How does the bank lending rules help the working class?

2Mad2BeMad

Hi everyone,

Just wanted to start a discussion thread on the 3.5 rule the banks have and how its affecting you in getting a house. (hoping this thread is ok)

Myself and my partner currently earn 55k a year (gross).

According to AIB using there calculator we can get a loan of €192.500
along with paying 10percent, we can buy a house worth €213,889.
Obviously the calculator is only a guide and I'd expect the approved loan to be even less then that.

We live in Dublin and have lived here all our lives, our family are here,friends and we both work here as well (start of careers)

Now its all well and good in saying " tough **** you can't afford to live here move outside Dublin" But that reply is snobbery, its not a good answer to the problem thousands of people are having.

You can't buy a house in Dublin for 213k, or at least one that does not need a considerable amount of investment to make it livable.

So there is 2 options, increase the rules from 3.5 to 4.5/5
or House prices need to fall dramatically( which in turn creates a whole host of other problems)


We looked at houses near the commuter belt and all seem reasonable we are still priced out of them though, some are just about within the price range but if a bid starts happened we will get priced out very quickly.
So we have to move abit futher out again.

Now here is were the main issue is.
If we moved out far for example say Athy, yes it ain't far in terms of going once, but to do it 5 times a week plus traffic in and out would be soul destroying.

I found a house there for 159k for what ever reason its that price, but its obviously well within our lending criteria so we could afford it.
BUT for us to move down there, we would end up having to buy

2 cars (i already own 1 car but would need a new one as current one wouldnt last very long doing the mileage)
insurance x2
tax x2
nct x2
petrol x2
tolls x2
More car maintenance.
The reason for 2 cars is we both work in opposite ends of Dublin.

And thats just the cost of the getting back into Dublin

That cost far outweighs the price of increasing the 3.5 to 4.5/5.

Now I'm not a complete idiot, I also understand why the rules are at the moment set at 3.5 because of the last crisis people borrowed more then they could and the banks were only to willing to let them borrow it.

I'm just looking for a general discussion, if you can afford in Dublin, thats good for you but this problem of people who can't apparently afford to live in Dublin should just pack up and move away is not the answer. There is alot more people who can't buy in Dublin then there is who can buy.

Myself and my partner, currently pay 2k rent a month, and have done for the past 2 years and likely to continue paying it for the next 2 years.
We could easily afford a mortage of 300k, which would give us at least some options in Dublin. Not to mention the price of the mortage a month would mean we would be saving money every month because it wont be a 2k mortage, it would most likely be less then 1500 a month.

I think the rules need to be changed, and its not only to suit me but to suit alot of people.

It can't just be a 3.5 and thats it, there has to more to look into then that.

This is only for discussion and to rant (slight rant) over the rules.

I'm sure there is some very valid points as to why it can't be increased but I can only see it from my perspective as well as the perspective of other low income workers.

I mean Guarda,nurses all essential workers that keep people in this country safe can't afford a mortage. (not comparing my work to theres they are far more important but being able to compare my wage to a guarda is quite bad on there end)

I don't wish to leave Dublin, It would end up costing me more to live outside Dublin then to live in.

Graham

According to the Rebuilding Ireland Loan calculator you should qualify for a mortgage of around €262k. With your deposit that would give you a budget of €290k +


Why wouldn't you go for that?

TallGlass2

Moving the 3.5 in my eyes will just move the houses price up with them.

El Gato De Negocios

TallGlass2 wrote: »

Moving the 3.5 in my eyes will just move the houses price up with them.

Yep, it's a control to stop people getting mortgages they simply cannot pay.

Lu Tze

Ok, so say the rule are changed to 4.5 time salary as you suggest. That will apply to everybody. What happens? The prices go up as supply is still constrainedYou will still get outbid by the same people in the commuter belt who outbid you before, as they will also have have additional borrowing capacity.

