Why do renters equate the ability to pay rent to mortgage eligibility?

Flinty997

markodaly wrote: »

Please tell us how a person or couple paying 1300 a month rent CANNOT afford a mortgage of 700 a month..

Go on.. I think Ill be waiting a while.

The idea being...

If you have a change if circumstance lost your job etc, and you are renting you can walk away. If you have a mortgage you can't.

That's why your ability to pay rent in the short term isn't enough. Also why 100% mortgages are a bad idea.

But it's not a normal market. So that traditional thinking isn't as useful as it once was.

Flinty997

nolivesmatter wrote: »

Right. Rent is literally the closest thing to paying a mortgage you can use to gage a persons capacity to pay a mortgage.

Arguably long term savings and a history not spending money on high rents would be more desirable.

listermint

JizzBeans wrote: »

A common argument renters make, is that because they can afford to pay their rent regularly , they would be able to service a mortgage as it would be a similar amount. The inference being that they should somehow be eligible for a mortgage.



Another argument that renters/prospective buyers make is that "they done everything right" by going to college, getting the masters and attempting to land a higher paying job etc, etc.



Are they valid points? Its a little more complicated that points suggest I would have thought.

Unsure how you can make this argument from one of the rooms upstairs in your parents house

jimmycrackcorm

djan wrote:

I think the issue is when someone has been paying 1300 eur rent per month for close to 10 years being told that they cannot afford a mortgage of 700. This being due to the often ridiculous estimated spending of having a child (over 1k in some cases).

I don't believe this is the case in reality. The 1k only comes into effect if you're paying that for crèche fees and that absolutely does get taken into account in repayment capacity.

Also, not many people taking out mortgages only paying back 700 in a location where they are paying 1300 rent. So perhaps a little out of range as an example.

nolivesmatter

Flinty997 wrote: »

Arguably long term savings and a history not spending money on high rents would be more desirable.

Why the bolded part? Paying a high rent over a long period of time shows reliability. That money would then be freed up to go towards a mortgage. Surely it's less impressive to have been just living at home for free?

derfderf

nolivesmatter wrote: »

Why the bolded part? Paying a high rent over a long period of time shows reliability. That money would then be freed up to go towards a mortgage. Surely it's less impressive to have been just living at home for free?

Outside of a mortgage, the options are high rent, live at home, or be homeless. What are people supposed to do? Particularly if their parents live in a different country.

markodaly

Flinty997 wrote: »

The idea being...

If you have a change if circumstance lost your job etc, and you are renting you can walk away. If you have a mortgage you can't.

That's why your ability to pay rent in the short term isn't enough. Also why 100% mortgages are a bad idea.

But it's not a normal market. So that traditional thinking isn't as useful as it once was.

If you have a mortgage you will have some equity built up so you can use that.
Also, banks may well give you mortgage holidays as we have seen during Covid.

Unemployment in Ireland is not really an issue, especially for well-educated professionals. Housing affordability is though. That is what we are discussing.

Traditional thinking is now dead. We are in a new economic era for the next few decades. The old way of scimping and saving is gone.

Flinty997

nolivesmatter wrote: »

Why the bolded part? Paying a high rent over a long period of time shows reliability. That money would then be freed up to go towards a mortgage. Surely it's less impressive to have been just living at home for free?

At the end of this long period, all things being equal who will have more money, the person not paying rent or the person paying rent.

markodaly wrote: »

...
Traditional thinking is now dead. We are in a new economic era for the next few decades. The old way of scimping and saving is gone....

That's what people said the last time...but yet here we are... again...

...Ghost...

derfderf wrote: »

Outside of a mortgage, the options are high rent, live at home, or be homeless. What are people supposed to do? Particularly if their parents live in a different country.

The other option taken is to have some babbies and get your low rent (paid for by the tax payer) house handed to you by the council.

caveat: mostly applies to *single mothers

*Might not be actually single

The DayDream

There are bigger questions to be asked here, like how did we get to the point where housing is unaffordable and insecure for so many.

We cannot and should not allow the psychopathic greed that fuels capitalism be the driving force behind necessities like housing, water and healthcare. But we have.

As a single person you have to basically be on a 6 figure income now just to rent a 1 BR fkn flat in anywhere that isnt Leitrim. And when you get old who knows where you'll end up.

