Mortgage - how did you decide how much to borrow?

Frank Black

With the controversy raging on an adjacent thread about debt forgiveness for some mortgage holders I was just wondering how most people decided how much of a mortgage to take out during the Celtic Tiger years.
As far as I can see there were three types of people.
1) People who worked out what they could afford to borrow – stress tested themselves and then asked the bank for that much money.
2) People who found the kind of house they wanted and asked the bank for that amount of money
3) People who went into the bank and asked them how much they would be willing to lead them.

I suspect that a lot of people were choice number 3 which I think is a bit of an abdication of personal responsibility when it comes to borrowing money.

df1985

Combination of 2 and 3 id imagine for a lot of people in trouble.

The banks lent irresponisbly, but people took on mortgages far bigger that they could afford.

shogunpower

there was a study carried out last year on a womans mortgage. in order for her to pay it back she would have needed to live for 300 years based on her current income.

dr.bollocko

Moved from After hours. Hope this is the right place .

staker

AIB offered me and my partner €450,000 to buy a house,we declined and took out a lot less than that.

They were really quite flumoxed as to why we didn't sign up to our "full repayment potential".

Was the same when I went for a car loan 5 years ago,pushing me to sign into a finance deal twice the value of a car I was looking at.

I really feel for the people's lives who are in tatters because of reckless lending.
Needless to say,it takes two to tango but just on a humane level it's just so sad to see so much needless suffering.

galah

we looked at our earnings, calculated what we could realistically afford, then took away one salary (the higher one) and replaced it with the dole, calculated if we could still afford a mortgage and outgoings, added another 6 % of interest hikes, calculated again, and then offered 50k less on the asking price and got the house.

Stress testing to the max, maybe, but since we bought our house, hubby actually did lose his job, and the mortgage did go up by 1 %, and we're still ok, so I think we did the right thing.

Pisses me off if other people didnt do this and will now get bailed out by the banks. But that's another rant I guess.

niallers1

Picked a price and repaymnet that I was comfortable paying and then picked a house within that range..

Mortgage is approx: the same as what I would be/was paying in rent..

average_runner

We were offered twice the amount of the mortage that we took.

Basically ask yourself these questions, its what most people didnt do that are now in trouble:

1. Can you afford the mortage payment if interest rates go up another 4%
2. If two of ye going for mortage, can ye afford it, if one loses job.
3. Can you afford the mortage if your salary got cut 10%.
4. Can you afford the mortage if you have kids?


These are the basic questions really

Frank Black

Yep, when myself and the OH got our place in 2002 it was a case of how much are we comfortable taking out and can we afford to pay it back if rates go up or one of us loses a job.
But I got the impression from friends and colleagues that we were in the minority – there seemed to be a huge amount of people who took out the maximum amount the bank were willing to lend them.

As we can now see it suited the banks to lend bigger and bigger sums to people as the same banks had lent to the developers who had built the houses in the first place.

I have a lot of sympathy for people who bought at the top of the market – but I really feel like giving them a good a shake sometimes and ask them what they thought they were doing – did they not stop and consider the consequences if things went belly-up?

It sticks in the throat that the financially responsible will probably end up having to bail out the irresponsible, but I don’t see an alternative.

D3PO

I basically went into the transaction with option 1. Hense why Im not one of those not needing or wanting a bailout.

I took into account

What I was earning
What my outgoings were.
What I could afford if interest rates went to 8%
What would happen should I lose my job or get very sick
What would happen if I had children that were unplanned.

When I had that figure I went and got mortgage approval for that amount. I ended up spending 31k less than that for the hosue I wanted. The bank too were both flummoxed as to why I didnt spend all that I had applied for.

Mr. Loverman

The average person believed whatever the Sunday Independent and their parents told them, which is the exact opposite of option 1.

hmmm

Realistically, interest rates will probably rise by 3% at a minimum over the next few years. I'd at least start there.

cutymonalisa

I got my mortgage in 2006. Viewed a house not in the ideal location but one I could comfortably afford. Approached the bank looking for a 92% mortgate. The guy in the bank did his best to convince me to take out a 100% mortgate and use my savings to fit the place out. He then proceeded to tell me that I could be approved for 100K more than I was looking for and why not buy in a better area?

