Mortgage 'Affordability' . What A Joke !

Sponge Bob

About once a month a flurry of experts show up in the media trying to convince that increasingly rare specimen, the First Time Buyer, to take a punt on the property market. I suppose they have to sell product.

Anyway lets look at the real cost ( mortgage payments calculated from Jeacles calculator HERE)

At the top of the market the average house cost €300k but mortgage rates were low with very juicy trackers out there to be had.

Now house prices are low but mortgage rates have gone through the roof. PTSB abolished fixed rates yesterday meaning they all will by the end of March....even though they will pretend not to for a while. Standard variable now nearly 6% and still climbing.

Thsi leaves us with a paradox. In 2006 House prices were too high but mortgages ( even if far too large) were cheap.

Now house prices are lower but mortgages are expensive. Standard Variable Rate mortgages are the only ones available now and are heading for 6% ....base rate + 5% on top. Base rates will go upwards towards 4% over the next few years meaning mortgage rates of 9% at times ....people paid around 2-3% on their mortgage rates in 2006. It is prudent on a long term product like a mortgage to ASSUME 8% interest will be the future average.

So what does that do for affordability ??

2006 Average House Price €300k Mortgage Rate €300k@3% over 30 years = €1,264.81 a month

2011 Average House Price €200k Mortgage Rate €200k@8% over 30 years = €1,467.53 a month

Buying a house is LESS AFFORDABLE today. That is before you factor in higher insurance and lower takehome pay on top of everything else.

In order to get back to 2006 levels of affordability the average house price has to drop to €170,000 for the monthly mortgage outgoings alone to be the SAME. The average house price must go BELOW €170,000 for the houses to be MORE affordable than they were at the peak.

Don't believe everything you read....and certainly not if you can count. :cool:

Price source here ( €320k in 2007 and €198k in 2010 but I rounded a bit for simplicity sake )

gurramok

Yes and they always bring out the dual income gem. Forgetting of course a huge chunk of people are not dual income buyers.

Still, if you save(which you should for obtaining a mortgage) and have a giant deposit, this will drastically lower the amount you borrow, then a rise in interest rates of 1% will not kill you.

OMD

I brought this point up a few days ago. During the boom people could get very good tracker mortgages. Houses are now more expensive to finance than during the boom due to rising margins on mortgage rates.

OMD

gurramok wrote: »

Yes and they always bring out the dual income gem. Forgetting of course a huge chunk of people are not dual income buyers.

Still, if you save(which you should for obtaining a mortgage) and have a giant deposit, this will drastically lower the amount you borrow, then a rise in interest rates of 1% will not kill you.

But how can you save for a giant mortgage? You still have to pay rent unless you compromise and house share or sponge of your parents.

REXER

This all goes to show that house prices are still way over the top and will have some way to drop over the next few years before the market gets balanced out.

gurramok

OMD wrote: »

But how can you save for a giant mortgage? You still have to pay rent unless you compromise and house share or sponge of your parents.

Deposit, not mortgage. And that's why most people house share or live with their parents before buying as to rent on your own in this country is very very expensive.

OMD

gurramok wrote: »

Deposit, not mortgage. And that's why most people house share or live with their parents before buying as to rent on your own in this country is very very expensive.

Sorry I meant to say deposit.
But even then it is hard to save for a massive deposit. Say average house is €200000. Massive deposit is what at least €50,000? Even saving 800 a month it will take 5 years to save that amount. Not many people on average wages can afford to pay rent and save €800 a month. Even if they do save that much they still have to borrow €150,000 at the new crippling rates of 5%+ even before the ECB gets started.

jester77

OMD wrote: »

But how can you save for a giant mortgage? You still have to pay rent unless you compromise and house share or sponge of your parents.

Don't go too mad spending

I never purchased a house, have always rented. Paying around 800 for my current place, would cost about 1200 or 1300 to mortgage the same place. I'll be honest and say I've not exactly burst my ass saving but I would still have enough sitting there to cover 40% of the current value of the place I'm living if I was to go out tomorrow and get a mortgage. I would have a lot more if I wanted to but you got to enjoy life as well. Life is not all about owning a house!

danbohan

jester77 wrote: »

Don't go too mad spending

I never purchased a house, have always rented. Paying around 800 for my current place, would cost about 1200 or 1300 to mortgage the same place. I'll be honest and say I've not exactly burst my ass saving but I would still have enough sitting there to cover 40% of the current value of the place I'm living if I was to go out tomorrow and get a mortgage. I would have a lot more if I wanted to but you got to enjoy life as well. Life is not all about owning a house!