StupidLikeAFox

To get a mortgage, banks care about 3 things:
- Deposit (can be from gift or savings)
- Steady income
- Proof of repayment capacity (consistent payments over time, which can be from rent and/or savings)

Zaney

Both rents and mortgages suffer from our increasing protection of the tennant/occupier. Evictions and reposessions are next to impossible and expensive in legal fees even if they do happen. So landlords factor in a certain amount of non-payment when Settings rents and banks are unwilling to give a mortgagage to people they perceive to be a risk.

Not saying we should have lots of evictions/repossessions, just that there are consequences in the market.

nonethepfizer

some mortgage providers don't (well didn't anyway) consider rental payments as proof of disposable cash...

so if you had €2,000 a month, and €1,000 went on rent.... the mortgage provider would only consider the €1,000 left as disposable income to cover a mortgage.... so if you're mortgage was €800, this leaves you €200 a month in their eyes for bills and spending...

of course they're going to say no....

this got people into the situation where they either had to save for larger deposits, to bring down mortgage payments, or move home to get the rental payments off their bank statements...

There is also some rule for mortgages over 300 (320k ?) where you need a threshold of monthly disposable cash, even if your mortgage is far lower, another thing that was pricing people out of the market, even though they could afford it...

We had this issue with our mortgage, that's where the "if I can afford rent, I can afford a mortgage" argument comes from, especially as rents are usually higher than a mortgage....

thankfully the rules are starting to change as mortgage providers see people borrowing less...

The Mighty Quinn

Leg End Reject wrote: »

That must be a kicker and I'd imagine a major contributing factor is that fact that banks have a Herculean task repossessing when owners default.

I understand the need to have realistic borrowing limits, but there's no reason for someone to keep a home when they don't meet the repayments. A glut of repossessions would change mindsets and the housing market.

On this point - I completely agree by the way - I've often wondered, if you bought the house for say 300K, borrowed 260K for it. Paid mortgage for a decade, you now owe 190K. House has gone up in value to 320K. You lose your job, stop paying mortgage. In repossession case, does the bank sell house on the market to fund what they're owed? In which case, of the 130K surplus here, after solicitors fees and this and that, does the person who took the mortgage out get 100K back for themselves or does the bank keep it, as the asset is theirs until fully paid for?

Leg End Reject

The Mighty Quinn wrote: »

On this point - I completely agree by the way - I've often wondered, if you bought the house for say 300K, borrowed 260K for it. Paid mortgage for a decade, you now owe 190K. House has gone up in value to 320K. You lose your job, stop paying mortgage. In repossession case, does the bank sell house on the market to fund what they're owed? In which case, of the 130K surplus here, after solicitors fees and this and that, does the person who took the mortgage out get 100K back for themselves or does the bank keep it, as the asset is theirs until fully paid for?

I think any equity is returned to the previous owner, but the bank might look for a quick sale and not the full market value.

The Mighty Quinn

Leg End Reject wrote: »

I think any equity is returned to the previous owner, but the bank might look for a quick sale and not the full market value.

In which case if you knew you weren't going to be in a position to repay your mortgage for the foreseeable, you'd be best off selling the house yourself and riding off into the sunset to your rented accommodation with your equity, if any.

Allinall

The Mighty Quinn wrote: »

In which case if you knew you weren't going to be in a position to repay your mortgage for the foreseeable, you'd be best off selling the house yourself and riding off into the sunset to your rented accommodation with your equity, if any.

You can do that at any stage, regardless of whether you will be able to pay the mortgage or not, once the house is in positive equity.

The Mighty Quinn

Allinall wrote: »

You can do that at any stage, regardless of whether you will be able to pay the mortgage or not, once the house is in positive equity.

Oh of course, but if you can pay the mortgage, you'd likely be staying there and it wouldn't be an issue. I was talking about the situation where you have your home and can't meet the payments for it.

Leg End Reject

The Mighty Quinn wrote: »

Oh of course, but if you can pay the mortgage, you'd likely be staying there and it wouldn't be an issue. I was talking about the situation where you have your home and can't meet the payments for it.

People don't though because it's now nigh on impossible for banks to repossess a family home, so many defaulters sit tight.

There are of course many genuine cases, but the so-called strategic defaulters have made mortgage lending more difficult for everyone.

Tacitus Kilgore

Finty Lemon wrote: »

Whats gotta give
Foreign holiday x2 every year
The beauticians bill
Weekend takeaways
PCP cars
Takeaway coffee bullshxt
Asos
Premier league 'pilgrimages' (pis$ups)
De fags
There's a chunky deposit to be had within 40 months for most mid earning couples out of this junk. Just sayin.

