How does the bank lending rules help the working class?

ELM327

Rock77 wrote: »

So everyone in Dublin and surrounding areas that doesn’t earn above the average wage will just have to pay crazy high rent while trying to save a deposit. It’s not a select few that this affects.

Will we carry on with only the well off being able to afford a home and have a serious lack of social and affordable housing?

People keep saying, you need to earn more. 30k to 35k is a very decent wage and also a wage well capable of paying back mortgage repayments of €1200 per month. considering the minimum wage is 20k ish.

It’s not the loony left that has us in this complete mess.

It is the left aspects of government and the notion that someone earning 30-35k is a good wage.
In Dublin this is not a good wage. It's about average. The weighted average for a FTE excluding the top 1% is around 34k. So if you have 2 people on 34k you are able to afford an average house. 3.5 times 2*34k is 238k. Whack the 10% deposit with that and you could easily buy a 3 bed semi in Dublin.


1200 per month on a mortage for a single earner on 34k would not be a good move as that would be >50% of their net income on a mortgage


You need to earn more if you want a nice house in a good area. Average wage can afford average house. Simples.

Rock77

ELM327 wrote: »

It is the left aspects of government and the notion that someone earning 30-35k is a good wage.
In Dublin this is not a good wage. It's about average. The weighted average for a FTE excluding the top 1% is around 34k. So if you have 2 people on 34k you are able to afford an average house. 3.5 times 2*34k is 238k. Whack the 10% deposit with that and you could easily buy a 3 bed semi in Dublin.


1200 per month on a mortage for a single earner on 34k would not be a good move as that would be >50% of their net income on a mortgage


You need to earn more if you want a nice house in a good area. Average wage can afford average house. Simples.

Cheapest house where I’m from is 280k and I don’t live or want to live in Dublin.

Myself and my partner earn more than the average wage yet we can’t borrow enough for the worst house in our area never mind an average house..

The €1200 per month was based on two earners..

Geuze

ELM327 wrote: »

It is the left aspects of government and the notion that someone earning 30-35k is a good wage.
In Dublin this is not a good wage. It's about average. The weighted average for a FTE excluding the top 1% is around 34k. So if you have 2 people on 34k you are able to afford an average house. 3.5 times 2*34k is 238k. Whack the 10% deposit with that and you could easily buy a 3 bed semi in Dublin.
.

Data on FTB and SSB average earnings are published by the Central Bank.

Hard to find, though.

https://www.centralbank.ie/financial-system/financial-stability/macro-prudential-policy/mortgage-measures/new-mortgage-lending-data-and-commentary

https://www.centralbank.ie/docs/default-source/financial-system/financial-stability/macroprudential-policy/mortgage-measures/data-on-new-mortgage-lending/new-mortgage-lending-data-2018.xlsx?sfvrsn=4


2018 report

FTB average earnings 2018 = 73,536
2017 = 70,230


70% are joint applicants.

The average LTI = 3

beauf

#1 Govt policy has priced people out of housing.

#2 People have unrealistic expectations of doing better or at least the same as their parents. Live in similar areas etc.


Most will actually be worse off, and wealth inequality is getting worse not better. The Instagram lifestyle many are striving will not exist, for most people.

ELM327

Geuze wrote: »

Data on FTB and SSB average earnings are published by the Central Bank.

Hard to find, though.

https://www.centralbank.ie/financial-system/financial-stability/macro-prudential-policy/mortgage-measures/new-mortgage-lending-data-and-commentary

https://www.centralbank.ie/docs/default-source/financial-system/financial-stability/macroprudential-policy/mortgage-measures/data-on-new-mortgage-lending/new-mortgage-lending-data-2018.xlsx?sfvrsn=4


2018 report

FTB average earnings 2018 = 73,536
2017 = 70,230


70% are joint applicants.

The average LTI = 3

Does that not support my point though... that people on average wages can afford average houses?

Rock77

ELM327 wrote: »

Does that not support my point though... that people on average wages can afford average houses?

