Cowen claims aid to buyers will not inflate house prices

jetski

MARK HENNESSY, Political Correspondent, in Galway THE GOVERNMENT will not "artificially inflate" house prices, but will offer help to the lower-paid to get local authority loans, Taoiseach Brian Cowen said yesterday.
Under a plan to go to Cabinet tomorrow, the Housing Finance Agency is to get a line of credit from the National Treasury Management Agency.
The housing agency, which reports to the Department of the Environment, will then be able to use this to boost the sums it has available to fund the purchases of affordable homes. Minister for Finance Brian Lenihan made clear this will not cost the exchequer since the mortgages will have to be paid for at the full rate. The Government insists it is resisting calls by the Construction Industry Federation, banks and others for State action to boost construction.
Speaking to the Fianna Fáil parliamentary party in Galway, Mr Cowen said: "The role of the Government is not to artificially inflate house prices and we will not do so.
"The Government will help those eligible people who have negotiated a good price and wish to purchase a home but are being prevented from doing so due to unreasonable restriction of credit."
Questioned later, Mr Lenihan insisted that extra Housing Finance Agency mortgages would not halt "the necessary correction" taking place in property prices in Ireland.
"That is not an intervention in the mortgage market. It doesn't have any implications for public finances. It is off the balance sheet. We are not talking about interfering in the housing market," he said. Because of the current acute shortage of credit, however, he said: "Certainly, there is some scope at the margins for the Government to provide some element of finance to those who otherwise could not access it."
Making it clear that next month's budget will be painful, the Taoiseach said public spending will not rise "at a rate which the economy cannot afford". However, both he and Mr Lenihan indicated strongly that the budget will contain measures to help Irish industry export more, and do nothing to impede their competitiveness.
The current crisis, Mr Cowen told colleagues in his opening address, "should be seen as bringing about a necessary turning point in the life of the nation.
"This phase in the economic cycle is temporary and will pass. We must remain confident and optimistic about our future," he declared.
Tough decisions will have to be taken next month: "No politician likes doing so but we are not going to try to buy short-term popularity and put at risk all the gains of the past decade," he said.


© 2008 The Irish Times


http://www.irishtimes.com/newspaper/frontpage/2008/0916/1221430255481.html

The_Conductor

In short- they are asserting that a guarantee that everyone will be able to get a mortgage of 300k will not have any impact on house prices. Nice. Why should any seller (developer or otherwise) sell for less than 300k when they know upfront that all purchasers have at least that as a fallback?

bugler

Stop asking such awkward questions! The Taoiseach said it won't inflate house prices, and if we can't trust our Taoiseach...

jetski

well it depends really on what being sold i suppose....

300k isnt alot if your getting a decent 3 bed house IMO

not a scrappy little 1-2 bed

The_Conductor

jetski wrote: »

well it depends really on what being sold i suppose....

300k isnt alot if your getting a decent 3 bed house IMO

not a scrappy little 1-2 bed

Its an excellent way to establish a lower threshold for offloading crap 2 bed apartment units onto the market before the rules regarding size, energy efficiency etc are changed next January. It will encourage those who have been on the sidelines to grab whatever is going- "to get a foot on the ladder", once again. Its also definitely not prudent to put knowledge of people's available finances in the open- look at the scandal of the estate agents and solicitors who were sharing information which is to come up shortly.

jetski

i thought it was between EA's and mortgage advisors?

I was of the opinion that if new measures were being introduced to give access of credit to time buyers it wouldn’t be straight away?

Ste.phen

Would delaying it a few months make it any less wrong?

punchestown

jetski wrote: »

well it depends really on what being sold i suppose....

300k isnt alot if your getting a decent 3 bed house IMO

not a scrappy little 1-2 bed

300k is a lot of money full stop. Part of the problem of the bubble has been people losing sight of the value of money and with banks throwing money at people through the bubble years, the amount to be repaid did not hit home with people.