It was tempting but I declined, and then sat on a garden chair in the sitting room for 18mths while watching TV. People during the 'good times' also walked into new builds and proceeded to do them up to the nines immediatly. It was sheer madness.

3DataModem

100/110/92 percent not really important to me, ironically.

I wanted my repayments to be less than 35pc of my net income assuming interest rates hit 8%, and would also allow me to clear it by age 55.

Also assumed no spouse income (she was working at the time but we were planning a family).

who_ru

i'm afraid the number of people who acted irresponsibly far outweighs those who acted prudently.

all of the immoral and irresponsible behaviour that was part and parcel of celtic tiger excess was on display by those right at the top of the political, trade union and business world.

is it really any surprise that the rest of the population followed suit?

The Rooster

who_ru wrote: »

i'm afraid the number of people who acted irresponsibly far outweighs those who acted prudently.

all of the immoral and irresponsible behaviour that was part and parcel of celtic tiger excess was on display by those right at the top of the political, trade union and business world.

is it really any surprise that the rest of the population followed suit?

Friend of mine bought 3 or 4 years ago.

Single and he was in a good job earning around €55k a year. Found a house he liked for almost €600k. He was in line for promotion so figured in 3 years time he'd be on €70k and his house would be worth over €700k.

Now he still has that good job (unlikely to have any layoffs) and he did get promoted, but no rise. So net salary is down because of tax cuts (a bit more than 3k a month), and mortgage payments are up because of interest hikes (a tad shy of €3k a month). His house is now worth no more than €300k.

He's now on a baked beans and toast diet!

He totally blames himself for his naiviety, and he's not looking for a handout. But I have to feel sorry for him, he fell into the trap of having too positive an outlook and not being conservative enough.

panevthe3rd

We asked how much the bank would be willing to give us. They were going to give us a stupid amount of money that we decided we couldn't possibly pay back.

We took enough for the house we wanted. I lost my job and we are just about ok. I was the higher earner of the two of us. Thank God we didn't take what we were offered or we simply wouldn't be in a house today.

It was tempting to take the bigger money alright, I can see how people fell into the trap.

I do think a bit of responsabitly lies with the person borrowing but back in those days we were being told everything is fine and we all believed it, and why wouldn't we.

I'm not involved with the financial sector in any way at all. The people employed there at the time were educated for years in college in these matters. Just like you ask a electrician/plumber or carpenter whats the best way to do a job in your house, you would do the same when getting a mortage. Shame the advise everyone got was wrong.

Meanwhile the banks knew full well what kinda situation they were in, even the banks that were ok must have had some idea what way the other banks were. They all carried on regardless and here we are.

lainey316

The Rooster wrote: »

Friend of mine bought 3 or 4 years ago.

Single and he was in a good job earning around €55k a year. Found a house he liked for almost €600k. He was in line for promotion so figured in 3 years time he'd be on €70k and his house would be worth over €700k.

Now he still has that good job (unlikely to have any layoffs) and he did get promoted, but no rise. So net salary is down because of tax cuts (a bit more than 3k a month), and mortgage payments are up because of interest hikes (a tad shy of €3k a month). His house is now worth no more than €300k.

He's now on a baked beans and toast diet!

He totally blames himself for his naiviety, and he's not looking for a handout. But I have to feel sorry for him, he fell into the trap of having too positive an outlook and not being conservative enough.

Crikey. I was in an identical position to your mate 4 years ago (tho the promotion was a bit further off, and the salary rise here wouldn't be quite as good, but I have had three smallish raises so am along the way to his target). I was looking at 350k apartments and thinking I couldn't really afford them, and didn't buy.