Average houses or the worst houses in the worst areas of Dublin..

fret_wimp2

Rock77 wrote: »

Average houses or the worst houses in the worst areas of Dublin..

This is now in the realm of subjectivity. Lots of people wouldn't consider living north of the river but thst doesn't mean the whole area is bad.

Your definition of average and worst will be different from others. You'l then probably find an extreme example on daft to support your Opinion and I can then do the same for mine.

Dublin is small and often prices will vary wildly street by street.
E.G. A friend has an address of kilbarrick, a stereotypically questionable area. I'm not saying it's bad, I'm just saying there is a reputation.

His house is directly behind his parents house, which has an address of raheney, a stereotypicaly nice area.

His back garden actually touches his parents back garden.

His house was almost half the value of his parents house. His area is lovely, the street looks the same, the houses are almost identical.

That's just one example of how good / bad area is subjective.


Back to the argument of affordability, very few can afford to live in D6w as it's massively desirable. I can't afford it so I don't, I live where I can afford.

Similar with everyone, they live where they can afford. In a capital city, property going to be expensive so the barrier to entry goes up.

Should I be angry I can't afford a house in d6w?
Maybe just angry that I might be only able to afford the "worst" house in D6w but not an average or good one?

All rhetorical, of course I shouldn't be angry about it.

Geuze

ELM327 wrote: »

Does that not support my point though... that people on average wages can afford average houses?

Sorry, I did not read your posts in detail, sorry.

Rock77

fret_wimp2 wrote: »

This is now in the realm of subjectivity. Lots of people wouldn't consider living north of the river but thst doesn't mean the whole area is bad.

Your definition of average and worst will be different from others. You'l then probably find an extreme example on daft to support your Opinion and I can then do the same for mine.

Dublin is small and often prices will vary wildly street by street.
E.G. A friend has an address of kilbarrick, a stereotypically questionable area. I'm not saying it's bad, I'm just saying there is a reputation.

His house is directly behind his parents house, which has an address of raheney, a stereotypicaly nice area.

His back garden actually touches his parents back garden.

His house was almost half the value of his parents house. His area is lovely, the street looks the same, the houses are almost identical.

That's just one example of how good / bad area is subjective.


Back to the argument of affordability, very few can afford to live in D6w as it's massively desirable. I can't afford it so I don't, I live where I can afford.

Similar with everyone, they live where they can afford. In a capital city, property going to be expensive so the barrier to entry goes up.

Should I be angry I can't afford a house in d6w?
Maybe just angry that I might be only able to afford the "worst" house in D6w but not an average or good one?

All rhetorical, of course I shouldn't be angry about it.

I do see the point your making but Dublin has extreme price differences. Of course someone is priced out of some areas and can easily afford others.

My point is, I’m from North Kildare. Every couple from my town or the five surrounding towns that does not earn well above average wage can not get a loan to buy the worst 3 bed semi in any of these towns. There are so many people and couples on or below the average wage..

Rent is so high that it makes it an extremely slow process to save a deposit.

Both myself and my wife earn over the average wage, have over a 10% deposit and an excellent saving record and can easily afford the repayments for a 3 bed semi in our town yet there are CB rules that won’t allow us.

My issue is we can afford to live here....

2k per month rent + €500 per month savings for years versus €1200 per month mortgage repayments. I believe I can afford to live here so it’s not a case of ‘should I be angry because I can’t afford to live in a particular area’

I now understand that raising the 3.5 times your income will raise house prices but surely someone somewhere in politics is intelligent enough to come up with a system where people earning average wages can afford some sort of a house.

fret_wimp2

Rock77 wrote: »

I now understand that raising the 3.5 times your income will raise house prices but surely someone somewhere in politics is intelligent enough to come up with a system where people earning average wages can afford some sort of a house.

It would require more market regulation and in every single instance where the government has Intervened with property they have made the situation worse.

They gave a 1st time buyers grant. It simply raised the price of all new builds by about 20k.