dont you know that '' renting is dead money '' , one of the brigade will be along shortly to get you sorted

gurramok

OMD wrote: »

Sorry I meant to say deposit.
But even then it is hard to save for a massive deposit. Say average house is €200000. Massive deposit is what at least €50,000? Even saving 800 a month it will take 5 years to save that amount. Not many people on average wages can afford to pay rent and save €800 a month. Even if they do save that much they still have to borrow €150,000 at the new crippling rates of 5%+ even before the ECB gets started.

Someone on 30k would take home 2k a month. For renting as in sharing in Dublin, that would be 500quid each with a partner/friend or cheaper if others are living with them(like my neighbours). That leaves 1500 to pay for bills, they could easily save a grand a month.

Buying a house always required saving over a number of years before the 100% mortgage madness came along. If 2 people buying, even quicker to reach 50k deposit. Obviously its harder on your own, but buying a house requires planning.

Those living at home, well they do save quicker. If first time buyers by and large are indeed struggling to qualify to borrow 150k, house prices will keep falling till they can enter the market as a sustainable market needs first timers.

COYW

danbohan wrote: »

dont you know that '' renting is dead money '' , one of the brigade will be along shortly to get you sorted

They regularly visit me. I have been a solid saver over the past few years and have more than enough to cover the deposit and furnish any property I desire but I still think that prices are over the top. I am not surprised by the figures posted by the OP. I am hoping for another slump this year when the current cuts really start hitting people.

OMD

My point that I was making on a previous thread is that if you take a house costing 400,000 5 years ago. A mortgage on this (lets assume 100% just to make figures clearer) at a tracker of 0.7% above ECB. A 35 year mortgage would cost €1261 a month.
If you assume that property has now fallen to €250,000 after 5 years. At the Permanent TSB variable rate of 5.3% would cost you €1289 a month. So it will cost you more to repay the lower amount. Really we should calculate the new mortgage over 30 years as the person who bought 5 years ago will have their mortgage paid off in 30 years from now. Over 30 years the mortgage would cost €1368 a month so substantially dearer.

To rent the same house at current Dublin yields of 4.5% would cost €937 a month. If we ignore the fact that rents have fallen dramatically to this level, and assume for the last 5 years rents were at this level. That means that by renting the same house rather than buying you would have saved €20,000 over the last 5 years. Add in say another 10,000 for running costs of house over the 5 years and you have still only saved €30,000 over the person who bought.

That house is becoming more expensive. Don't kid yourselves that houses are now cheaper than during the boom.

OMD

gurramok wrote: »

. If first time buyers by and large are indeed struggling to qualify to borrow 150k, house prices will keep falling till they can enter the market as a sustainable market needs first timers.

In theory. More likely (in Dublin anyway) is that those who cannot afford to buy will continue renting. This will push up rents and attract investors back to the market.

gurramok

And investors cannot get mortgages from defunct banks

What ECB rate are you using above? The 1% rate we have now was not around in 2006!

OMD

gurramok wrote: »

And investors cannot get mortgages from defunct banks

What ECB rate are you using above? The 1% rate we have now was not around in 2006!

I know the rates have not been 1% for the last 5 years. The average has been about 2%. However to counteract that, rents were also much higher. It is all swings and roundabouts. I think the 30K estimate is very generous. In reality I think the savings would be nearer 25K.

Sponge Bob

Taking into account the rapid and ongoing increases in standard Variable Mortgage Costs ( trackers and fixed mortgages are gone) since 2008, now at ECB+5% and with ECB base rate rises to come in 2011 I can state with certainty that:

In 2012 will cost as much per month to service a €170k mortgage over 30 years as it did to service a €300k mortgage over 30 years in 2006.

And that on lower average pay, no bonusese like 2006 and much higher taxation on that lower pay.

In order for FTB houmes to become more affordable taking all of that into account then the average house price must halve from the current €200k to €100k or so.

Rents will continue to drop, the emigration rate is simply shocking nowadays with all the rural GAA clubs in Galway now going around begging local employers for jobs for their players to keep them at home...and some even making public appeals. As one can imagine this will depress demand further, these people should be the next lot of First Time Buyers.