It's not a case of tough **** though. We had timing on our side when we bought, and a while abroad on good money saving up a deposit prior to that so we weren't taking out the maximum mortgage. Focus on the things in your control, can you get a deposit for greater than 10% together? Can you increase your earnings?

Creamy Goodness

desirable areas will always be that desirable. Until we get the supply of houses with proper planning of amenities and public transport and road infrastructure we'll just keep pushing people further and further out.

I'll be the first to admit I would have loved a house in Booterstown/Blackrock, Dalkey/Killiney/Greystones but I'm unfortunately priced out and needed a roof over our heads so looked elsewhere.

thomasdylan

If you're just at the start of your careers like you say, youll have to work towards promotion.

2Mad2BeMad

Graham wrote: »

According to the Rebuilding Ireland Loan calculator you should qualify for a mortgage of around €262k. With your deposit that would give you a budget of €290k +


Why wouldn't you go for that?

Yes we are looking into that

My question is a general one that most low income workers are facing this problem.
And the councils just looking into the thread itself are so far behind that by the time you are approved in principle the houses you might of been able to afford have gone and that's if you even get the amount. I take all these calculators with a pinch of salt.

Samuel T. Cogley

290K purchases a 3 bed house in some okayish parts of Dublin. Things are likely to get easier over the next wee while too assuming your jobs are safe.

the_syco

2Mad2BeMad wrote: »

Now its all well and good in saying " tough **** you can't afford to live here move outside Dublin" But that reply is snobbery, its not a good answer to the problem thousands of people are having.

It's not snobbery, it's being realistic. It's only snobbery if you don't want to live in a particular area in Dublin which you can afford because you view said area to be a drug infested sh|thole with gang related murders happening on a weekly basis nearby.

It could also be said that only wanting to live in Dublin is snobbery.

If you do the maths on your current income, would you be able to afford a life if you got 4.5? Add in a kid, and do the sums.

2Mad2BeMad

thomasdylan wrote: »

If you're just at the start of your careers like you say, youll have to work towards promotion.

I due a promotion in November ( someone retiring I was to take there position) but I can't see myself getting a decent pay rise now due to the coronavirus. Partner also due payrise in September which might not happen.

The question I'm really asking is why would anyone move away from Dublin when it will cost them a lot more in the long run to move away. Strictly speaking as someone who's whole live is in Dublin. It doesn't make financial sense.
A low income worker forced to move away from dublin because they can't get a mortage for a house there for only to pay a lot more down the years to commute to the place.

Donald Trump

The rules help against predatory lending.

In other words, it stops someone from giving you a loan they know you won't be able to service.

It also keeps a little dampner on the prices of houses. The impact might be small, but it is there.

The house that you want for 300k (assume we are still pre-corona) would probably be more than 300k were the limits not in place

2Mad2BeMad

the_syco wrote: »

It's not snobbery, it's being realistic. It's only snobbery if you don't want to live in a particular area in Dublin which you can afford because you view said area to be a drug infested sh|thole with gang related murders happening on a weekly basis nearby.

It could also be said that only wanting to live in Dublin is snobbery.

If you do the maths on your current income, would you be able to afford a life if you got 4.5? Add in a kid, and do the sums.

I certainly could
We have a child and pay 2k a month rent.
We have 20k saved for a deposit. It took a little longer to save but on a mortage of 300k roughly paying back 1300month. We would be 700e better off every month plus own an asset by the end.

But again these are my circumstances and I'm well aware people on the same income and much worse off.
But I think the process needs to based on what you can afford this 3.5 rule is a general rule and places everyone on it.
I could be better off financially then someone on 100k a year because my spending is much less but because they get 100k a year they can get 350k mortage but be up to there neck in debt because they didn't reduce there lifestyle when they took out the mortage.

Samuel T. Cogley

Donald Trump wrote: »

The rules help against predatory lending.

In other words, it stops someone from giving you a loan they know you won't be able to service.

My personal opinion is it's a little bit about that, but a lot more about a stable banking system and not being in a situation where the majority of loans are in negative equity.