They put in rent caps, it just meant most landlords raised rents right up to the cap, otherwise they would be locked into lower rate. It also meant landlords who were often content to leave good tenants alone now raise their rents year on year by the 4%

They put in the 10% quotas for social housing, but allowed developers to buy out of it by building the social housing elsewhere , negating any benefit of spreading out social housing. This also causes a lot of angst with someone who has spent 300k or more on a house and right next door is someone with the same house for buttons. It also reduced the pool for people like you and me. I'm not disagreeing with social housing here, just how it affected the market.

They charge capital gains tax against small landlords rental income, but provide so much support for tenants thst a single problem Tennant can cause a landlord a 18 months of hassle and cost to get their property back, creating too much risk, causing them to leave the market in droves reducing the rental pool.

They give favorable conditions to large REITs, bringing in a rent for life system, but with none of the legislation for lifetime leases needed for such a model. This also takes huge swaths of new builds away from the irish market of people looking to buy a home.

They took away bedsits. Bedsits are not ideal but they provided cheap accommodation for some people who ended up with nowhere to go except the street and homeless services or illegal dorms.

That's probably far from complete but you get the picture government intervention has rarely helped the people, in the context of the property market.


To allow you to compete with someone on twice your wages, they would need to hinder the person with more resources through tax or rules and/or give you a Leg up.
There is unfairness here too as the person with more resources has most likely worked for them and such a rule would be like tying a rock to their feet because they have more.

Contrary to what concensus usually is on boards, most people who afford houses in nicer areas are also hard workers. They might have gotten lucky and got some good career breaks, but most are not sitting on family fortunes and old money. They're not villains.

A rule could be made to allow people below a certain earning level borrow more, but how much more? Take that 35k a year person and assume they want to buy a 300k house.

They need to save 10%, 30k.
This leaves 270k of a loan. That's almost x8 that persons annual salary!

The risk is much too high when the lenders wouldn't even give that level of exemption to someone on multiples of 35k.

You want a situation where price of property and the idea of investment, supply and demand is completely sepersted, So a house in high demand in dublin is obtainable by a below average wage. That's the very opposite of how property is treated in Ireland. A cultural change of that magnitude won't happen in our lifetimes.

It's a tough situation but it's a modern fact of Life many find unfair. I don't have an answer.

Samuel T. Cogley

fret_wimp2 wrote: »

E.G. A friend has an address of kilbarrick, a stereotypically questionable area. I'm not saying it's bad, I'm just saying there is a reputation.

Is that anywhere near Kilbarrack? :pac:


Kilbarrack is a funny one, especially those houses that back on to Foxfield (quite a nice area IMHO). It's a proper working class area in the true sense of the word that most people work. Many dismiss it out of hand but I've been there five years and rarely had an issue and any issue has been minor. I wanted a bigger house than my budget would allow for in D8 so had to move, such is life. Working class wages/couple = working class area and there's absolutely nothing to be ashamed of in that regard.

fret_wimp2

Samuel T. Cogley wrote: »

Is that anywhere near Kilbarrack? :pac:


Kilbarrack is a funny one, especially those houses that back on to Foxfield (quite a nice area IMHO). It's a proper working class area in the true sense of the word that most people work. Many dismiss it out of hand but I've been there five years and rarely had an issue and any issue has been minor. I wanted a bigger house than my budget would allow for in D8 so had to move, such is life. Working class wages/couple = working class area and there's absolutely nothing to be ashamed of in that regard.

I was in no way putting kilbarrack down, it was just an example based on stereotypical good and bad areas.

My friend loves the place, his house is lovely, garden is insanely big, and the limited time I've spent there, the area seems very pleasant.

I done the same, lived in D16/D18 for years but when it came to buy it was mostly out of my range so moved north of the river and am very happy.

Samuel T. Cogley

fret_wimp2 wrote: »

I was in no way putting kilbarrack down, it was just an example based on stereotypical good and bad areas.

My friend loves the place, his house is lovely, garden is insanely big, and the limited time I've spent there, the area seems very pleasant.