As for Dublin I saw that from the plane last time I flew in.

gurramok

Which is why having a big deposit from hard saving benefits you in the long run to help you borrow less to negate higher interest rates. Also take out a mortgage for a shorter term than 30yrs, less interest paid over the lifetime of the mortgage.

Sponge Bob

gurramok wrote: »

And investors cannot get mortgages from defunct banks

They were around 40% of the market in 2006, now they are nearly totally out of it.

What ECB rate are you using above? The 1% rate we have now was not around in 2006!

In the original example I took ECB2% + tracker at 1% over ECB and got 3%.

OMD

OMD wrote: »

My point that I was making on a previous thread is that if you take a house costing 400,000 5 years ago. A mortgage on this (lets assume 100% just to make figures clearer) at a tracker of 0.7% above ECB. A 35 year mortgage would cost €1261 a month.
If you assume that property has now fallen to €250,000 after 5 years. At the Permanent TSB variable rate of 5.3% would cost you €1289 a month. So it will cost you more to repay the lower amount. Really we should calculate the new mortgage over 30 years as the person who bought 5 years ago will have their mortgage paid off in 30 years from now. Over 30 years the mortgage would cost €1368 a month so substantially dearer.

To rent the same house at current Dublin yields of 4.5% would cost €937 a month. If we ignore the fact that rents have fallen dramatically to this level, and assume for the last 5 years rents were at this level. That means that by renting the same house rather than buying you would have saved €20,000 over the last 5 years. Add in say another 10,000 for running costs of house over the 5 years and you have still only saved €30,000 over the person who bought.

That house is becoming more expensive. Don't kid yourselves that houses are now cheaper than during the boom.

Just to add to all this. I for got to add in Mortgage Interest Relief. That is being abolished this year and if FG get to power it will be greatly increased for those who bought at peak of boom. Just one more thing that is making houses now more expensive to buy.

Anyone sitting back laughing at those who paid "ridiculous prices" during the boom may find things are not that funny.

jester77

OMD wrote: »

Anyone sitting back laughing at those who paid "ridiculous prices" during the boom may find things are not that funny.

Depends on what way you look at it. If I had to move in 2 years for a new job, then I would rather be the person who bought the cheaper house at high interest rates than the guy who purchased the expensive house at low interest rates!

OMD

jester77 wrote: »

Depends on what way you look at it. If I had to move in 2 years for a new job, then I would rather be the person who bought the cheaper house at high interest rates than the guy who purchased the expensive house at low interest rates!

My point is more that the person waiting, watching prices drop may actually pay more in the end when you take everything into account.

RichardAnd

Sponge Bob wrote: »

Rents will continue to drop, the emigration rate is simply shocking nowadays with all the rural GAA clubs in Galway now going around begging local employers for jobs for their players to keep them at home...and some even making public appeals. As one can imagine this will depress demand further, these people should be the next lot of First Time Buyers.
.

Nice to see the old Irish tradition of "who ya know boyo!" getting people jobs is still going. How about those players find jobs on their own merit. Nepotism is one of the many problems that led to this countries ills.

gurramok

OMD wrote: »

Anyone sitting back laughing at those who paid "ridiculous prices" during the boom may find things are not that funny.

That depends of course. Back in 2006, you definitely needed 2 incomes to afford a house. When that partner loses their job, goes to have a baby or gets sick, the burden transfers onto the working partner. Also, most back then bought houses that did not suit their needs, buying starter homes in the mania.

Now and in the future, its possible with just one income due to lower prices and have a bigger choice of property to buy. As said, there are variables to make it more affordable to buy now principally that big deposit in order to borrow less over a shorter term.

The apt i'm in is is probably asking at 245k if it went on the market in 2011(similar one in block on market now), it may sell for less as it hasnt shifted since it went on the market a few months ago. It was about 400k in 2008, higher before that. Its no co-incidence that it confers with your example as I do live in Ringsend, Dublin and those are/were the prices.

Thats a 155k drop right there. I'm paying 1000 in rent. If I rented it in the last 5 yrs, i'd pay 60k in rent. If I bought in 2006 using your assumptions at 1200 a month, i'd pay 72k in mortgage costs by now, how much of that is principal I do not know but it must be just under half? The savings are much more than 25k in my example.

I guess using 'average prices' really comes down to where you want to live to find the biggest savings as the TSB index covers all houses which includes ghost estates up for sale and areas where people want to live.

