Housing Bubble Bursting

PIMPHO

conor_mc wrote:

What size is your mortgage?

Around €2600. Hoping to rent the 2 rooms out for €1k so I'll have to pay €1600 or so.

Thanks

PIMPHO

seamus wrote:

You may not see any kind of return on investment if you sell in 3-5 years' time, but a large apartment that close to the city centre should easily maintain its value. I'd advise holding onto it for ten years, even if that means moving out and fully renting it in five years' time.

But renting it out fully won't cover my mortgage so not much point in moving out, paying rent and a percentage of the mortgage aswell.

conor_mc

PIMPHO wrote:

Around €2600. Hoping to rent the 2 rooms out for €1k so I'll have to pay €1600 or so.

Thanks

Sorry, I meant the total you borrowed.

If you put up 8-10% yourself, then obviously you're further from negative equity than if you bought using a 100% mortgage, in which case you could already be in negative equity.

By the way, under the rent-a-room scheme, you can only take in €7620 before tax, so you'd be liable for income tax on €4,400 or so each year.

Duckjob

conor_mc wrote:

By the way, under the rent-a-room scheme, you can only take in €7620 before tax, so you'd be liable for income tax on €4,400 or so each year.

Actually, thats not right. If he goes over the €7620, he no longer qualifies under the Rent-a-room scheme and is liable to income tax on the whole €12000.

A Random Walk

seamus wrote:

but a large apartment that close to the city centre should easily maintain its value.

I think you're confusing value with price, there's no reason why he won't go into negative equity. If something is worth 100 and I pay 150 for it, it will hold it's value but the price will come down. That's what happens in bubbles - value and price are no longer linked. Personally I think there won't be a property in Ireland which won't be sold for a lower price in 2/3 years time.

Afuera

Duckjob wrote:

Actually, thats not right. If he goes over the €7620, he no longer qualifies under the Rent-a-room scheme and is liable to income tax on the whole €12000.

Duckjob is correct. Strange as it sounds, PIMPHO would be better off renting out the rooms for 317.50 p/m each rather than 500 p/m.

conor_mc

Duckjob wrote:

Actually, thats not right. If he goes over the €7620, he no longer qualifies under the Rent-a-room scheme and is liable to income tax on the whole €12000.

I stand corrected Duckjob.

Idbatterim

a few years down the road when the thousands of apartments are finnished in Sandyford Business Park, can you really see all these overpriced, underspaced apartments being full in 10/15 years, when they are not new, shiny and caught up in all the hype?

El Stuntman

Idbatterim wrote:

a few years down the road when the thousands of apartments are finnished in Sandyford Business Park, can you really see all these overpriced, underspaced apartments being full in 10/15 years, when they are not new, shiny and caught up in all the hype?

they might be full

they might also be selling for 100k

Do-more

Zambia232 wrote:

It seems there repayments will be around 1700 - 1800 over 35 years.

AFAIR they said their repayments were now €1700 pm.

I seem to remember a thread a while back along the lines of "What multiple of earnings did you borrow?" I can't find it now but I seem to remember a couple of people who had borrowed in the region of 10X earnings.:eek:

It could of course been a spoof Bob, but none the less sounded genuine.

Think they had bought in Kildare and now wanted to move to a more affordable house in Portarlington where they were from originally.

Without more information as to what their motivation was in purchasing the house in the first place, it's hard to draw a conclusion, but the resounding response on this thread seems to be "you've made you bed, now lie in it!"

The_Conductor

Duckjob wrote:

Actually, thats not right. If he goes over the €7620, he no longer qualifies under the Rent-a-room scheme and is liable to income tax on the whole €12000.

I'll qualify what you've said there Duckjob. As the poster will be resident in the property- any cash received, be it for electricity/gas/internet whatever- along with rent, gets counted towards the 7620 cut-off. So even if the poster charged 317.50 per month for each room, he/she would not be able to bump this up with billshares to a more realistic level.......

Maximum gross income under the rent-a-room scheme is 7620.

Zambia

Do-more wrote:

Without more information as to what their motivation was in purchasing the house in the first place, it's hard to draw a conclusion, but the resounding response on this thread seems to be "you've made you bed, now lie in it!"

They have very little choice but that Im afraid. This was what "Jaws 6" otherwise known as RTE's Price crash warned of that some people would be trapped in the houses they had over stretched to buy .

They cant sell unless they take a loss
They cant rent it out unless they take a monthly loss of 500-700. Not too mention they would never get another mortgage.

Debt has a very human face on it and I can understand how this happened to them as everyone was fudging their incomes to get a house.

aphex™

Could they switch to an interest only mortgage?

The_Conductor

aphex&#8482 wrote:

Could they switch to an interest only mortgage?

