Housing Bubble Bursting

patrickolee

On closer inspection, rents are more like 1400.

www.daft.ie/219023
www.daft.ie/217474

eth0_

patrickolee wrote:

I'm paying 1530 a month on the mortgage, less 130 tax relief, equals 1400. Rent for a similar sized/located house is around 1200-1300. So I'm paying a little more on the mortgage, but not that much. I doubt I'm that unusual... would have bought near the peak I'd say. Just gotta get me a wife now, for that extra tax relief!

How do you work out what the mortgage relief would be?

patrickolee

I'm not sure really... but in the bank statement it comes out 1530 out and then straight after Revenue Commisoner Credit 130. From talking to a guy in work, if I were married it would be 260. I think that might be the maximum, but I really don't know for sure. Looking at http://www.revenue.ie/trs/mortgage/index.html

it says 8000 tax relief if you're single. So I guess if you're paying more than 8000 in the upper band of tax (ie earning more than 42,000pa) then you would get 8000/12 = 667 per month at which you would be paying tax at the 20% rate rather than 41%.. anyway 667 x 20% is 133... which is roughly what is credited to my account every month. Probably obvious that I'm not a tax expert but...

Iristxo

Iristxo wrote:

Even if I sold at 550K (reckon that's the tops it would sell for right now) I would still have 250K in my hand, nearly 200K of those would be profit.

It sounds so tempting...

Sell I did, haven`t regretted it, somehow I don`t think I will either!!!

Zambia

Ditto

The house i sold dropped 25 ,000

DublinWriter

Isn't mortgage tax relief deducted at source at the basic rate nowadays?

Iristxo

Originally Posted by Zambia232
Ditto

The house i sold dropped 25 ,000

Is this before, or after you sold it?

chump

DublinWriter wrote:

Isn't mortgage tax relief deducted at source at the basic rate nowadays?

yes

patrickolee

DublinWriter wrote:

Isn't mortgage tax relief deducted at source at the basic rate nowadays?

Yes, that's why you see it on your bank statement. Suppose they want you know how nice they are being!

Zambia

Iristxo wrote:

Is this before, or after you sold it?

After , fhank tuck:D

ixoy

Comparatively speaking I'm pay €1300pm to rent out in Portmarnock (altho' I've noticed the same places are now 1350-1400 even though we moved in only 4 weeks ago).
The apartments here are 415k. Using a 10% deposit, over a 30-year mortgage at 5.25% (4% ECB rate + lending institution's cut) that'd be over 2k a month. There's two of us (non-married) but that would entitle us to both claim TRS. I reckon that would take it down to about 1800pm. That's an equivalent 40% more (changing of course if there's more increases).

Equivalent to our rent, we could get (same mortgage standards+TRS) about a 270k loan. That would place us out in Balbriggan in an apartment that would be (roughly) the same size but a lot further out from the city centre.

Toss-up between security of tenure and standard of living and for now I'm choosing the latter.

dochasach

Glenbhoy wrote:

Just a quick point - where some of you are saying that rent is less than mortgages, should you not be comparing rent with mortgage interest less trs relief?
To say your rent is less than the mortgage on a similar place is largely meaningless as you don't specify the mortgage length either.

Myself and others in similar circumstances found that at last year's interest rates, a 35 year mortgage on our dwelling (comparables in same terrace building or, in one case what the landlord paid two years ago) was almost exactly twice our monthly rent, not including stamp duty. Would trs make up the difference?

ixoy

dochasach wrote:

Myself and others in similar circumstances found that at last year's interest rates, a 35 year mortgage on our dwelling (comparables in same terrace building or, in one case what the landlord paid two years ago) was almost exactly twice our monthly rent, not including stamp duty. Would trs make up the difference?

No. The maximum TRS for one person is €133 and €266 for a couple I believe (joint ownership or married). And you might not qualify for that amount either - it's tax relief on the interest on the mortgage (not the mortgage itself) and the cost of that interest over a year. I believe that on a 270k mortgage, for example, you wouldn't qualify for the full amount.