OMD

gurramok wrote: »

That depends of course. Back in 2006, you definitely needed 2 incomes to afford a house. When that partner loses their job, goes to have a baby or gets sick, the burden transfers onto the working partner. Also, most back then bought houses that did not suit their needs, buying starter homes in the mania.

But that is the point. The cost is now higher so if you needed 2 incomes 5 years ago then you still need 2 earners now.

gurramok wrote: »

The apt i'm in is is probably asking at 245k if it went on the market in 2011(similar one in block on market now), it may sell for less as it hasnt shifted since it went on the market a few months ago. It was about 400k in 2008, higher before that. Its no co-incidence that it confers with your example as I do live in Ringsend, Dublin and those are/were the prices.

Thats a 155k drop right there. I'm paying 1000 in rent. If I rented it in the last 5 yrs, i'd pay 60k in rent. If I bought in 2006 using your assumptions at 1200 a month, i'd pay 72k in mortgage costs by now, how much of that is principal I do not know but it must be just under half? The savings are much more than 25k in my example.

I think you need to rework your figures. Based on your figures you would have been much better off buying. 72K in mortgage costs. About 54k of that is interest. 18K is repayment of principal. So 54k compared to 60K in rent. Add in costs of running the house and take away mortgage interest relief and you would have been better off buying.

gurramok wrote: »

I guess using 'average prices' really comes down to where you want to live to find the biggest savings as the TSB index covers all houses which includes ghost estates up for sale and areas where people want to live.

The index does not cover ghost estates as by definition they are not selling.

gurramok

OMD wrote: »

I think you need to rework your figures. Based on your figures you would have been much better off buying. 72K in mortgage costs. About 54k of that is interest. 18K is repayment of principal. So 54k compared to 60K in rent. Add in costs of running the house and take away mortgage interest relief and you would have been better off buying.

What about the 155k drop in house price? I'd still owe 372k in principal now if I bought in 2006 and I'd be in negative equity.

OMD wrote: »

The index does not cover ghost estates as by definition they are not selling.

Are you sure about that? There are newly built empty estates in north Dublin for example on the market right now. I'm sure there are estates up for sale down the country as well as they are still in your face advertised in the papers.(and daft)

lmimmfn

its all to do with timing, not only are interest rates going up but house prices falling, you have to buy when its still possible to get a mortgage. My guess is it would be extremely difficult to get a mortgage now unless a couple are buying, both have jobs and at least a 20% deposit.

We bought last August and fixed for 5 years straight away as it was even obvious then that banks here were increasing rates without the ECB increasing rates, it was also fairly obvious that mortgage interest relief would be abolished.

gurramok

lmimmfn wrote: »

its all to do with timing, not only are interest rates going up but house prices falling, you have to buy when its still possible to get a mortgage. My guess is it would be extremely difficult to get a mortgage now unless a couple are buying, both have jobs and at least a 20% deposit.

Not true. My workmate just got a mortgage in the last month, fully drawn down and he is a single buyer. He pulls in maybe 30-35k in 'salary' as a long term IT contractor.

Timings are crucial alright but you have to have savings in the first place to negate any extra expense of paying more interest on the mortgage(lets say variable) as that reduces your borrowings and shortens your term.

lmimmfn

gurramok wrote: »

Not true. My workmate just got a mortgage in the last month, fully drawn down and he is a single buyer. He pulls in maybe 30-35k in 'salary' as a long term IT contractor.

well it is difficult, i know of a few in IT who got rejected mortgages in the past 6 months, its probably bank related, currently BOI and AIB must be losing money per mortgage due to a higher interbank interest rate than what they are charging on variable rates to customers.

OMD

gurramok wrote: »

What about the 155k drop in house price? I'd still owe 372k in principal now if I bought in 2006 and I'd be in negative equity.

That is the whole crux of the problem. If you bought in 2006 with a good tracker you would still owe 372K. To pay that off in 30 years would cost you €1317 per month.
If you bought it now at €245k at PTSBs variable rate of 5.19% over 30 years it would cost you €1325 a month. So €8 a month more from now on and you have made very little savings in the previous 5 years by renting rather than buying.