Has it's issues just as any working class area with social housing thrown in does but it's not a hellhole as some people make out and neither is the majority of places like Tallaght.


I wasn't having a go at you or your post in the slightest. You have it pretty much bang on IMHO.

yaboya1

Rock77 wrote: »

Both myself and my wife earn over the average wage, have over a 10% deposit and an excellent saving record and can easily afford the repayments for a 3 bed semi in our town yet there are CB rules that won’t allow us.

You've said this twice but it's not true. 55k for two people is not above the average wage. According to the last figures I saw, 37k was the average annual wage.

Secondly, although you could afford the house if CB rules were relaxed, so could anyone else who earns more than you but are also currently restricted by the CB rules. Therefore it's unlikely you'd get it for 280k as you'd be outbid by someone earning slightly more.

As many have already said, you need to improve your earnings. The CB rules are not the problem and would not solve your problem if they were relaxed.

Rock77

yaboya1 wrote: »

You've said this twice but it's not true. 55k for two people is not above the average wage. According to the last figures I saw, 37k was the average annual wage.

Secondly, although you could afford the house if CB rules were relaxed, so could anyone else who earns more than you but are also currently restricted by the CB rules. Therefore it's unlikely you'd get it for 280k as you'd be outbid by someone earning slightly more.

As many have already said, you need to improve your earnings. The CB rules are not the problem and would not solve your problem if they were relaxed.

Nothing I’ve said is untrue, both myself and my wife earn over the average wage... I’m not sure what u mean by 55k for 2 people?? We earn a lot more than 55k between us.

I have been educated on this thread as to the effect the loan to income ratio will have on property prices and I now realise many things would have to change to have a fair system.

My view however is still there are many, many couples earning average, slightly above average and slightly below average wages that can easily afford a mortgage to purchase a home in their area but can not get access to credit. I believe this to be unfair.

Rock77

fret_wimp2 wrote: »

It would require more market regulation and in every single instance where the government has Intervened with property they have made the situation worse.

They gave a 1st time buyers grant. It simply raised the price of all new builds by about 20k.

They put in rent caps, it just meant most landlords raised rents right up to the cap, otherwise they would be locked into lower rate. It also meant landlords who were often content to leave good tenants alone now raise their rents year on year by the 4%

They put in the 10% quotas for social housing, but allowed developers to buy out of it by building the social housing elsewhere , negating any benefit of spreading out social housing. This also causes a lot of angst with someone who has spent 300k or more on a house and right next door is someone with the same house for buttons. It also reduced the pool for people like you and me. I'm not disagreeing with social housing here, just how it affected the market.

They charge capital gains tax against small landlords rental income, but provide so much support for tenants thst a single problem Tennant can cause a landlord a 18 months of hassle and cost to get their property back, creating too much risk, causing them to leave the market in droves reducing the rental pool.

They give favorable conditions to large REITs, bringing in a rent for life system, but with none of the legislation for lifetime leases needed for such a model. This also takes huge swaths of new builds away from the irish market of people looking to buy a home.

They took away bedsits. Bedsits are not ideal but they provided cheap accommodation for some people who ended up with nowhere to go except the street and homeless services or illegal dorms.

That's probably far from complete but you get the picture government intervention has rarely helped the people, in the context of the property market.


To allow you to compete with someone on twice your wages, they would need to hinder the person with more resources through tax or rules and/or give you a Leg up.
There is unfairness here too as the person with more resources has most likely worked for them and such a rule would be like tying a rock to their feet because they have more.

Contrary to what concensus usually is on boards, most people who afford houses in nicer areas are also hard workers. They might have gotten lucky and got some good career breaks, but most are not sitting on family fortunes and old money. They're not villains.

A rule could be made to allow people below a certain earning level borrow more, but how much more? Take that 35k a year person and assume they want to buy a 300k house.

They need to save 10%, 30k.
This leaves 270k of a loan. That's almost x8 that persons annual salary!

The risk is much too high when the lenders wouldn't even give that level of exemption to someone on multiples of 35k.