You forgot about the avocados

Donald Trump

Leg End Reject wrote: »

The Mighty Quinn wrote: »

On this point - I completely agree by the way - I've often wondered, if you bought the house for say 300K, borrowed 260K for it. Paid mortgage for a decade, you now owe 190K. House has gone up in value to 320K. You lose your job, stop paying mortgage. In repossession case, does the bank sell house on the market to fund what they're owed? In which case, of the 130K surplus here, after solicitors fees and this and that, does the person who took the mortgage out get 100K back for themselves or does the bank keep it, as the asset is theirs until fully paid for?

I think any equity is returned to the previous owner, but the bank might look for a quick sale and not the full market value.

Yes, it happens quite often, although maybe not so much with residential property. It would have been very common with farms - especially because many others would not want to buy under those circumstances. So the price would be depressed.



The bank's concern would solely be in recovering what is owed to them. If they are owed 200k and the property should be worth 300k but there is an expected-to-be-temporary blip in the market and they get offered a best bid of 200k, then they will take it. If the owner was selling it themselves then they might decide to hold on for a few months.

Tacitus Kilgore

The DayDream wrote: »

There are bigger questions to be asked here, like how did we get to the point where housing is unaffordable and insecure for so many.

We cannot and should not allow the psychopathic greed that fuels capitalism be the driving force behind necessities like housing, water and healthcare. But we have.

As a single person you have to basically be on a 6 figure income now just to rent a 1 BR fkn flat in anywhere that isnt Leitrim. And when you get old who knows where you'll end up.

Oh a lot of people can rent one without the 6 figure salary, that's what the OP and others are saying - but you better not have the aspiration of wanting a bit of comfort or enjoyment in your life - you have a roof over your head sure - what else do you want?

Donald Trump

Finty Lemon wrote: »

Whats gotta give
Foreign holiday x2 every year
The beauticians bill
Weekend takeaways
PCP cars
Takeaway coffee bullshxt
Asos
Premier league 'pilgrimages' (pis$ups)
De fags
There's a chunky deposit to be had within 40 months for most mid earning couples out of this junk. Just sayin.

If you want to be honest you really need to take into account the unprecedented and prolonged period of low and very low interest rates since the inception of the Euro. These made it extra easy for those that bought into the market earlier to repay, while also inflating the price of what they had bought.

Flinty997

Donald Trump wrote: »

If you want to be honest you really need to take into account the unprecedented and prolonged period of low and very low interest rates since the inception of the Euro. These made it extra easy for those that bought into the market earlier to repay, while also inflating the price of what they had bought.

The market has been up and down since then.

Donald Trump

Flinty997 wrote: »

The market has been up and down since then.

The market has been up and down but the price at which that person would have bought is fixed. And their repayments are affordable. You are considering face value only. Not ability to obtain or repay mortgage


If you have a lot of savings then you are kinda stuck. The next few years will bring some inflationary pressure which will be then controlled with increasing rates.

Inflation is great for those buying with debt or who have their mortgages nearly paid off. It is not great for those trying to build up savings to buy or for those with a chunk of savings.


What is ideal is to buy just before interest rates drop, and for the low rates to unexpectedly persist for much longer than normal. Which is what a lot of people who bought since the introduction of the Euro benefited from. Most are oblivious to it though! Even those that bought at the height of the boom often locked in extremely cheap tracker rates even if the face value of their property dipped.

JizzBeans

Tork wrote: »

So tell me, when did you buy your house OP? What is your job?

3 years ago, I am a teacher.

JizzBeans

markodaly wrote: »

Please tell us how a person or couple paying 1300 a month rent CANNOT afford a mortgage of 700 a month..

Go on.. I think Ill be waiting a while.

I didn't suggest they couldn't, it just doesn't equate to mortgage eligibility.

Donald Trump

markodaly wrote: »

Please tell us how a person or couple paying 1300 a month rent CANNOT afford a mortgage of 700 a month..

Go on.. I think Ill be waiting a while.

Ability to repay has to be stress tested.



Renting is also a short term commitment. Especially in Ireland given that, from what you read, it can be optional for a lot of people........

JizzBeans

listermint wrote: »

Unsure how you can make this argument from one of the rooms upstairs in your parents house

I am a homeowner.

Tacitus Kilgore

JizzBeans wrote: »

I am a homeowner.

All paid off in 3 year on a teachers salary or does the bank own it?