Softening house market?

https://www.boards.ie/discussion/comment/119108267#Comment_119108267

You'll find Michael O'Leary isn't much good at being a pilot either.

put_the_kettle_on

This is purely anecdotal but I've wondered if the market is softening because I'm getting calls from agents about properties that I bid on unsuccessfully several months ago. For whatever reason these properties sales have fallen through and agents are chasing me, instead of vice versa.

awec

https://www.boards.ie/discussion/comment/119112592#Comment_119112592

timmyntc above explains it well.

I haven't done the calculations recently but I would guess anyone who has bought since the rules came in is paying something like 20-30% of their monthly income on the mortgage.

HerrKuehn

https://www.boards.ie/discussion/comment/119112736#Comment_119112736

If you have been looking for a good while and have not noticed this before, I would certainly take it as a potential indicator. It takes a while before any change in the market filters through into official type information like the property register or average sales prices.

Greyian

https://www.boards.ie/discussion/comment/119112592#Comment_119112592

Sorry in advance for the absolute essay (also, how stripped down is the new site compared to the old site with regards to formatting):

I know when we applied, there were essentially 3 criteria used for determining how much we could borrow, with the lowest figure being the one that was ultimately used.

1) 35% of net income

2) Net income less fixed amount (based on number of applications + dependents) less any other fixed outgoings (e.g., childcare, other loans). When we applied, this was €2150 for a couple (+€250 per dependent). I think it may have been €1200 for a single person.

3) 3.5x gross income

Using an example of a childless couple each earning 50,000 (so 100,000 total), with no outer commitments (e.g. other loans) the 3 criteria would work out as follows (assuming 35 year mortgage at 3%, which is higher than most current fixed rates):

Net income: €74,446 per annum (€6,200 per month)

LTI Limit: €350,000 (€100,000 joint income multiplied by 3.5)

Under criteria 1, the maximum mortgage repayment would be €2,170/month. This would be a mortgage of €560,000 (rounded down a few thousand for simplicity).

Under criteria 2, the maximum mortgage repayment would be €4,050/month. This would be a mortgage of €1,050,000 (rounded down a few thousand for simplicity).

Under criteria 3, the maximum mortgage repayment would be dependent on the rate applicable to the mortgage. Assuming 3% currently (higher than most fixed rates), this would work out to €1,346.98/month (assuming €350,000 mortgage over 35 years, based on €350,000 being 3.5 times their gross income).

In this scenario, the bank would have chosen the maximum approval amount of €350,000 (criteria 3), as it was the lowest approved amount.

In an inflationary scenario, the net income doesn't change (it might as a result of tax changes, but inflation doesn't have any direct impact), so regardless of inflation or deflation, criteria 1 remains unchanged.

In an inflationary scenario, you could expect the fixed amount that banks require you to need to support yourself to increase. Even allowing for the €2150 for a couple to jump to €3,000, this still leaves a monthly repayment capacity of €3,200/month, which is still a mortgage of €830,000 (rounded down a few thousand for simplicity).

Assuming mortgage rates were to jump to 5%, a €350,000 mortgage would have a monthly repayment of €1,766.41, which would still be lower than criteria 1 or 2, so the couple would still qualify for a €350,000 mortgage at 5%.

It wouldn't be until mortgage rates hit 6.7% that the criteria 3 figure exceeds the criteria 1 figure, at which point 35% of net income as repayment capacity becomes the limiting factor.

Based on the current processes the banks use (basing this on knowing some mortgage advisors in a few, but not all, banks here), criteria 2 only comes into effect for people who either have low incomes (so aren't really getting approved for mortgages anyway) or considerable other outgoings (such as car loans, other loans, childcare costs, so are already being outbid in most instances anyway)/

An increase in rates to even 5.5% or 6% probably wouldn't have much impact on the amount that "ideal candidates" (dual income, no kids, no other loans) are getting approved for, unless the banks fundamentally change their lending criteria (which would probably require a major shift in employment levels).

The other side of the coin is what people are comfortable with themselves with regards to mortgage payments. In this regard, people in Ireland (and further afield) seem to be pretty comfortable with taking as much money as a bank is willing to loan them (to a limit), regardless of whether it is truly needed or not. If people are currently looking at a house that would require a mortgage payment of €1350 a month (so €350,000 mortgage), many people would ultimately still take out a €350000 mortgage at higher rates (4% - €1550/month, 5% - €1765/month) provided the bank is still willing to loan them the month. I know of multiple people who were looking in a price bracket which they could afford at 3.5x salary, that had properties they would have been more than happy with, who suddenly went and spent an extra €100k/€150k on a higher end property when the bank offered them a 4.5x LTI mortgage. Ultimately, if there was a house you really wanted, that had a mortgage payment of €1350/month, would you choose not buying it if the mortgage payment was changed to €1550/month because of a rate increase? I'd wager in the vast majority of cases, people would just look at in a "sure, it's more than I'd like to pay, but it's still less than I'm willing to pay"

awec

That's a great post for describing how it works @Greyian. Only thing I'd point out is there is a 4th criteria, which is the LTV limits, though this only comes into effect later in the process and not during initial Approval In Principle which you've outlined.