Do-more

Do-more wrote:

On the bright side, I see a 4 bed detached around the corner from me that is pretty new to the market and asking €510,000 has a SOLD sign on it this evening. It'll be interesting to find out what it actually made.

I'm told this one sold for €500,000 and the EA has a "similar required" sticker on the sign now.

Also noticed some viewings for other houses in the general area, seems the dead cat is bouncing!

How high and for how long is the question?

Anybody else see a rise in activity now that the election is out of the way and those that were holding off in the hope of an end to stamp duty are now re-entering the market?

luckat

My own hope is that the prices and wages will settle into some kind of sane equilibrium. On the other hand, for this to happen, my own house would have to lose about nine-tenths of its value, so my feelings are mixed!

I get the uneasy feeling that the country is really being run by a consortium of builders and building materials providers. If the corruption ends, we may have a period of some belt-tightening, but I can't but feel that it would be good for the country and the economy if there was more realism and honesty.

miju

seems the credit crunch is about to arrive so this is really end game stuff.

just heard on newstalk this morning that the financial regularity authority are planning on changing the mortgage lending rules so that banks must now strees test to 3% above ECB base rate as opposed to the current 2%.

The reason stated by them is to ensre that people do not fall into difficulty in paying their mortgages when rates rise as apparently alot of people are now having severe difficulty in doing so which is whats causing to bring in this new regulation

Naturally this is going to hammer the crap out of the maximum mortgage someone can get as well. This new measure is expected to be brought in before end of the year.

edit: just got a linky to the story on the SBP http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=24464-qqqx=1.asp

Pa ElGrande

The trend in ECB interest rates is still upwards and if the financial regulator has their way with more vigorous mortgage loan stress testing then the price falls will be even sharper into the winter. More unemployment from the construction and related sectors will start showing up in the CSO statistics by the winter.

What I am observing (Dublin 7 area) is 3 & 4 bed houses are selling but the one/two bed apartments and duplexes have remained on the market since late last year are now with different agents and still not selling, a number went sale agreed after December's budget but are back on the market again.
I have also seen three houses in the Drumcondra area with two EA company's hoardings outside them and there are also a larger number of rental properties (including pre 63's) for sale that this time last year plus there are more new apartment complexes under construction that will be complete by the year end.

I would estimate a 100% increase in inventory for sale year on year in this area is not far wrong and what I am seeing in this area is a flight to quality as first time buyers skip the 'starter homes'.

SkepticOne

miju wrote:

just heard on newstalk this morning that the financial regularity authority are planning on changing the mortgage lending rules so that banks must now strees test to 3% above ECB base rate as opposed to the current 2%.

There will be a mad rush to qualify for a mortgage in advance of this.

The_Conductor

Pa ElGrande wrote:

I would estimate a 100% increase in inventory for sale year on year in this area is not far wrong and what I am seeing in this area is a flight to quality as first time buyers skip the 'starter homes'.

Thats going to create a lot of bad blood- FTBs buying second hand homes and properties that will stand the test of time, while everyone who was persuaded to pile into the property market over the past few years ends up stuck with unsaleable cardboard boxes that they're in hock to the bank for, for improbable lengths of time.

There are a lot of people in increasing difficulty with the mortgage repayments- both FTBs, those who took out mortgages 2 or 3 years ago, and also the wannabe landlords whose mantra was "the only way is up....."

I imagine its only a matter of time before the howls of pain begin to be played out in the media........

miju

SkepticOne wrote:

There will be a mad rush to qualify for a mortgage in advance of this.

thus possibly creating a dead cat bounce making the pain all the more worse. but again with rising interest rates (lowering the max mortgae you can get), current stand off between buyers and sellers and with the banks mindful of this new stress testing regulation plus im guessing being painfully aware of customers beginning to struggle it may just be a rush of applications but not neccisarily mortgage approvals

whizzbang

I hear they are looking into closing these as well...

http://img520.imageshack.us/img520/1879/theoldredbarndp9.jpg

Where'd that horse go?

iguana

smccarrick wrote:

FTBs buying second hand homes and properties that will stand the test of time,..........