You have also got to figure in that if you bought in 2006 you would still get some mortgage interest relief. I know you will say that the ECB will increase rates thus increasing the tracker but it will increase the variable rate just as much.

gurramok wrote: »

Are you sure about that? There are newly built empty estates in north Dublin for example on the market right now. I'm sure there are estates up for sale down the country as well as they are still in your face advertised in the papers.(and daft)

The PTSB/ESRI price index is based on selling prices so by definition does not include ghost estates. The DAFT index is of asking prices which does include ghost estates and is consequently much higher.

gurramok

lmimmfn wrote: »

well it is difficult, i know of a few in IT who got rejected mortgages in the past 6 months, its probably bank related, currently BOI and AIB must be losing money per mortgage due to a higher interbank interest rate than what they are charging on variable rates to customers.

There was a survey of the reasons as to why people were being refused mortgages. http://www.breakingnews.ie/archives/2010/1109/ireland/lenders-rejecting-8-out-of-10-home-loans-481137.html

breakingnews wrote:

More than half of all mortgage brokers claim lenders are rejecting up to eight out of ten applications for home loans, it emerged tonight.

A survey found more than 77% of brokers also believe the credit freeze is worse or much worse than last year, with less than a fifth feeling there has been no change.

The Professional Insurance Brokers Association (PIAB) said the main reasons clients were refused mortgages was because 35% of applicants had no savings, 32% did not qualify for the amount required, there were fears over job security for 29% while another 29% had a bad credit history.

Read more: http://www.breakingnews.ie/archives/2010/1109/ireland/lenders-rejecting-8-out-of-10-home-loans-481137.html#ixzz1D0H7pA7O

Explains it really. If you have a good savings record with no loans and with a good job history, you have a good chance of getting a mortgage. Then its down to the amount you are looking for, be realistic!.

Head The Wall

OMD wrote: »

My point is more that the person waiting, watching prices drop may actually pay more in the end when you take everything into account.

Also the deposit you have saved will be a much bigger % of the buying price now than in 2006 thereby reducing your mortgage amount even more

OMD

Head The Wall wrote: »

Also the deposit you have saved will be a much bigger % of the buying price now than in 2006 thereby reducing your mortgage amount even more

We have been through this. You are not going to have saved much renting over buying a similar property so you will not have saved up a significant deposit.

gurramok

OMD wrote: »

We have been through this. You are not going to have saved much renting over buying a similar property so you will not have saved up a significant deposit.

Yes you would. I've given the figures for someone earning 30k, if its a couple earning 30k as well, they could easily save a grand a month. That's 60k over 5 yrs, not to be sniffed at.

Also, we are using Var rates of 5% and 8% in each posters example(yours and Sponge) yet we are not using higher rates over the lifetime of the tracker mortgage. That's a bit disingenuous as the current ECB rate is at once in a lifetime level and will not be at that rate for the next 25yrs, more likely 4%+ in the majority of the time as inflation is the ECB's target.

Can the Var rates drastically go up from 5% & 8% respectively over the lifetime of the mortgage? That I cannot see to meet the level needed to make them unattractive when comparing the figures to 'break even'.

OMD

gurramok wrote: »

Yes you would. I've given the figures for someone earning 30k, if its a couple earning 30k as well, they could easily save a grand a month. That's 60k over 5 yrs, not to be sniffed at.

Also, we are using Var rates of 5% and 8% in each posters example(yours and Sponge) yet we are not using higher rates over the lifetime of the tracker mortgage. That's a bit disingenuous as the current ECB rate is at once in a lifetime level and will not be at that rate for the next 25yrs, more likely 4%+ in the majority of the time as inflation is the ECB's target.

Can the Var rates drastically go up from 5% & 8% respectively over the lifetime of the mortgage? That I cannot see to meet the level needed to make them unattractive when comparing the figures to 'break even'.

The figures I used for interest rates are tracker of 0.7% above ECB compared with PTSBs new variable rate of 5.19%. If ECB Rate goes up It is reasonable assume both will go up equally.

With regards to savings you can make I was comparing like with like. In other words renting or buying the exact sane place. Yes you can still save money but you must counter that with the fact that the person who bought can also save and use the money to pay off some of the mortgage.

Sarn

The other consideration is the type of property that is/was purchased. If you're on a tracker now in a home that doesn't suit your needs, the tracker is at risk. Once you move, the tracker is gone and you are in the same boat as everyone else. How many people stay in their home for the full term of their mortgage? (I acknowledge that we may see an increase in people staying put with negative equity).

On the other hand a person who is on a tracker in a home they intend to live in for the full term does have an advantage. But I think they would be a minority.

Head The Wall

OMD wrote: »

We have been through this. You are not going to have saved much renting over buying a similar property so you will not have saved up a significant deposit.