I'm basing how much I am willing to borrow based on keeping the repayment below 33% of my net income, based on fixing at 4% for 5 years. A 6.5% rate pushes that number to nearer 40%, but since it could be 16.5% in 5 years, I'm finding it difficult to plan medium term.

Brando_ie

For us I decided to only look at first phase houses in an estate so I could minimize the amount of outlay first off.

I saw a 3 bed semi at first phase for 166k (the whole first phase was actually really poorly priced as I chose the actual house from the site plan before looking at the pricing sheet to ensure a well orientated property and was expecting it to be one of the higher priced units but turned out to be only 1k more than the lowest price.... nice one auctioneers!!).

Went to the bank who informed me that I would be able to borrow well over that amount (nearly double IIRC) and they did the hard sell, but we stuck to our guns and pushed on with the 166k (100%er!!)

I did a serious self stress test which in hindsight (after several large losses of revenue in the last 18 months) was well worth doing and decided that despite the bank advice we could only manage those payments.

I found out yesterday that one of our immediate neighbors paid over 45k more for their identical house and a lad I worked with before he was made redundant 18 months ago paid 50k extra

I'm very thankful that I did not bow to the pressure of going for the extra cash and be totally noodled right now (better than the partially noodled for now I guess!!)

baaaa

I don't think people got to "decide" as such what to borrow,house prices dictated what they had to borrow.
Also the amount of one's mortgage is irrelevant when you have no job or income.

D3PO

baaaa wrote: »

I don't think people got to "decide" as such what to borrow,house prices dictated what they had to borrow.
Also the amount of one's mortgage is irrelevant when you have no job or income.

I disagree with both of your points. Firstly people did and do get to decide what to borrow. If somebody decided they could only afford x then they simply should have changed either the spec of house or area of hosue they were going to buy in rather than just borrowing more.

House prices are dictated by what somebody is willing to spend its simple economics. If you went into a shop and wanted a shirt but the one you liked was over your budget then you should go to a different shop and buy one in your budget. Houses are no different than any other item.

As for the amount of your mortgage it is absolutly relevent. I budgeted and calcualted what mortgage I could get and assumed that I would be made redundant when making the decision.

I then asked myself how would I manage the mortgage if our of work for 5 years, I worked out how I could restructure by extending the term, going interest only, or by taking a payment holiday should I need to, how long my redundancy money would last me, what I could likely yield renting the place out, how much and how I could use my savings and mortgage protection policy to fund the mortgage and also considered the assistance I could get fromt he state in the way of the mortgage interest suppliment.

All of this came into my thought process amongst many other things when I worked out the affordability of my mortgage. Its prudent you look at the worst case scenario, something that the department of finance and many citixens of this state apepar incapable of doing.

Balmed Out

baaaa wrote: »

I don't think people got to "decide" as such what to borrow,house prices dictated what they had to borrow.
Also the amount of one's mortgage is irrelevant when you have no job or income.

I got mortgage approval for as much as I could, looked at the market and said there isnt a hope in hell Im paying 300,000 for that dump. Thought everything way over valued. That was late 2003. Was feeling a little unsure about my decision a few years later but quickly relaxed as I read how many banks were selling their premises and leasing them back.

noxqs

My hobby is reading this very forum, from posts in 2005 and 2006.

There is your answer to why everything is going down the drain. The amount of people arguing that 'the property ladder' only goes up, and its better to be on it now than tomorrow and 'rent is dead money' is amazing.

The few posts from people giving out warnings and advocating being prudent and pointing to house prices being way too high (annual income multiples) are brushed off as almost being stupid.

Go back, have a read. It's insanity and it explains very well the popular opinion at the time.

(Theres people asking when banks would offer 110% mortgages etc, and no one is raising eyebrows!)

Heres a few good ones:

110% to 120% mortgage article in the news:

http://www.boards.ie/vbulletin/showthread.php?t=283118

Quote from a poster:

120% mortgage, used sensibly, can save you years of pain and thousands of €€€.

Yeah....