You want a situation where price of property and the idea of investment, supply and demand is completely sepersted, So a house in high demand in dublin is obtainable by a below average wage. That's the very opposite of how property is treated in Ireland. A cultural change of that magnitude won't happen in our lifetimes.

It's a tough situation but it's a modern fact of Life many find unfair. I don't have an answer.

Thanks for the insight, I don’t have a great understanding of it but I think most people are missing my point. I have no issue with people earning a lot more than me being able to afford nice houses in nice areas.

I don’t want to compete with someone on twice my wages, I would presume we would be looking at totally different houses!

The 300k house is the perfect example..

Two people, both on average wages, 10% deposit saved, easily afford the repayments.. no loan because it’s over 3.5 times their income.

Anyway I realise it’s a bigger issue than just the loan to income ratio. Thanks again.

Graham

Rock77 wrote: »

The 300k house is the perfect example..

Two people, both on average wages, 10% deposit saved, easily afford the repayments.. no loan because it’s over 3.5 times their income.

Allow a 4.5 multiple and somebody with a higher income will still outbid you because their borrowing limit has also increased.

Rock77

Graham wrote: »

Allow a 4.5 multiple and somebody with a higher income will still outbid you because their borrowing limit has also increased.

Yes I understand this, I have stated that this is not the only issue. Most people have said the rule stops people borrowing more than they afford. Well I can easily afford to repay a loan of 4.5 times my income.

Once again I now realise the loan to income rule is not the only or even the biggest reason why average paid workers can’t afford a home.

Graham

Rock77 wrote: »

Once again I now realise the loan to income rule is not the only or even the biggest reason why average paid workers can’t afford a home.

The bigger issue for you is the number of homes available in the areas you want to live and the amount of people you're competing with for those homes.

I know this is an over simplification but if there are 50 homes and 100 buyers, it's going to be the 50 highest paid that get them.

Your real challenge is to get into the top 50.

Of course real life isn't quite that straightforward, larger savings, lower monthly spending, no other borrowings, exemptions etc. all help.

Dylan94

Rock77 wrote: »

Yes I understand this, I have stated that this is not the only issue. Most people have said the rule stops people borrowing more than they afford. Well I can easily afford to repay a loan of 4.5 times my income.

Once again I now realise the loan to income rule is not the only or even the biggest reason why average paid workers can’t afford a home.

If you can easily afford 4.5 times your income then apply for an exception from the bank. Prove to them that you can easily afford it, even if interest rates rise or one of you becomes ill and work for a while.

Rock77

Dylan94 wrote: »

If you can easily afford 4.5 times your income then apply for an exception from the bank. Prove to them that you can easily afford it, even if interest rates rise or one of you becomes ill and work for a while.

It’s not just me that I’m talking about though. I think it’s unfair on all workers that earn in and around average wages. They all can’t get an exemption.

Donald Trump

Rock77 wrote: »

Yes I understand this, I have stated that this is not the only issue. Most people have said the rule stops people borrowing more than they afford. Well I can easily afford to repay a loan of 4.5 times my income.

Once again I now realise the loan to income rule is not the only or even the biggest reason why average paid workers can’t afford a home.

It's easy to do a quick rough calculation.


If you have a loan that 4.5 times your average salary, then for each percentage rise in rates, your interest costs will increase by 4.5% of your (gross) salary.


If rates increase by 3% for example (perhaps not too likely in short term but not impossible over a slightly longer term) then you would need an extra amount corresponding to 13.5% of your gross salary on additional interest payments.



Lets suppose you are on 50k gross. Net income around 36,750. You have a loan for 225k.
Rates go up by 3%. That is an extra 6750 out of that. You're talking about 130 less a week in your pocket to spend. The extra interest is 18.4% of your net income. At the same time that maybe that increase in rates is depressing your house price too.

yaboya1

Rock77 wrote: »

Nothing I’ve said is untrue, both myself and my wife earn over the average wage... I’m not sure what u mean by 55k for 2 people?? We earn a lot more than 55k between us.