Interest only on 500k is still almost 2,400 per month- at the start of a mortgage there is only ever very little of the core debt being paid off, the vast majority of the repayment is interest.

Unfortunately there are going to be an awful lot of people in very similar positions (over time possibly as many as a quarter of a million people.......)

People hocked themselves in unimaginable ways to get outlandish mortgages from lending institutions never considering that they might end up in these situations. Credit was cheap and easily available. Times have changed though.....

Interesting writeup on interest rate trends in today's business section of the Indo. Essentially irrespective of what happens to the dollar, Germany- the Eurozone's largest exporting country, is capable of living with the higher value Euro, so the ECB need not consider 4-4.25% interest rates as normalisation- they could go a good deal higher.

Belt tightening times for all of us are ahead........

ronbyrne2005

smccarrick wrote:

I'll qualify what you've said there Duckjob. As the poster will be resident in the property- any cash received, be it for electricity/gas/internet whatever- along with rent, gets counted towards the 7620 cut-off. So even if the poster charged 317.50 per month for each room, he/she would not be able to bump this up with billshares to a more realistic level.......

Maximum gross income under the rent-a-room scheme is 7620.

Although its illegal, most people sharing their house with some lodgers don't register them or pay tax on their rental income. Tenants usually get an attractive rent as they cant claim back rental thing from revenue. There is little risk of gettng caught , especially if its friends lodging in your property. Its not legal but I dont think is as bad as a landlord who doesnt live in a rental property not paying tax. The rent a room scheme is a bit unfair in that once you go over 7620 you pay tax on the lot.

nesf

smccarrick wrote:

Interesting writeup on interest rate trends in today's business section of the Indo. Essentially irrespective of what happens to the dollar, Germany- the Eurozone's largest exporting country, is capable of living with the higher value Euro, so the ECB need not consider 4-4.25% interest rates as normalisation- they could go a good deal higher.

Don't forget about France and Italy is my only caveat on such thinking.

The_Conductor

ronbyrne2005 wrote:

Although its illegal, most people sharing their house with some lodgers don't register them or pay tax on their rental income. Tenants usually get an attractive rent as they cant claim back rental thing from revenue. There is little risk of gettng caught , especially if its friends lodging in your property. Its not legal but I dont think is as bad as a landlord who doesnt live in a rental property not paying tax. The rent a room scheme is a bit unfair in that once you go over 7620 you pay tax on the lot.

I agree with you that it is a bit unfair that you pay tax on the lot when you exceed the 7620. Personally I think that the level is set way too low- if it was around 12k that would allow for 1k a month gross income from the scheme, which would equate to letting two bedrooms, which is an entirely fair and rational proposition.

You are incorrect though- tenants renting rooms under the rent a room scheme are in fact entitled to claim rent relief from the Revenue Commissioners at the 20% rate on the first 1,800 of rent paid (January '07 figures). Its not a massive amount of money- it works out at 360 Euro per annum. Given that they are entitled to claim back this money- there is a papertrail back to the Landlord (Householder) and if he/she is not declaring the income, they will eventually be caught, its inevitable......

The days of landlords not registering properties and not declaring their rental income are seriously numbered- as the legal implications are far more serious than they used once be.......

The_Conductor

nesf wrote:

Don't forget about France and Italy is my only caveat on such thinking.

Neither countries rely on exports to the extent that Germany does, and both are running silly current account deficits (not a surprise in Italy's case, but France is normally a lot more financially astute). Many of the ECBs governors believe that a little hardship might be the persuasion needed to get some of the bigger countries to get their houses in order. Harsh medicine. In any case their primary concern is inflation- not hardship in France and Italy. Inflation figures for March show headline rates exceeding 2%, the upper limit, as opposed to target, of the ECB. The ECB is also very determined not to cave into political pressure- as they have made clear on a number of occassions.

Time will tell.

PIMPHO

smccarrick wrote:

I agree with you that it is a bit unfair that you pay tax on the lot when you exceed the 7620. Personally I think that the level is set way too low- if it was around 12k that would allow for 1k a month gross income from the scheme, which would equate to letting two bedrooms, which is an entirely fair and rational proposition.

You are incorrect though- tenants renting rooms under the rent a room scheme are in fact entitled to claim rent relief from the Revenue Commissioners at the 20% rate on the first 1,800 of rent paid (January '07 figures). Its not a massive amount of money- it works out at 360 Euro per annum. Given that they are entitled to claim back this money- there is a papertrail back to the Landlord (Householder) and if he/she is not declaring the income, they will eventually be caught, its inevitable......

The days of landlords not registering properties and not declaring their rental income are seriously numbered- as the legal implications are far more serious than they used once be.......