In general, rising interest rates are very unlikely to cause mortgage affordability issues for existing homeowners.

Greyian

https://www.boards.ie/discussion/comment/119112977#Comment_119112977

Absolutely right about the LTV limits.

I just left them out (cough, completely overlooked) as the calculation basis for them differs from the other 3 (not being based on what the bank determines you can afford, but rather being based on the specific property that ends up being purchased).

Where inflation could have an impact on mortgage approvals linked to LTV rates (separate to falling or rising property prices in general) is impacting on an applicant's ability to save (as their ability to save prior to getting the mortgage is hit by cost of living increases in general).

I know in my own circle, LTV has been the bigger issue for dual income applicants, while LTI has been the biggest issue for single income applicants (though, this is mainly because the LTV doesn't really matter, because short of saving hundreds of thousands, the 3.5x LTI limit won't be anywhere close to enough to buy a property). My experiences are based on the Dublin market, which naturally requires far larger deposits in most instances.

HerrKuehn

https://www.boards.ie/discussion/comment/119112915#Comment_119112915

That is a great post. It really shows how the LTI have kept a lid on things.

handlemaster

https://www.boards.ie/discussion/comment/119112736#Comment_119112736

What county/area is this ?

HerrKuehn

https://www.boards.ie/discussion/comment/119113036#Comment_119113036

Why would LTV cause more difficulty out of interest? I would have thought that is more of a problem for lower income and then the LTI would be even more of an issue for you. So, if you have dual income household on higher earnings, is the issue the inability to save 10-20% of the house price?

awec

https://www.boards.ie/discussion/comment/119113099#Comment_119113099

LTV becomes an issue if you are currently renting, as paying rent makes accumulating a deposit difficult / slow.

This is one of the things that help to buy was designed to help with.

Regarding LTI, this is a bit of a problem too, but the effect of the LTI for dual income higher earners is that they have to buy the 3 bed house instead of the 4 bed. For single applicants / low incomes, the consequences of the LTI is that they can't buy anything at all.

Royale with Cheese

I've been trying to get mortgage approval for a couple of months. Just off the phone with my broker and the mortgage I had wanted to get at 2.1% is now 2.4%, the rate increases are already here. People can now afford to borrow less, I don't see how this cannot negatively affect prices. Yes supply may be low but it's already low and we also have low interest rates, take away one of those things and what do you think it will do to prices?

Greyian

https://www.boards.ie/discussion/comment/119113099#Comment_119113099

As awec said, the issue is that the single income earners (FTB) effectively need to save far, far more than 10% of the purchase price, because the LTI doesn't get them anywhere near the total.

I know someone on ~40k who is looking to buy. They are looking in the Greater Dublin Area and are realistically looking at properties costing 200k. Saving 20k (to reach 10% deposit) isn't much of a problem compared to LTI only offering 140k, meaning as a result of LTI they realistically need to save 60k (30% deposit). As a result, the LTI is the issue, because they need far more than the 10% deposit to actually be able to afford anywhere.

Also as he outlined, for dual income, the struggle around LTI generally just changes what or where they buy, rather than being able to buy at all. For them, the deposit is the harder part.

Greyian

https://www.boards.ie/discussion/comment/119113147#Comment_119113147

"People can now afford to borrow less"

Is that the case though? Your interest rate has jumped from 2.1% to 2.4%, but does that impact what you can borrow, or does it just mean you end up repaying more money to borrow the same amount?

awec

https://www.boards.ie/discussion/comment/119113187#Comment_119113187

To put it in context with an example, a 0.3% rise in rate on a 500k mortgage works out at like 70 euro a month.

In terms of borrowing amount, this is absolutely inconsequential. To borrow 500k, you need an income of at least 143k, or ~12k per month.

HerrKuehn

https://www.boards.ie/discussion/comment/119113202#Comment_119113202

0.3% is relatively small, ICS are already up over a percent for the fixed rates. They are at 3.25% now. https://www.icsmortgages.ie/mortgages

Royale with Cheese

0.3% is the start. The ECB haven't even put rates up yet and the banks are already starting, I would expect much more.

awec

https://www.boards.ie/discussion/comment/119113288#Comment_119113288

Using the same example, going from 2.25 to 3.25 is about 200 euro a month on a 500k mortgage.