Firetrap

What's confusing me is how anyone expects the "lower paid" to afford repayments on a 300k mortgage. The banks aren't loaning these people that sort of money at present for a very simple reason - they don't believe they can pay the money back. And after checking out what you'd be repaying on a mortgage of that sort of money, I don't blame them.

Also, what is low pay considered to be?

jetski

minimum wage or there abouts.....

The_Conductor

I think they define low pay as below the "average industrial wage" which in turn they define as ~36/37k (which in all honesty is not that low paid?)

The purely interest component of a 300k mortgage @ current rates works out at about EUR1,560 per month- which by my calculation would consume just over 60% of the net income of someone on the average industrial wage.

Perhaps the government plans on offering a new social welfare payment, akin to rent-allowance, to make the mortgage repayments affordable?

jetski

smccarrick wrote: »

The purely interest component of a 300k mortgage @ current rates works out at about EUR1,560 per month- which by my calculation would consume just over 60% of the net income of someone on the average industrial wage.

Over how long and what about mortgage relief

Firetrap

I just tapped in a couple of figures into the mortgage calculator at mortgages.ie. My theoretical first time buyer couple is borrowing €300k over 30 years. I didn't specify any other criteria like the sort of mortgage or anything like that.

The site gave me a mortgage with an APR of 5.6% and repayments of over €1,700 a month. I assume tax relief is built into those figures. Even if it isn't, it's still not going to take the sting out of making monthly repayments like that.

jetski

tax relief depends on the individual or couple and id be fairly certin its not deducted. you might be talking around about €250 less

Firetrap

It's still a lot of money if you're not earning large wages, is it not?

Dirk Gently

jetski wrote: »

we are not going to try to buy short-term popularity and put at risk all the gains of the past decade," he said.

of course not, there's no general election due for a few of years.

Firetrap

No but there's the not insubstantial issue of the local elections.

ronbyrne2005

Cowen may be right in saying this proposal won't inflate prices but it might also stop them falling as low as they would if he doesnt intervene. For example ,theoretically a house that sold for 400k in 2006 now asking for 300k may sell at 300k under new deal but may have fallen to 200/250k if this initiative was not implemented. It's semantics making a builder bailout seem more acceptable.

The propertypin are organising a protest outside Dail against a builder bailout next week if anyones interested in saving their hard earned taxes from bailing out "friends of Fianna Fail" aka the big builders/developers.

utick

anyone know what these unreasonable credit restrictions cowen is talking about? (are they really unreasonable or just not ridiculously easy as they used to be)

about a month ago i was kinda looking around fl, and was offered interest rate of 6% was thinking of putting money down but she was trying to convince me not to put money down, credit still seems to easy this market is going to have to fall alot more in my opinion

20goto10

Firetrap wrote: »

I just tapped in a couple of figures into the mortgage calculator at mortgages.ie. My theoretical first time buyer couple is borrowing €300k over 30 years. I didn't specify any other criteria like the sort of mortgage or anything like that.

The site gave me a mortgage with an APR of 5.6% and repayments of over €1,700 a month. I assume tax relief is built into those figures. Even if it isn't, it's still not going to take the sting out of making monthly repayments like that.

This is a common agrument which quite simply is not an argument at all. Someone earning 37K has a monthly take home pay of €2,580. Therefore they can afford a €1700 mortgage and have room for increases (Did you include the €169 interest relief in that?). And thats based on a 30 year mortgage. Base your figures on a 35 year mortgage and there's even more room for increases in rates. You don't really have an argument here. I know people are going to say the left over €850 a month is not enough to live off but I disagree. Are you going to be able to afford all the luxuries Irish people have come to expect over the past 10 years? No. But you can afford a mortgage and a decent life.

Banks are overly strict. This is not a correction in mortgage lending criteria, its an abnormal tightening that will eventually ease rather than become the way of the future.

SimpleSam06

20goto10 wrote: »

I know people are going to say the left over €850 a month is not enough to live off but I disagree.