What will happen to the value of these properties then? Will they hold their current values as they will be the most sought after type of property or will they fall as they are currently(/previously) bought by stbs/ttbs who have a chunk of equity from their starter-home behind them?

Calina

smccarrick wrote:

Thats going to create a lot of bad blood- FTBs buying second hand homes and properties that will stand the test of time, while everyone who was persuaded to pile into the property market over the past few years ends up stuck with unsaleable cardboard boxes that they're in hock to the bank for, for improbable lengths of time.

There are a lot of people in increasing difficulty with the mortgage repayments- both FTBs, those who took out mortgages 2 or 3 years ago, and also the wannabe landlords whose mantra was "the only way is up....."

I imagine its only a matter of time before the howls of pain begin to be played out in the media........

Sorry, are you suggesting that those who bought property which was not really all that suitable to their needs might take it out on those who didn't buy property which isn't suitable to their needs? Is that not just...uhem, confirming this suspicion I've had for months that the Irish property market is a pyramid scheme?

I've had to listen to a lot of people justify their decision to buy apartments which God nor man would not get me to pay for. If they could justify it to themselves, fine. But By the same token, I have the same freedom to justify not buying said apartment for x y and z reasons.

Why should I have to buy a ridiculously poorly designed starter home just so someone before me who should, perhaps, have thought a bit more about this, can actually make some money on this.

The key question every single prospective property buyer should ask themselves is this "what if I want to get out of this but can't for any particular reason in two years time". There are people here and on askaboutmoney looking for advice on how to shift apartments they bought a year ago. A year ago. Don't people understand just how much cap appreciation you need to write off the cost in terms of stamp duty advantages even allowing for what that cost was last year?

It makes me angry to think that people who were happy enough to go down the road of buying stuff a year or two ago might be angry if people don't take them of their hands. I don't care how much pressure can be brought to bear on them to buy, you always have the option of saying no. I've said no to cabbage for years. Taking on 300KE worth of debt is a bigger decision. If you can't say no to it, then the problem is not me who won't buy a starter home of you, or the person who thinks you should, the problem is you.

In other words, it works like this: property does not allow everyone to make a killing. By the time everyone thinks they can, the opportunity is gone.

There is one key reason for the vast majority of people to be buying a house and that is to live in it. Factors which directly affect your quality of life should be number one on your list. Me...I'll be asking for permission to hang pictures on the wall of my rented apartment shortly. I don't think not having to ask it is worth 390KE which is what it would cost me to buy that apartment right now.

Your dead right Calina, but no matter what your gonna end up paying for this mess too, same goes for anyone else who pays any sort of tax on anything.
By not buying you avoided the brunt of it but our entire economy is based on this. You`ll pay for it too.

You just watch.

AC1

In relation to the article from the sbpost to do with stress testing quoted above, i don't understand how a couple on €76000 would be able to borrow €427,000 at current stress testing limits. That is over five and a half times their combined income and the repayments on a mortgage of this size would be over €2000 a month over 35 years at current rates, i.e over 40 % of their net income. If 2% stress test were added, this would be even higher? Am i missing something here?

iguana

Zambia232 wrote:

After , fhank tuck:D

Do you feel any pity for your buyer?

Iristxo

Originally Posted by Iguana
Do you feel any pity for your buyer?

Why should he/she? Nobody can say FOR CERTAIN what way the property market is going to go. In the long run, perhaps Zambia will have done the right thing or maybe it will be the buyer who did the right thing. They both took a gamble... If the buyer turns out to be the one who did the right thing I doubt that he'll fell pity for Zambia.

The_Conductor

AC1 wrote:

In relation to the article from the sbpost to do with stress testing quoted above, i don't understand how a couple on €76000 would be able to borrow €427,000 at current stress testing limits. That is over five and a half times their combined income and the repayments on a mortgage of this size would be over €2000 a month over 35 years at current rates, i.e over 40 % of their net income. If 2% stress test were added, this would be even higher? Am i missing something here?