Balmed Out

noxqs wrote: »

My hobby is reading this very forum, from posts in 2005 and 2006.

There is your answer to why everything is going down the drain. The amount of people arguing that 'the property ladder' only goes up, and its better to be on it now than tomorrow and 'rent is dead money' is amazing.

The few posts from people giving out warnings and advocating being prudent and pointing to house prices being way too high (annual income multiples) are brushed off as almost being stupid.

Go back, have a read. It's insanity and it explains very well the popular opinion at the time.

(Theres people asking when banks would offer 110% mortgages etc, and no one is raising eyebrows!)

Heres a few good ones:

110% to 120% mortgage article in the news:

http://www.boards.ie/vbulletin/showthread.php?t=283118

Quote from a poster:



Yeah....

I do that too, good for a laugh.

mal1

lainey316 wrote: »

I'm basing how much I am willing to borrow based on keeping the repayment below 33% of my net income, based on fixing at 4% for 5 years. A 6.5% rate pushes that number to nearer 40%, but since it could be 16.5% in 5 years, I'm finding it difficult to plan medium term.

I apologise for my ignorance, but is 16.5% probable?

noxqs

http://www.cso.ie/px/pxeirestat/Dialog/varval.asp?ma=FIM09&ti=Financial%20Interest%20Rates%20%28Historical%20Series%29%20%28%%29%20by%20Interest%20Rate%20and%20Month&path=/px/pxeirestat/DATABASE/Eirestat/Financial%20Indicators%20Historical%20Series/&lang=1

1982. Interest rates hit 16.5% - and was above double digits for most of the 70es and 80es and early 90es.

The interest rates NOW is historically low and has been since 2000-2001 (IT bubble bust and then 9/11). And being historically low, it is not unreasonable to believe that the next 30 years may see historically high rates or atleast close to double digit.

spockety

mal1 wrote: »

I apologise for my ignorance, but is 16.5% probable?

Probably not in Ireland if Ireland stays in the Eurozone. :eek:

ECB stated long term aim for interest rates is I think 4% base rate. Banks likely to stick on 3-4% of a margin on that. So probably looking at retail rates of 7-8%.

But who knows what will/could happen....

noxqs

Runaway stagflation can still happen, as it has happened before.

I don't know - 30 years - it's a long time, and the future is certainly not very stable right now. Perhaps in 5 years when all the skeletons of Europes economy is out of the closet, and only a few bones remain here and there, we can get a clearer picture.

As it is, there is so many hidden pools of debt in Ireland, Portogal, Greece, Italy, Spain and so on that it's really hard to say where the Eurozone will be at. Not to mention impending busts of other bubbles world wide (Australia?) sure to hit financial markets and the gold price bubble busting ? Oil price, natural disasters.. I could go on

mal1

:eek:I'll have to revisit that stress test of mine then

lainey316

mal1 wrote: »

I apologise for my ignorance, but is 16.5% probable?

I don't know - I was just being flippant about how unstable the whole thing seems to be. I believe my parents' original mortgage was 13%.

mal1

lainey316 wrote: »

I don't know - I was just being flippant about how unstable the whole thing seems to be. I believe my parents' original mortgage was 13%.

Yeah, i see that. But your comment was useful. Just got me to refocus a little and think a little more.

3DataModem

10-12% was the norm only 20 years ago.

I would expect that 8%-10% is the max we will see in the Eurozone for the forseeable future, probably 6-8% in the next 5 years.

I anticipate a new type of 'underpayment' strategy for banks and borrowers to copy with this in the short / medium term.

E.g person currently pays 1000pm. Can afford 1300pm.

Interest rate pushes cost to 1800pm. Person pays 1300pm and 500pm added to capital each month, until the person can afford more and / or inflation reduces effective cost and / or interest rates drop.

seamus

mal1 wrote: »

I apologise for my ignorance, but is 16.5% probable?