Quite the opposite, I will be getting 50% of a mortgage as I have all the rest saved. Not everyone is still expecting to get a 100% mortgage and you'll find a lot of people that haven't bought by this stage will have been saving

gurramok

OMD wrote: »

The figures I used for interest rates are tracker of 0.7% above ECB compared with PTSBs new variable rate of 5.19%. If ECB Rate goes up It is reasonable assume both will go up equally.

What makes you think Variable rates will go up in synch with ECB rates?

Tayla

Op i'd much rather have a smaller mortgage with a higher interest rate because then if you are ever in a position to pay any lump sums off you will have less to pay before you own your home.

captain_irish

you all seem to know what your talking about maybe you can help me need advice on house buying. im a ftb currently living at home,due to unforseen circumstances ill have to find my own place within next 7-9 months.my gf and i currently have approx 15k saved for deposit (we were planning on having alot longer to save) saving about 1300 per month between us. some of figures your quoteing for a deposit seem a bit far fetched surely 22k should be enough for a house worth 200k? we have no idea about house buying process but getting worrried about banks not lending and the figures your mentioning.we know of a place willing to consider rent to buy lovely house just not sure about the r2b process,anyway, thats the last option were looking at.neither of us believe in renting (cant afford to save that way).any advice would be very helpful esp on r2b cuz that seems to be the way things are heading.thanks

gurramok

15k of 200k is just under 10%, ye are borderline on the required deposit. 22k might be enough, thats about 10% of the purchase price, it depends if ye have solid jobs, no loans and good savings record as per previous post.

Rent to buy can be a con in some cases as you are locked into the initial price of occupation rather than the price of when your lease is up. (you agree to 200k purchase price then rent to buy for a year and then buy for 200k but market price says price is now 150k)

Sponge Bob

gurramok wrote: »

it depends if ye have solid jobs, no loans and good savings record as per previous post.

Ehh, if you have no loans they cannot score you for performance so you get rejected. You need one or two, performing of course.

I do note your point about 4% trackers and all that but those who bought in 2006 assumed incomes would continue to rise. Those doing so now don't.

My point is that average houses at €200k nowadays are less affordable than average houses at the top of the bubble. We have a long way to go before they are more affordable and confidence returns.

OMD

Sponge Bob wrote: »

My point is that average houses at €200k nowadays are less affordable than average houses at the top of the bubble. We have a long way to go before they are more affordable and confidence returns.

I agree fully and fail to see why people are arguing against it. It should be added that this is comparing house prices now to early 2006 at pretty much the height of the boom. If we compare cost of financing average house now to the middle of the boom. Years such as 2005, 2004, 2003, 2002 etc then you can see how massively more expensive it is now compared to those years.

captain_irish

we both have steady jobs but im on 1 year rolling contract always going to be renewed its basically a job for life but banks wont see it like that since its by contract. i have a car loan due to expire next feb have good credit rating on that.not worried about house prices dropping because not plannning on moving out.only time price drop would affect us is doing r2b in 3 years bank would not lend more than house is worth.

gurramok

Sponge Bob wrote: »

Ehh, if you have no loans they cannot score you for performance so you get rejected. You need one or two, performing of course.

I do note your point about 4% trackers and all that but those who bought in 2006 assumed incomes would continue to rise. Those doing so now don't.

My point is that average houses at €200k nowadays are less affordable than average houses at the top of the bubble. We have a long way to go before they are more affordable and confidence returns.

That is not true. You are not obliged to have taken out a loan to have a 'score' before you go for a mortgage. People who have never taken out a loan in their lives do get mortgages.

Your assumption in the first post is of 3% rate over 30years for those trackers. As said already, what makes you think ECB rates will be an average of 2% for over 30years?

What happened in the last 2 yrs of 1% ECB rates is once in a lifetime global crash. You'd have to factor that into your calculations.

OMD wrote:

I agree fully and fail to see why people are arguing against it. It should be added that this is comparing house prices now to early 2006 at pretty much the height of the boom. If we compare cost of financing average house now to the middle of the boom. Years such as 2005, 2004, 2003, 2002 etc then you can see how massively more expensive it is now compared to those years.

You are generalising again and never answered as to why you assume Var rates will rise in conjunction with ECB rates.

You are assuming 100% mortgages taken out now and are not taking into account a deposit which reduces the amount borrowed. The people who didn't buy since 2006 would of been very foolish by not saving if they are playing the waiting game of when the bottom is reached and lets face it they would be scarce.