Samuel T. Cogley

2Mad2BeMad wrote: »

I certainly could
We have a child and pay 2k a month rent.
We have 20k saved for a deposit. It took a little longer to save but on a mortage of 300k roughly paying back 1300month. We would be 700e better off every month plus own an asset by the end.

But again these are my circumstances and I'm well aware people on the same income and much worse off.
But I think the process needs to based on what you can afford this 3.5 rule is a general rule and places everyone on it.
I could be better off financially then someone on 100k a year because my spending is much less but because they get 100k a year they can get 350k mortage but be up to there neck in debt because they didn't reduce there lifestyle when they took out the mortage.

Surely you realise any relaxation of the rule would just increase house prices and instead of being priced out at 300K you'd be priced out at 360K or whatever.

Affordability is stress tested in any mortgage application.

Donald Trump

Samuel T. Cogley wrote: »

My personal opinion is it's a little bit about that, but a lot more about a stable banking system and not being in a situation where the majority of loans are in negative equity.

The link to negative equity is secondary. You would be making the point that relaxing the rules could inflate a bubble in the housing market which would inevitably pop sooner or later.

You can still have negative equity with the rules in place.

The direct link is just on ability to afford repayments.

Idbatterim

So there is 2 options, increase the rules from 3.5 to 4.5/5
or House prices need to fall dramatically( which in turn creates a whole host of other problems)


We looked at houses near the commuter belt and all seem reasonable we are still priced out of them though, some are just about within the price range but if a bid starts happened we will get priced out very quickly.
So we have to move abit futher out again.

Now here is were the main issue is.
If we moved out far for example say Athy, yes it ain't far in terms of going once, but to do it 5 times a week plus traffic in and out would be soul destroying.

I found a house there for 159k for what ever reason its that price, but its obviously well within our lending criteria so we could afford it.
BUT for us to move down there, we would end up having to buy

2 cars (i already own 1 car but would need a new one as current one wouldnt last very long doing the mileage)
insurance x2
tax x2
nct x2
petrol x2
tolls x2
More car maintenance.
The reason for 2 cars is we both work in opposite ends of Dublin.


this is the idiocy of what many people do, bank has prudent enough rules, but then you waste a fortune on cars you might not need, to spend hours in traffic, living in a relatively **** location. Would somewhere around luas line help you ditch one or both care if you were on the green line around cabra or walking distance to that line?

lomb

You can get a good house in Clondalkin for 220k With Corona my advice is get approved now and you won't have too many obstacles to getting a good house in budget. If need be buy a house that needs some cosmetic work or bathroom kitchen flooring paint and diy it over a few years.

Donald Trump

Idbatterim wrote: »

this is the idiocy of what many people do, bank has prudent enough rules, but then you waste a fortune on cars you might not need, to spend hours in traffic, living in a relatively **** location. Would somewhere around luas line help you ditch one or both care if you were on the green line around cabra or walking distance to that line?

It wasn't clear whether they currently have two cars or currently have one.

Either way, an annual tax-saver bus ticket and no cars would help save a chunk towards a nicer deposit.

Rock77

Donald Trump wrote: »

It wasn't clear whether they currently have two cars or currently have one.

Either way, an annual tax-saver bus ticket and no cars would help save a chunk towards a nicer deposit.

Some people need a car.. maybe OP can’t get to work without it, or needs to get the child to crèche or school.

I agree with the OP and think it should be at least 4 times your income. I always ask myself how ‘normal people’ afford a 3 bed semi in Celbridge.. (not even Dublin)

Like a barman married to a hairdresser or a beautician married to a factory operative. They earn €70,000 between them. So they can borrow €245,000 with their €25,000 deposit is €270,000.. cheapest 3 bed semi in Celbridge at the minute is €280,000..

All well and good saying save a bigger deposit but some people need to pay €2,000 a month rent, childcare.. if your household income is €70,000 a year there’s not much left for saving...