No, as said it won't happen as long as Ireland stays in the Eurozone. Being a small country in a big pond brings both curses and benefits. Something which can be both a curse and a benefit is the stability in interest rates brought about by being tied to big economies like Germany and France.

Typical rates in the Eurozone will hover around the 5%-7% mark (ECB Rate of 3% - 5%).

I wouldn't worry too much about double digit rates if you currently have a mortgage. If the interest rate hit 12%, you wouldn't be the only person in trouble. The vast majority of mortgage holders would probably default, even politicians would have difficulty keeping up with repayments. It's a scenario where you'd have to just put your hands up and say, "I don't care anymore, take the house".

population

I will freely admit that when I bought my house in 2003 I was 24 and did not really know an awful lot about interest rates and finance in general. I was a shady bankers dream come true in terms of selling over he odds mortgages but I warn you all in advance that I have a shock horror responsible lending bank story to tell. So gather around for this is a rare un'.

I did not want to pay over 200k for a place because I just had it in my head that if either myself or the wife lost our jobs or one of us got sick or we decided to have kids etc, that this amount plus interest would be too difficult to pay back.

I wanted to live in Dublin, as I am from Dublin, but simply could not afford it. Those are the breaks so I decided to look around Drogheda or East Meath as it is an area I was always fond of and was commutable to work without too much hassle. Applied for a mortgage with IIB as they were recommended by a broker I knew. Also applied to Ulster Bank as they were my bank. IIB agreed to the loan amount (177k} but made us jump through hoops to get it. Stress tested us to the 9s because I had recently set up as self employed and went through her salary with a fine tooth comb. Was about ready to agree all with IIB when UB came back to me saying things like "you know we can give you more and you can live where you want" etc. I just thought it all sounded too good to be true so pulled back from them and signed with IIB.

Now I am not saying IIB have been a picnic to deal with throughout our term together thus far but I feel they behaved responsibly at the outset and I will always count my blessings on that. Mods feel free to remove names of institutions if you feel it appropriate.

Duckjob

population wrote: »

I will freely admit that when I bought my house in 2003 I was 24 and did not really know an awful lot about interest rates and finance in general. I was a shady bankers dream come true in terms of selling over he odds mortgages but I warn you all in advance that I have a shock horror responsible lending bank story to tell. So gather around for this is a rare un'.

I did not want to pay over 200k for a place because I just had it in my head that if either myself or the wife lost our jobs or one of us got sick or we decided to have kids etc, that this amount plus interest would be too difficult to pay back.

I wanted to live in Dublin, as I am from Dublin, but simply could not afford it. Those are the breaks so I decided to look around Drogheda or East Meath as it is an area I was always fond of and was commutable to work without too much hassle. Applied for a mortgage with IIB as they were recommended by a broker I knew. Also applied to Ulster Bank as they were my bank. IIB agreed to the loan amount (177k} but made us jump through hoops to get it. Stress tested us to the 9s because I had recently set up as self employed and went through her salary with a fine tooth comb. Was about ready to agree all with IIB when UB came back to me saying things like "you know we can give you more and you can live where you want" etc. I just thought it all sounded too good to be true so pulled back from them and signed with IIB.

Now I am not saying IIB have been a picnic to deal with throughout our term together thus far but I feel they behaved responsibly at the outset and I will always count my blessings on that. Mods feel free to remove names of institutions if you feel it appropriate.

Fair play.

If more people had bought like you with a modicum of restraint and common sense, the country wouldn't be half the state it's in now.

population

Cheers Duckjob but I must admit that my head was turned by the second offer and I consider myself lucky above all else that I went with my gut in the end.

Fozzie Bear

noxqs wrote: »

My hobby is reading this very forum, from posts in 2005 and 2006.

Heres a few good ones:

110% to 120% mortgage article in the news:

http://www.boards.ie/vbulletin/showthread.php?t=283118

Quote from a poster:

Yeah....

Jesus Christ its madness reading back through that thread. There are some posters from then who don't just have egg on their faces, they have entire bloody chickens!