No, you're not missing anything. Also the proposal is to stress test to 3%, an increase over the current 2% (which was being widely ignored anyhow). The net result of all of which is people's borrowing capacity will be much reduced. As people will no longer have access to money- prices should fall to meet reduced borrowing capacity (totally outside of the excess of supply and other market imbalances which exist). Then again, I don't have a crystal ball, and even if I did- I'd be petrified in the current market situation.

The_Conductor

Calina wrote:

Sorry, are you suggesting that those who bought property which was not really all that suitable to their needs might take it out on those who didn't buy property which isn't suitable to their needs? Is that not just...uhem, confirming this suspicion I've had for months that the Irish property market is a pyramid scheme?

Yes, I've come to the same conclusion- it bares all the usual hallmarks of a pyramid scheme.

Calina wrote:

The key question every single prospective property buyer should ask themselves is this "what if I want to get out of this but can't for any particular reason in two years time". There are people here and on askaboutmoney looking for advice on how to shift apartments they bought a year ago. A year ago. Don't people understand just how much cap appreciation you need to write off the cost in terms of stamp duty advantages even allowing for what that cost was last year?

A lot of presumptions are based on purchasers being rational creatures- unfortunately they are anything but.

Calina wrote:

It makes me angry to think that people who were happy enough to go down the road of buying stuff a year or two ago might be angry if people don't take them of their hands. I don't care how much pressure can be brought to bear on them to buy, you always have the option of saying no. I've said no to cabbage for years. Taking on 300KE worth of debt is a bigger decision. If you can't say no to it, then the problem is not me who won't buy a starter home of you, or the person who thinks you should, the problem is you.

It doesn't make me angry. At one stage I may have felt a degree of schadenfreude- or even bemusement, but now its more a case of you built your bed, now go lie in it...... People did not feel that saying no was a valid option. Unfortunately they are going to find out that the herd mentality is not necessarily the way to go.

Calina wrote:

In other words, it works like this: property does not allow everyone to make a killing. By the time everyone thinks they can, the opportunity is gone.

Unfortunately the average punter in the street doesn't have the intelligence to figure this out for themselves, and gets burnt. Again, and again, and again. Its amazing that some people will never learn.

Calina wrote:

There is one key reason for the vast majority of people to be buying a house and that is to live in it. Factors which directly affect your quality of life should be number one on your list. Me...I'll be asking for permission to hang pictures on the wall of my rented apartment shortly. I don't think not having to ask it is worth 390KE which is what it would cost me to buy that apartment right now.

Thats the intelligent key reason. You are assuming people have a modicum of common sense and are exercising it. Unfortunately I question that core assumption. The vast majority of people were buying property to live in- yes, but in making that decision they were influenced by a load of totally irrelevant and skewed assumptions. Unfortunately those irrelevant and skewed assumptions are coming home to roost. Kids who were born before the massive interest rates and inflation of the 1980s and early 90s- are suddenly discovering that 2% is not a reasonable expectation for interest rates. 5% inflation on an ongoing basis- does happen. Salaries do not necessarily compensate for inflation. It can be far cheaper to rent than to pay the interest on an interest only mortgage. House prices can go two different directions. Just cause everyone queued to buy pieces of cardboard crap to live in 3 years ago- does not mean there will be a queue at your door when it comes to trying to offload the albatros..........

SimpleSam06

smccarrick wrote:

Unfortunately the average punter in the street doesn't have the intelligence to figure this out for themselves, and gets burnt. Again, and again, and again. Its amazing that some people will never learn.

I think thats a bit harsh there, in fairness. Its not the same punter buying the houses over and over again, its a load of different people, all being saturated with the feelgood happy days bullshit that the REA and Banking marketing machine spews out in epic quantities. Which has the nasty side effects of providing noise to the signal of sites like this. A lot of noise.

If anyone should feel anger at anyone else, I feel the banks and real estate agents should receive the full and unleavened fury of the ruined home maker.