Thanks all for their input. Not that I'm intending on not regeistering with the government, I would like to know smccarrick, what the legal implications are if one was to participate in this illegal act? :P
Also what do you mean by papertrail? Rent reciepts?

nesf

smccarrick wrote:

Neither countries rely on exports to the extent that Germany does, and both are running silly current account deficits (not a surprise in Italy's case, but France is normally a lot more financially astute). Many of the ECBs governors believe that a little hardship might be the persuasion needed to get some of the bigger countries to get their houses in order. Harsh medicine. In any case their primary concern is inflation- not hardship in France and Italy. Inflation figures for March show headline rates exceeding 2%, the upper limit, as opposed to target, of the ECB. The ECB is also very determined not to cave into political pressure- as they have made clear on a number of occassions.

Time will tell.

I don't disagree with you but the economic state of France and Italy does have an impact of the ceiling for the ECB. Their primary concern is inflation, but that doesn't mean that they ignore everything else.

chump

PIMPHO wrote:

Thanks all for their input. Not that I'm intending on not regeistering with the government, I would like to know smccarrick, what the legal implications are if one was to participate in this illegal act? :P
Also what do you mean by papertrail? Rent reciepts?

PIMPHO if you do decide to evade tax, good luck to you. You may not be caught this year or next, or the following year - but if you do get caught you will be stung badly. And all it takes is for one person to report you. If you think you can earn an extra 12k a year tax free with no-one raising an eyebrow good luck to you.

http://www.rte.ie/business/2007/0427/houses.html

The fall is reflected in all sectors of the housing market apart from Dublin and houses bought by first-time buyers.

Zambia

Deleted User wrote:

http://www.rte.ie/business/2007/0427/houses.html

Does not look well for a 370,000 house on a 100% mortgage in Kildare?

ixoy

Interesting that FTB are actually going up. I'm still on the fence on the issue but it does show that FTBs are obviously not bothered by potential stamp duty reforms. Maybe they're oblivious to potential changes or trying to get into the market ahead of interest rate rises?

ixoy

ixoy wrote:

Interesting that FTB are actually going up. I'm still on the fence on the issue but it does show that FTBs are obviously not bothered by potential stamp duty reforms. Maybe they're oblivious to potential changes or trying to get into the market ahead of interest rate rises?

45% of properties for sale on daft.ie are under 317,500 so no shortage there

However speculators took up a big chunk of % of buyers these past few years.

Calina

FTBs are largely exempted from stamp duty. If they are buying for less than 317K it's not an issue for them.

The stamp duty is a problem because capital appreciation is gone meaning the cost of stamp duty isn't been compensated for by a rise in property wealth. It's an issue for trader uppers now. Wasn't a problem if property was rising 50-100K a year in value.

ronbyrne2005

ixoy wrote:

Interesting that FTB are actually going up. I'm still on the fence on the issue but it does show that FTBs are obviously not bothered by potential stamp duty reforms. Maybe they're oblivious to potential changes or trying to get into the market ahead of interest rate rises?

Dont mind the statistical anomolies in those figures. Prices are dropping everywhere in every type of property. The figures can show a rise for a certain segment of market for many reasons such as
-In the new property section the builders throw in an extra kitchen, 6 months mortgage payments etc which hides the price drops in the figures.
-Less properties are selling so the few that are selling are only the best properties or best priced properties. In the figures a 3bed semi in south Dublin that was in poor state of repair which sold for say 900k last year and was redecorated and had a new kitchen, bathroom, conservatory added would only sell for same price this year but this is in fact a fall when all the money spent on it is taken into account. The figures dont take account of the quality of properties selling instead just reffering to its general nature-a 3 bed semi , a 2 bed new build property.
- There is also a time lag in this index and the full extent of price drops will not be reflected for a few months to come yet. This index is saying prices dropped in first quarter of 2007 by 0.6% but even estate agents are saying prices dropped in first quarter by 2-3%

HashSlinging

As long as the economy is doing well there will always be a need for new houses. Glad to see those trading up having a bit of difficulty with their sums. Makes a change.

ronbyrne2005

HashSlinging wrote:

As long as the economy is doing well there will always be a need for new houses. Glad to see those trading up having a bit of difficulty with their sums. Makes a change.

The economy was doing well BECAUSE of the new homes! The economy is heading for trouble over next few years and although there may be an underlying demand for housing over next decade it is not a demand at ANY price level.

HashSlinging

HashSlinging wrote:

As long as the economy is doing well there will always be a need for new houses.

The economy is at least 20% construction - our recent "boom" was fueled by borrowed money.

A need for houses can be independent from whether the economy does well or not. The need for houses is based on people and population trends. The economy could be ticking over nicely with little inward migration and little need for new property.