OMD

gurramok wrote: »

You are generalising again and never answered as to why you assume Var rates will rise in conjunction with ECB rates.

Because they always do, in this country and in most other countries.

gurramok wrote: »

You are assuming 100% mortgages taken out now and are not taking into account a deposit which reduces the amount borrowed. The people who didn't buy since 2006 would of been very foolish by not saving if they are playing the waiting game of when the bottom is reached and lets face it they would be scarce.

I am not assuming 100% mortgage is taken out. I was talking about the financing of the property. The money has to come from somewhere so there is a cost to it. As I said earlier just count it all at mortgage rates to make it similar.

Renting for the last 5 years according to the figures you gave earlier saves very little/nothing over having bought. Yes you may have saved 50K by being very prudent but so might the person who bought. They both have the same outgoings so they are both liable to save as much. Yes this will make a bit of a difference to the cost but not much.

So using your example from before. House costs 243K. Less deposit of 50k means mortgage of €193k. At 5.19% over 30 years that will cost €1,044 a month.
Person who bought 5 years ago for €400k now has €372k to pay off but has also been saving 50K so outstanding mortgage is reduced to €322K. The cost of repaying that at 1.7% is €1,140.

That is only a €96 difference. However take away mortgage interest relief and the costs are pretty much identicle. Even ignoring mortgage interest relief and the costs are as similar as makes no difference. And remember that is comparing pretty much the peak to now. Compare to 6 years ago or more and you would have saved even more money by buying as long as you had a good tracker.

Sponge Bob

Not that I really disagree with anybody here

Think of the following.

1. Borrow €100k in 2007 for 100% Mortgage. All interest incurs relief for 7 years.
2. Save 20K between 2007 and 2010, borrowed 80k in 2010, The 20k saved got no tax relief, in fact it was TAXED at 25% for Dirt on the interest portion. Only the 80k borrowed will incur tax relief for 7 years ( more if Enda gets in MAYBE)

Borrowing 100% in 2007 and 2010 was more tax efficient, you should have used the money saved by NOT saving to pay down the mortgage in the first 7 years after which you lose tax relief.

However the drop in house prices works in your favour to a greater extent, €100k that would have bought a flat in 2007 will buy a house now so you need not move in future and incur a stamp duty wallop.

My argument is correct for a constant state market with constant interest rates AND with 100% mortgages available all the same

gurramok

OMD wrote: »

Because they always do, in this country and in most other countries.

ECB rates have been constant since what was it late 2008 at the magical 1% and Var rates have skyrocketed since.

OMD wrote: »

I am not assuming 100% mortgage is taken out. I was talking about the financing of the property. The money has to come from somewhere so there is a cost to it. As I said earlier just count it all at mortgage rates to make it similar.

Renting for the last 5 years according to the figures you gave earlier saves very little/nothing over having bought. Yes you may have saved 50K by being very prudent but so might the person who bought. They both have the same outgoings so they are both liable to save as much. Yes this will make a bit of a difference to the cost but not much.

That person who bought in 2006 obtained a 100% mortgage with no savings record, hardly prudent. The purchaser in 2011 has to be prudent to obtain a mortgage. Whether the 2006 purchaser has saved since then is an assumption as they have no obligation to save after 2006, unlike a 2011 purchaser who is required to save by the bank.

Somehow you think people cannot save a good bit once renting. I did it, many are doing it right now.

OMD wrote: »

So using your example from before. House costs 243K. Less deposit of 50k means mortgage of €193k. At 5.19% over 30 years that will cost €1,044 a month.
Person who bought 5 years ago for €400k now has €372k to pay off but has also been saving 50K so outstanding mortgage is reduced to €322K. The cost of repaying that at 1.7% is €1,140.

That is only a €96 difference. However take away mortgage interest relief and the costs are pretty much identicle. Even ignoring mortgage interest relief and the costs are as similar as makes no difference. And remember that is comparing pretty much the peak to now. Compare to 6 years ago or more and you would have saved even more money by buying as long as you had a good tracker.

You are using 1.7%(0.7% over ECB of 1%) over 30years. There is and has been no fixed rate product in this country for over 10 years at such a cheap rate nevermind for a shorter period of 5 yrs so you are assuming ECB rates will remain at 1.7%(or averaged) over the whole 30 years. Thats the big hole in your figures.