Heating oil? Electricity? Children? Insurance? Car fuel and maintenance? Pension? Phone bills? The odd pint? Tax increases? Rate rises? Commuting costs?

Two hundred euros a week is around what you'd get on the dole.

DublinDilbert

SimpleSam06 wrote: »

Two hundred euros a week is around what you'd get on the dole.

+1

Except on the dole you'll also get a medical card, a roof over your head and money to furnish the house!

SlyRax

I agree, €1700 is perfectly acceptable for someone on 37k. IMHO 37k is a lot of money. Cut back on holidays for a couple of years, don't go the pub every weekend. This is what the previous generation did, why can't we.

Back on topic though, I think the government has to be seen to be doing something. I agree with Cowen that the government should let prices continue to drop. Hard to know if this will mean people can buy when they previously couldn't or whether we'll end up with a minumum price on everything. I'm buying my first home at the moment and I don't really mind if it drops in price because it is my dream home. Plus I'm not going anywhere for the next ten years so I see it as a very long term investment rather than looking to make a couple of hundred grand.

SlyRax

Very true when you add kids into the equation it's not a lot of money. Its supposed to be hard to buy a house though isn't it, especially for the first couple of years anyway. heating and elec could get down to 100 each a month, thats 100 for each person for both heating and electricity, or is that unreasonable. Lidl for groceries is for nothing, well you know what I mean. Phone bill, get meteor phones and call each other for free, anything outside that is a luxury. Car costs are atough one but if possible you could downsize and go with a diesel with good mpg. I can't see the government letting any body rase the price of electricity or gas, although I could be wrong. Also, TV licence, UPC, savings. Remember thats €850 a month each for our theoretical couple, which is 1700 a month to take all the extra bills from. I think you could be left with 50 a week socialising money each if you manage it right??????? You gotta do what you gotta do, affordable housing is always an option.

20goto10

SimpleSam06 wrote: »

Heating oil? Electricity? Children? Insurance? Car fuel and maintenance? Pension? Phone bills? The odd pint? Tax increases? Rate rises? Commuting costs?

Two hundred euros a week is around what you'd get on the dole.

The real figure is about €1020 including TRS. If you cannot live off €1020 a month then yes fair enough you cannot afford a mortgage. Pity for you. Its always tough to start with and as you earn more you get more money in your pocket. Its the way of the world. I feel for people who cannot get onto the ladder and its great to see more and more people being able to afford as prices come down. However I do not feel for people who cannot cut down on their extravagant lifestyle in order to do so. Fact of the matter is those kind of people will never own a home. They're simply not responsible enough and its got nothing to do with house prices.

SimpleSam06

20goto10 wrote: »

The real figure is about €1020 including TRS. If you cannot live off €1020 a month then yes fair enough you cannot afford a mortgage. Pity for you.

Thats €250 a week, with the fifty quid shortfall from social welfare levels more than made up as DublinDilbert pointed out. Thats a hard, hand to mouth existence for years and years to come. Why would anyone do that to themselves when they can sit it out and save massive amounts of money without committing themselves to an overinflated loan to line the pockets of bankers and builders? Maybe some people enjoy working for most of their life, coming home to poverty and subsistence level lifestyles, just to put a roof over their head, but really, it seems pretty stupid to me.

SlyRax

if your saving you should be saving the price of that morgage anyway, where do you live while your saving?? paying rent?? still paying all those bills anyway??. it all comes down to personal circumstances and personal choices I suppose.

If your living at home with your parents and not paying any rent, then go for it save save save but you need to be saving 1500 or more a month anyway. if you already have a house good for you this isn't applicable. If your on the dole, not applicable. If your renting with kids at the mo this is good as your better of buying than renting.

Hard to call, but there aren't many situations where (if you seriusly want a house) you would be much better off than taking the hit for a couple of years

20goto10

SimpleSam06 wrote: »

Thats €250 a week, with the fifty quid shortfall from social welfare levels more than made up as DublinDilbert pointed out. Thats a hard, hand to mouth existence for years and years to come. Why would anyone do that to themselves when they can sit it out and save massive amounts of money without committing themselves to an overinflated loan to line the pockets of bankers and builders? Maybe some people enjoy working for most of their life, coming home to poverty and subsistence level lifestyles, just to put a roof over their head, but really, it seems pretty stupid to me.

