselves anyway

They can rent a room

Graham

Michael D Not Higgins wrote: »

Well let's say they got a 300k property in 2007 for a 35 year loan at 4.5%.

The monthly cost would be 1419 for a lifetime cost of just under 600k.

On the other hand, let's say they've rented shared accommodation for 9 years at €700 per month (fair average considering the drops around 09/10/11), then bought the same house for 250k for 26 year loan at 4.5% (1360/month). That's a lifetime cost of just under 500k.

The only part of that which causes my eyebrows to raise is the assumptions on average rents. Unless we're talking way out in the shticks somewhere in which case the house costs would be lower.

catrionanic

catrionanic wrote: »

And when there's such a shortage of homes and we have this rental crisis, I don't think it's sensible to have first-time buyers living in 3- or 4-bed forever-homes when they only need one bedroom themselves anyway

An assumption. Being a first time buyer doesn't automatically mean there are no kids, grannies, whatever to be accommodated.

appfry

ted1 wrote: »

They can rent a room

Can also pay make overpayments if they have spare cash and can shorten the term. A friend just finished his 30 year mortgage after 12 years. He just kept overpaying. Then when he got married they found suddenly there was a double income. More money to shorten the mortgage.

mahoganygas

Graham wrote:

The only part of that which causes my eyebrows to raise is the assumptions on average rents. Unless we're talking way out in the shticks somewhere in which case the house costs would be lower.

There's also a very large assumption that interest rates will remain low in the long term.

Graham

mahoganygas wrote: »

There's also a very large assumption that interest rates will remain low in the long term.

and inflation which has a disproportionate benefit to mortgage payers over renters.

koheim

mahoganygas wrote: »

Graham wrote:

The only part of that which causes my eyebrows to raise is the assumptions on average rents. Unless we're talking way out in the shticks somewhere in which case the house costs would be lower.

There's also a very large assumption that interest rates will remain low in the long term.

Interest rates in Ireland are 100% higher than the EU average, there will be no increase here...But when interest rates start eventually to decrease we can access cheaper credit, happy days!

Graham

koheim wrote: »

Interest rates in Ireland are 100% higher than the EU average, there will be no increase here...But when interest rates start eventually to decrease we can access cheaper credit, happy days!

I'd imagine interests rates here will remain above the EU averages, at least until somebody realises that repossessing houses is a necessity for a functional mortgage market.

appfry

I dont think anyone has any clue what interest rates will be like in 5 years never mind 30

Earleybird

koheim wrote: »

Interest rates in Ireland are 100% higher than the EU average, there will be no increase here...But when interest rates start eventually to decrease we can access cheaper credit, happy days!

Not going to happen. Rates are just about bottomed out for Irish banks now, there is little margin otherwise. You might get another 25bps from each and that could be the bottom line.

Michael D Not Higgins

appfry wrote: »

I would say the majority of people (the ones I know of anyway) who bought in 2007 are now actually on rates a hello of lot lower than 4.5%. But thats not likely to happen again.

Your demonstration requires that a person needs to be Clairvoyant. no?
Also that they need to share for 9 years. Hope they arent married with children during that time

I'm referring to a specific case of the poster who decided to rent rather than buy in 2007. It's not clairvoyance, he decided not to buy because of the way the market was going.

Sure, my numbers aren't exact but I didn't take maintenance costs into account, I also gave a very optimistic price for the 300k 2007 house. It's very likely that someone renting for those 9 years is better off in the long run. Not certain but likely.

Graham

Earleybird wrote: »

Rates are just about bottomed out for Irish banks now, there is little margin otherwise.

Without being privy to the accounts of any of the banks, that's probably a hard call to make.

Given that other EU banks appear to be able to operate profitably at lower interest rates/margins it's safe to assume there are other factors influencing Irish interest rates.

I suspect a combination of:
Disfunctional repossessions decreasing the value/effectiveness of security and increasing costs.
Additional costs related to doing business in Ireland.
Limited competition.
Making hay while the sun shines (relatively speaking).

listermint

I suppose its a case of 'cant suit everyone'

The same people giving out now about aid to first time buyers availed of the same aid back in the 00's or maybe they all forgot that conveniently.

Maybe we should just try and help everybody all the time regardless of personal choice. ?

Earleybird

Graham wrote: »

Without being privy to the accounts of any of the banks, that's probably a hard call to make.

Given that other EU banks appear to be able to operate profitably at lower interest rates/margins it's safe to assume there are other factors influencing Irish interest rates.

I suspect a combination of:
Disfunctional repossessions decreasing the value/effectiveness of security and increasing costs.
Additional costs related to doing business in Ireland.
Limited competition.
Making hay while the sun shines (relatively speaking).