A mortgage is for 30 years, not for 5 yrs from 2006 till 2011. You should be using a higher figure as you know that a higher interest rate on the huge sum of a 300k+ mortgage racks up the costs alot.

OMD

gurramok wrote: »

That person who bought in 2006 obtained a 100% mortgage with no savings record, hardly prudent. The purchaser in 2011 has to be prudent to obtain a mortgage. Whether the 2006 purchaser has saved since then is an assumption as they have no obligation to save after 2006, unlike a 2011 purchaser who is required to save by the bank.

Somehow you think people cannot save a good bit once renting. I did it, many are doing it right now.

I have no problem with people saving, but if we have established that 2 people have similar out goings on accomodation why you assume one will save but the other will not is beyond me. Anyway even if the buyer does not save they have the benefit of this extra €50k which has to be taken account of somewhere.

gurramok wrote: »

ECB rates have been constant since what was it late 2008 at the magical 1% and Var rates have skyrocketed since.

gurramok wrote: »

You are using 1.7%(0.7% over ECB of 1%) over 30years. There is and has been no fixed rate product in this country for over 10 years at such a cheap rate nevermind for a shorter period of 5 yrs so you are assuming ECB rates will remain at 1.7%(or averaged) over the whole 30 years. Thats the big hole in your figures.

A mortgage is for 30 years, not for 5 yrs from 2006 till 2011. You should be using a higher figure as you know that a higher interest rate on the huge sum of a 300k+ mortgage racks up the costs alot.

People here, including you, often talk about "bubble prices" for houses. You have to remember there were also "bubble interest rates". These rates were so low that the lenders could not reasonably expect to make a profit on them. It was simply to lure buyers to that lending institution and hopefully profit from them in the future. Even at the time it was pointed out as been a strange practice. Now, in hindsight we see it as just plain stupid. These rates, both trackers and low variable rate mortgages, will not return again. The new rates of PTSB where they are charging 5.19% is not unusual. Charging 4-5% above base rate is the historic norm both in this country and abroad. Look at UK rates for example, they are above 4% despite them having a lower base rate. So to the future we are looking at the standard variable rate for most lenders to be 4-5% above ECB rate. So what we are comparing here is 2 situations. One where the mortgage remains at 0.7% above ECB rate the other where it is 4.19% above ECB for the life of the mortgage. Yes the variable rate at some stage may go slightly below this, but the smart money says it will go above this more often and for longer.

lmimmfn

rates werent that great in 2006

For loans more than 60% of the property value:

National Irish Bank 3.99%
Ulster Bank 4.05%
AIB 4.1%
First Active 4.15%
Bank of Ireland 4.25%

Figures correct at Sept 25th 2006
Rates are actual rates - not APR
Based on 250k mortgage over 25 years

- http://mortgages.blogs.ie/2006/09/

gurramok

OMD wrote: »

People here, including you, often talk about "bubble prices" for houses. You have to remember there were also "bubble interest rates". These rates were so low that the lenders could not reasonably expect to make a profit on them. It was simply to lure buyers to that lending institution and hopefully profit from them in the future. Even at the time it was pointed out as been a strange practice. Now, in hindsight we see it as just plain stupid. These rates, both trackers and low variable rate mortgages, will not return again.

Singing from the same hymn sheet!

OMD wrote: »

The new rates of PTSB where they are charging 5.19% is not unusual. Charging 4-5% above base rate is the historic norm both in this country and abroad. Look at UK rates for example, they are above 4% despite them having a lower base rate. So to the future we are looking at the standard variable rate for most lenders to be 4-5% above ECB rate. So what we are comparing here is 2 situations. One where the mortgage remains at 0.7% above ECB rate the other where it is 4.19% above ECB for the life of the mortgage. Yes the variable rate at some stage may go slightly below this, but the smart money says it will go above this more often and for longer.

From memory in 2006, ECB rates were ranging from 1.5 to 2.5, going up as the year progressed. I do not remember Var rates hitting 5.5%-7.5% in late 2006, do you?

OMD

gurramok wrote: »

Singing from the same hymn sheet!



From memory in 2006, ECB rates were ranging from 1.5 to 2.5, going up as the year progressed. I do not remember Var rates hitting 5.5%-7.5% in late 2006, do you?

I think people here are just refusing to understand.
The rate for the last 5 years is irrelevant. I'll just give up trying to explain. Live in your dream world where houses are now more affordable.