This again is unlikely to see your mortgage approval amount reduced, unless you were teetering right on the limit of approval.

theboringfox

ECB are on about going from minus 0.5% to zero %. That is a positive for banks as not losing money holding cash. Why would that cause pillar banks to increase mortgage rates? I get why ICS is increasing rates because it has a different funding structure and is borrowing on wholesale market to lend.

pconn062

Certainly not cooling off in my area Co. Louth. Example: house went up on Daft last Thursday, small two bed cottage in the country. We viewed it Monday, we're advised that the current offer was already 10k over asking. Checked on daft today and since Monday the ad was pulled and out back up again, but now 50k higher than the original price. This is the third house we have viewed where this has happened, the last two sold for 40k and 70k over original asking price.

Mr Hindley

Anecdotal, again, but I'm getting a sense that any cooling off is starting with apartments - in some areas at least, they've hit the ceiling of affordability, and I've just seen one advertised in March at a higher price than average for that development re-listed again this week, so either a sale fell through, or it's just not shifting. There's a growing trickle of apartments coming on sale from the big developments like Rockfield in Dundrum, Sandyford View. I suspect there's still lots of competition for desirable houses, but the lower-end / overpriced houses might be starting to cool off also.

LJ12345

https://www.boards.ie/discussion/comment/119111210#Comment_119111210

I wonder where the trigger for potentially higher than expected drops if they were to occur would start. I suspect a few but looking at the MNC’s I can see a situation where they pare back spending and no longer cover rental expenses, the worst case scenario would be lay offs, they’re already treading carefully with job hires.

HerrKuehn

https://www.boards.ie/discussion/comment/119113311#Comment_119113311

I think mortgage rates will hit 5% next year. It may or may not affect many peoples ability to get a mortgage, I am not sure.

HerrKuehn

https://www.boards.ie/discussion/comment/119113316#Comment_119113316

Well banks normally borrow off Euribor/EONIA which is typically some spread over the ECB rate. It is a variable rate. So if they give out fixed mortgages they would normally hedge a fixed rate with an interest rate swap. The fixed rate on the swap would depend on the variable Euribor/EONIA out the curve. The Euribor rates (futures) for next Sep are around 1.75% I think, meaning that is what the market expect the rates to be at that time. So, that is why they would raise fixed rates, nothing to do with how profitable the rest of their book is. With variable they can just raise the rates at any time if the cost of borrowing goes up.

put_the_kettle_on

https://www.boards.ie/discussion/comment/119113075#Comment_119113075

We were looking at counties Mayo, Donegal, Leitrim and Galway.

Out of those no one has called from Galway but we did only view one property there.

Ozark707

One thing I have noticed in the past week or so is that on myhome price changes the amount of drops has increased considerably on a day by day basis. Also the other point around this was that up to then there was often more rises than drops. (I am only monitoring Dublin).

Obviously this is purely around Asking prices and maybe the prices were outlandish to start with.

https://www.myhome.ie/pricechanges/dublin

Mr Hindley

https://www.boards.ie/discussion/comment/119115301#Comment_119115301

Interesting. There are some oddities in there:

• Apt 49, Block D, The Bridge, Shankill - up by 60k on the 23rd, now showing as Sale Agreed. To be sale agreed by now, bidding must have been in full flight by the 23rd, so what's to be gained by bumping up the advertised price? Unless the agent had the sale pretty much in the bag, and decided that raising the advertised price on this property would encourage higher prices on sales of similar properties in the future?
• Apt 2 5 Upper Georges St. - up by 35k, and down by 35k, on the same day. Why bother..? Do they hope the 'reduction email' will get attention, and buyers will then not notice that the price has gone up again? Or do they raise the price just so they can immediately drop it and people think 'oh, it's a bargain'..?
• 87 Rockview, Blackglen Rd - down 5k, up 15k on the same day. Maybe similar approach, raise the price then drop it by less, people only notice the reduction and think it's cheap..?

Xidu

My colleague said she went to see a house in Douglas in Cork, ask price 450k and sales agreed 560k

WacoKid

https://www.boards.ie/discussion/comment/119115855#Comment_119115855

My observations where I have been looking in Dublin have been 50k over asking in late 2020/early 2021 and 100k over asking in late 2021/early 2022.

Browney7

https://www.boards.ie/discussion/comment/119112768#Comment_119112768

What "could" be interesting is what would the income %s look like if a lifestyle stress was applied. I expect banks don't stress on a newly married 2 income couple buying and then subsequently going on to start a family (hardly out of the question for a large cohort of current buying units) and then subsequently paying for childcare or one income earner opting for a career break.