Wesser

You could retrain in something that pays better.

riffmongous

Just get rich parents and buy with cash stupid*

*Irish times advice a few months ago

Round Cable

There are major issues basing lending rules on pre tax salary. Worker A on €60k can borrow 100% more money than Worker B on €30k. But they actually only take home 60% more pay.

This greatly disadvantages lower earners, and a more fair way would be to introduce a multiplier based on after tax income.

Graham

2Mad2BeMad wrote: »

Yes we are looking into that

My question is a general one that most low income workers are facing this problem.
And the councils just looking into the thread itself are so far behind that by the time you are approved in principle the houses you might of been able to afford have gone and that's if you even get the amount. I take all these calculators with a pinch of salt.

Plenty of people are now sitting in their new homes as a result of the RBI scheme.

As has already been explained, lifting the multiples would not help you. It would make things worse.

Rock77

Wesser wrote: »

You could retrain in something that pays better.

But if all the bar men and all the hairdressers did this who would cut the wives hair and pull the husbands pints?

Salary Negotiator

Rock77 wrote: »

Some people need a car.. maybe OP can’t get to work without it, or needs to get the child to crèche or school.

I agree with the OP and think it should be at least 4 times your income. I always ask myself how ‘normal people’ afford a 3 bed semi in Celbridge.. (not even Dublin)

Like a barman married to a hairdresser or a beautician married to a factory operative. They earn €70,000 between them. So they can borrow €245,000 with their €25,000 deposit is €270,000.. cheapest 3 bed semi in Celbridge at the minute is €280,000..

All well and good saying save a bigger deposit but some people need to pay €2,000 a month rent, childcare.. if your household income is €70,000 a year there’s not much left for saving...

You do realise that that couple don’t live in a vacuum and increase the limit to 4 just means that every other person can borrow more too?

More people trying to buy the same house just pushes the price up and out of their reach anyway.

Fol20

2Mad2BeMad wrote: »

I certainly could
We have a child and pay 2k a month rent.
We have 20k saved for a deposit. It took a little longer to save but on a mortage of 300k roughly paying back 1300month. We would be 700e better off every month plus own an asset by the end.

But again these are my circumstances and I'm well aware people on the same income and much worse off.
But I think the process needs to based on what you can afford this 3.5 rule is a general rule and places everyone on it.
I could be better off financially then someone on 100k a year because my spending is much less but because they get 100k a year they can get 350k mortage but be up to there neck in debt because they didn't reduce there lifestyle when they took out the mortage.

There is a big difference between owning and renting. You need to factor theses costs in as well. You also need to bear in mind that people in Ireland pay more in mortgages as it is so difficult to evict. If this was better. Potentially it would be more appealing to banks. The 3.5rule should be general. The more specific it is. The more likely it will be abused. The only way to fix this is to build apartments and have high density building but people don’t want that wither

Rock77

Salary Negotiator wrote: »

You do realise that that couple don’t live in a vacuum and increase the limit to 4 just means that every other person can borrow more too?

More people trying to buy the same house just pushes the price up and out of their reach anyway.

Yes I do realise this, however this rule guarantees that the average worker can not afford a 3 bed semi.

Salary Negotiator

Rock77 wrote: »

Yes I do realise this, however this rule guarantees that the average worker can not afford a 3 bed semi.

You obviously don’t realise it if you think the CB lending limits are the reason for that.

Rock77

Salary Negotiator wrote: »

You obviously don’t realise it if you think the CB lending limits are the reason for that.

I didn’t say the limits are the reason for it.

I said the CB limits guarantee that the average worker can not afford a 3 bed semi.

Salary Negotiator

Rock77 wrote: »

I didn’t say the limits are the reason for it.

I said the CB limits guarantee that the average worker can not afford a 3 bed semi.

Can you expand on that? How do measures which help keep prices in check guarantee that the average worker can’t afford a 3 bed semi?