Point 1, yes. The rest not really relevant or accurate.
At this stage the complexities of the Irish banks have reverted to a fairly basic form, ie predominantly Retail, and concentrated locally. It makes it difficult to make high margins on loans over deposits when portions of the books aren't performing and the cost of debt remains high from past issuance. With the pressure to bulk up capital it doesn't leave much room for cutting rates from your primary source of income.

Graham

Earleybird wrote: »

Point 1, yes. The rest not really relevant or accurate.
At this stage the complexities of the Irish banks have reverted to a fairly basic form, ie predominantly Retail, and concentrated locally. It makes it difficult to make high margins on loans over deposits when portions of the books aren't performing and the cost of debt remains high from past issuance. With the pressure to bulk up capital it doesn't leave much room for cutting rates from your primary source of income.

I don't see much there that contradicts my previous points although you have listed a couple of additional factors that I hadn't gone into.

Non-performing loans are driving up costs, particularly where the position can't be liquidated (repossessions).
Increasing capital is a process many banks have/are undertaking so would apply to many other markets.
Similarly, cost of debt from past issuance isn't a uniquely Irish problem.

I do suspect there's also an element of banks being reluctant to capitalise losses on non-performing loans which is exacerbating certain areas but I can't say I've looked too deeply into the provisions already made for such losses.

Brussels Sprout

listermint wrote: »

Maybe we should just try and help everybody all the time regardless of personal choice. ?

That's called populism and it's been nothing but a disaster for this country over the years.

Graham

Brussels Sprout wrote: »

That's called populism and it's been nothing but a disaster for this country over the years.

+1

and yet as a Nation we keep voting for it but somehow remain surprised that nothing changes.

pilly

Earleybird wrote: »

Not going to happen. Rates are just about bottomed out for Irish banks now, there is little margin otherwise. You might get another 25bps from each and that could be the bottom line.

Did BOI not get a severe telling off the other day for keeping rates artificially high?

Earleybird

pilly wrote: »

Did BOI not get a severe telling off the other day for keeping rates artificially high?

I don't know what "artificially high" means but the likes of Michael McGrath likes to portray the hero at times that he'll impose fines for not reducing their variable rate. [As an aside: He gets his bill to the Dail, and wipes billions off the value of Irish banks, the same one the braniac has substantial stakes in and needs to sell; then says it was nothing to do with his bill. Presumably he feels that investors in Irish banks don't place much relevance on government intervention and the imposition on penalties impacting profitability. A sharp junior minister we have folks].
Any of these committees will bash the banks for higher than the average mortgage rates but the bottom line is the banks offer products for any mortgage holder to reduce their interest rates, they don't have to stay variable.

ted1

pilly wrote: »

Did BOI not get a severe telling off the other day for keeping rates artificially high?

They are put in the naughty step, that's all.

pilly

Earleybird wrote: »

I don't know what "artificially high" means but the likes of Michael McGrath likes to portray the hero at times that he'll impose fines for not reducing their variable rate. [As an aside: He gets his bill to the Dail, and wipes billions off the value of Irish banks, the same one the braniac has substantial stakes in and needs to sell; then says it was nothing to do with his bill. Presumably he feels that investors in Irish banks don't place much relevance on government intervention and the imposition on penalties impacting profitability. A sharp junior minister we have folks].
Any of these committees will bash the banks for higher than the average mortgage rates but the bottom line is the banks offer products for any mortgage holder to reduce their interest rates, they don't have to stay variable.

So would you be in favour of the banks being allowed to charge whatever interest rate they want to?

Earleybird

pilly wrote: »

So would you be in favour of the banks being allowed to charge whatever interest rate they want to?

I would favour competition setting the interest rates.

zl1whqvjs75cdy

We are aiming to buy early 2018, these changes that make the market uncertain are not grest for us. Hopefully prices won't go too wild. But I'm not optimistic.

HamsterFace

Roger Deafening Licorice wrote:

We are aiming to buy early 2018, these changes that make the market uncertain are not grest for us. Hopefully prices won't go too wild. But I'm not optimistic.

I'm looking to buy in early 2019 so this will potentially be good if it will, in fact, lead to more building. A new build being best case scenario, though maybe unlikely in Dublin.

It might work out well for you yet if you see building ramping up, though you mightn't see much finished by early 2018.

Outkast_IRE

Just went sale agreed on a property myself.

I have found the market has gone very aggressive with the bidding since the central bank announcement.

Lot of first time buyers bidding on the basis of 10% deposit only, knowing that coming up to christmas its easy to stall it out till january before dealing with the bank.

I would not be surprised to a large jump in property prices in the next year as there will be more competition amongst first time buyers and 2nd time buyers will be in a try to extend themselves further and borrrow more.

I dont see any resolution in sight as there simply isnt enough new housing stock to come on the market any time soon, and unemployment is dropping significantly.