I'm not arguing whether its a smart move to buy a home now or wait it out for prices to fall further. I'm saying this argument that a 300K mortgage is unaffordable to the average person is nonsense if you cinsider 37K to be the average. Its simply non factual. I live off a budget and keep track of all mine and my wifes spendings and €1020 is ample money. We live off €800 a month between us. Thats for all household bills and food and also includes petrol costs for driving 42km round trip to work 5 days a week for me and a weekly LUAS ticket for the wife. €800 a month is what I would call our day to day living expenses.

Besides that, if you are on 37K and are not happy to live off a tight budget then maybe you should go for something cheaper or wait for prices to fall further as SimpleSam would do. But again, its not because you cannot afford the 300K mortgage. You choose not to make the sacrifices in order to afford it. There's a big difference and to me its not a valid argument in the affordability debate.

sadie9

20goto10 wrote: »

I'm not arguing whether its a smart move to buy a home now or wait it out for prices to fall further. I'm saying this argument that a 300K mortgage is unaffordable to the average person is nonsense if you cinsider 37K to be the average. Its simply non factual. I live off a budget and keep track of all mine and my wifes spendings and €1020 is ample money. We live off €800 a month between us. QUOTE]

I can't believe what I'm hearing! How would a couple earning 37k in total qualify for a mortgage of 300k??? If they had kids their budget would be shot completely. We are a family of 4 (2 adults, 2 kids) on one income earning 35k. We were offered a mortgage of 180k Max. Our weekly food bill is 150, and that's a cheap week. There is a huge problem here with couples getting massive mortgages for their double incomes, then baby comes along and you either have up to 1k a month in creche fees added or one person gives up their income to stay at home.

SimpleSam06

SlyRax wrote: »

if your saving you should be saving the price of that morgage anyway, where do you live while your saving?? paying rent?? still paying all those bills anyway??.

Its worth pointing out that the interest portion on a mortgage is still usually significantly larger than paying rent in the same place, except you aren't locked into a lifetime agreement. If you save while paying rent you are ultimately reducing the interest payments while prices are dropping.

SlyRax wrote: »

Hard to call, but there aren't many situations where (if you seriusly want a house) you would be much better off than taking the hit for a couple of years

This is wildly incorrect. With prices already down at least 15% from peak and another 10% off for the asking, you will save six figures over the lifetime of a mortgage by holding out for a few years and saving.

20goto10 wrote: »

I'm saying this argument that a 300K mortgage is unaffordable to the average person is nonsense if you cinsider 37K to be the average.

37k is not the average nor is it even the median, which I would call a more important number.

20goto10 wrote: »

Its simply non factual. I live off a budget and keep track of all mine and my wifes spendings and €1020 is ample money. We live off €800 a month between us. Thats for all household bills and food and also includes petrol costs for driving 42km round trip to work 5 days a week for me and a weekly LUAS ticket for the wife. €800 a month is what I would call our day to day living expenses.

Right. And if interest rates rise half a percent, or if she gets pregnant, what will you sacrifice then?

20goto10 wrote: »

But again, its not because you cannot afford the 300K mortgage. You choose not to make the sacrifices in order to afford it. There's a big difference and to me its not a valid argument in the affordability debate.

What affordability debate? If you are content not to get value for money, then sure, buy in a collapsing market. A box of matches might be affordable at €50, but I'd be an idiot to pay it.

20goto10

sadie9 wrote: »

I can't believe what I'm hearing! How would a couple earning 37k in total qualify for a mortgage of 300k???

I already gave the figures. I never said it was for a family of 4.

If you want to have kids you need to factor that in to the equation. It may or may not push you out of the realms of affordability. Most people will wait a few years to have kids when its more affordable.