I have been educated on this thread as to the effect the loan to income ratio will have on property prices and I now realise many things would have to change to have a fair system.

My view however is still there are many, many couples earning average, slightly above average and slightly below average wages that can easily afford a mortgage to purchase a home in their area but can not get access to credit. I believe this to be unfair.

Apologies, I thought you were the OP regarding the income figure.
The rest of my point still applies though. Not saying it's fair.

TSQ

Two things occur:
there is a very decent train service from Carlow/Athy to Dublin. Would it not be possible for at least one of you to use public transport and avoid the second car scenario? Depending on where in Dublin your work is, of course.

Whereas currently you could afford a bigger mortgage, what happens if you start a family? Friends of mine Just bought based mainly on the wife’s higher salary and more secure employment. While waiting to close, found out she was pregnant, so looking at a year on maternity and husband’s lower wages, and childcare costs or one parent giving up their job thereafter. Bank would not have lent if this had happened prior to drawdown.

ELM327

Donald Trump wrote: »

It's easy to do a quick rough calculation.


If you have a loan that 4.5 times your average salary, then for each percentage rise in rates, your interest costs will increase by 4.5% of your (gross) salary.


If rates increase by 3% for example (perhaps not too likely in short term but not impossible over a slightly longer term) then you would need an extra amount corresponding to 13.5% of your gross salary on additional interest payments.



Lets suppose you are on 50k gross. Net income around 36,750. You have a loan for 225k.
Rates go up by 3%. That is an extra 6750 out of that. You're talking about 130 less a week in your pocket to spend. The extra interest is 18.4% of your net income. At the same time that maybe that increase in rates is depressing your house price too.

Rates increasing by 3% would not be an issue.

Current rate of say 2.49%, a 3% increase would bring it to 2.565%. Hardly earth shattering.

Dylan94

ELM327 wrote: »

Rates increasing by 3% would not be an issue.

Current rate of say 2.49%, a 3% increase would bring it to 2.565%. Hardly earth shattering.

I think its very clear to the average person that they are talking about 3 percentage points. Bringing it up to 5.49%

ELM327

If they meant ppt then he should have said that.
a 3% rise =/= a 3ppt rise

Donald Trump

ELM327 wrote: »

Rates increasing by 3% would not be an issue.

Current rate of say 2.49%, a 3% increase would bring it to 2.565%. Hardly earth shattering.

300bps there Einstein.

You hardly thought I was stress testing on a 7.5bps shift did you?

thegetawaycar

Rock77 wrote: »

Thanks for the insight, I don’t have a great understanding of it but I think most people are missing my point. I have no issue with people earning a lot more than me being able to afford nice houses in nice areas.

I don’t want to compete with someone on twice my wages, I would presume we would be looking at totally different houses!

The 300k house is the perfect example..

Two people, both on average wages, 10% deposit saved, easily afford the repayments.. no loan because it’s over 3.5 times their income.

Anyway I realise it’s a bigger issue than just the loan to income ratio. Thanks again.

It's all easy to repay now, what we don't want is another return to people not being able to pay in the coming recession.
One/both lose their jobs and the mortgage holders would want to have 6months minimum of mortgage payment (and all bills) savings to fall back on.

If they relaxed the rules we would return to banks repossessing and the same people complaining that the banks "forced" them to take out more than they could afford.

3.5 times is a good ratio for lending IMO as even if the bank do go through the repossession process the likelihood is by the time it's run through the person would hopefully be back on their feet and able to have restarted payment again even if a lower paying job.

ELM327

Donald Trump wrote: »

300bps there Einstein.

You hardly thought I was stress testing on a 7.5bps shift did you?

Ah bip off :D

Rock77 wrote: »

It’s not just me that I’m talking about though. I think it’s unfair on all workers that earn in and around average wages. They all can’t get an exemption.

If everyone gets an exemption then everyone can pay more and then, rocket science, prices go up.
Hello, 2006 called!