Central Bank to limit amount banks lend for home purchase

Vinnie L

Villa05 wrote: »

Good to see our central bank is following international best practice as it should be after what we have been through

Untill an Irish politican appoints a cronie to do otherwise for them.
It's welcome, but only one of many things that need to be done to prevent a repeat of the boom corruption in Ireland.

Villa05

Larry Wildman wrote: »

What suffering would be avoided?

Do you really think that people being able to borrow 90% of the purchase price of their home caused Ireland's economic collapse.

The cuts to the weakest in our society to pay for the banks
The 100,000 + families who are unable to maintain mortgage repayments
Is it unreasnoble to ask someone for a 20% deposit when buying an asset that can fall or rise by 20% in 12months

Frank Lee Midere

Vinnie L wrote: »

Do you mean 5 times ?

"Loans granted during the boom for more than 85 per cent of the property value were most likely to default in the wake of the crash, central bank economists said today."

“It appears some banks are willing to lend 4.5 times combined income to higher-rated borrowers, but this is at the upper end of what is typically deemed responsible internationally,” Davy said in a report yesterday.

“Typically a limit of 3-4 times (combined) is considered a more acceptable level. The onus is on the central bank to put limits on the amount of money that can be borrowed to help keep house prices in check.”

It's high time this country done something to prevent the mistakes of the past for a change instead of repeating them.

5 times would be 60k. Not everybody is going to have a dual wage.

Basically developers are demanding prices be 270k plus or they won't start work. Look at Britain which has lower prices outside London and houses are built. Or the rest of the world.

Frank Lee Midere

Btw times income is a crude measure. We should be estimating "average % of disposable income after tax and obligitary charges". I think someone estimated that a couple on 100k in the civil service would be taking home nearly 1,000 euros less a month this year, all taxes added in ( including property and water charges - effectively taxes) compared to 2006. So 4.5x now is probably equal to 5-6x in the boom.

P. Breathnach

Frank Lee Midere wrote: »

The 3-4x salary is rubbish. In Dublin prices are 300k. That's 10 times median wage.

Do you think it a good idea to lend somebody on €30k pa a sum of €270k?

Frank Lee Midere

P. Breathnach wrote: »

Do you think it a good idea to lend somebody on €30k pa a sum of €270k?

No. Which is why I never said that and I said that prices were ten times salary not the OECD norm. I think housing is still massively overvalued.

chris85

Villa05 wrote: »

The cuts to the weakest in our society to pay for the banks
The 100,000 + families who are unable to maintain mortgage repayments
Is it unreasnoble to ask someone for a 20% deposit when buying an asset that can fall or rise by 20% in 12months

Depends on what you consider resonable? We are two applicants which have steady jobs earning decent money which are as secure as anyone can expect in the private sector. We have proven record of meeting stressed repayments (between rent and savings) over last 18 months with continuous savings for a number of years before. No car loan or loans and good credit history. We are good candidates for a mortgage and we have a binding offer at moment so may be away from this but if not I feel a bit annoyed at having another 3 years of saving to get to a point where I can buy. Or could I sell a kidney? :eek:

Also easy looking at rise or fall in 12 months but I am looking at a long term home which most are and rises or falls in 12 months doesn't bother me I will continue to live there and pay the mortgage. Of course bank see this differently.

Frank Lee Midere

chris85 wrote: »

Depends on what you consider resonable? We are two applicants which have steady jobs earning decent money which are as secure as anyone can expect in the private sector. We have proven record of meeting stressed repayments (between rent and savings) over last 18 months with continuous savings for a number of years before. No car loan or loans and good credit history. We are good candidates for a mortgage and we have a binding offer at moment so may be away from this but if not I feel a bit annoyed at having another 3 years of saving to get to a point where I can buy. Or could I sell a kidney? :eek:

Also easy looking at rise or fall in 12 months but I am looking at a long term home which most are and rises or falls in 12 months doesn't bother me I will continue to live there and pay the mortgage. Of course bank see this differently.

Great. Why not wait and see if prices fall as the developer thinks?

Btw what % of your income are you spending on a mortgage? Wouldn't it be better to spend less?

Vinnie L

Frank Lee Midere wrote: »

5 times would be 60k. Not everybody is going to have a dual wage.

Basically developers are demanding prices be 270k plus or they won't start work. Look at Britain which has lower prices outside London and houses are built. Or the rest of the world.

You claimed 3-4 times single wage, the article says combined wage.

Do you really think someone on 30k should be given300k mortgage ?

Would you lend them 300k of your money ?

Are you as a taxpayer going to pay it back for them as well when it all goes wrong again ?

Balmed Out

Saipanne wrote: »

Is there any data on this out there? Anecdotal evidence is fairly useless.

People giving out about the new proposals are constantly throwing out statistics without any reference that portray the bubble years in a fairly exagerated light. A quick look on google.

http://www.citizensinformationboard.ie/downloads/lifting_the_load_sep11.pdf

6% of FTB mortgages in 2004 and 2005 were 100% mortgages. Big jump in 2006 to 34%
.......
http://www.ronanlyons.com/2011/08/30/top-ten-facts-in-relation-to-ireland%E2%80%99s-mortgage-debt-arrears/

Between 2005 and 2008, one in six first-time buyers had a deposit of more than 30%, while one in five borrowed at 100%. Looking at the market as a whole, just under 40% of all mortgages taken out were at less than 70% loan-to-value.
.............
It was july 2005 when BOI launched their 100% mortgage

http://www.finfacts.ie/irishfinancenews/Bank_of_Ireland_launches_100_Mortgage_for_First_Ti_2736.shtml
.............

Interesting article from august 2005

http://www.finance-magazine.com/reports/stock/Irish_banks_party_on-Davy.pdf

posing as a couple with 60k income most offered loans equivalent to 5–5.2x income. However one gave 6x income (360k)

chris85

Frank Lee Midere wrote: »

Great. Why not wait and see if prices fall as the developer thinks?

Btw what % of your income are you spending on a mortgage? Wouldn't it be better to spend less?

Of course would be nicer to pay less for somewhere but the situation at the moment is that with new rules I would need 2.5 years or so to save the further 10%. And that is living in our small one bed apartment with no space assuming no rent increases (which is not likely). Or we could rent a bigger place and possibly take 4.5-5 years before we could buy with higher rent prices. We are at a stage where we would like our own home for our own security and the future. I don't think that is a lot to ask.

mr_seer

Larry Wildman wrote: »

Picture this scenario, because I know at least four people who it applies to:

- Bought an apartment years ago which is now totally unsuitable for their needs.

- Are being hammered tax-wise because of the 75% interest rule.

- Are being hammered by the exhorbitant cost of childcare.

- Are being hammered with the high rent on a 3 bed semi in South Dublin.

- Are being hammered with tax on their salaries (which are decent).

- Have managed to save €50k/€60k with a view to buying something for around €600k and staying there forever.

What right have the Central Bank got to crush these people's dreams? One fella I know told me his wife was in floods of tears reading about these proposals.

Who is gonna be able to save €120k and live?

This is a licence for investors, landlords and the children of the wealthy to prosper. As usual, the squueezed middle get screwed.

Sounds like a similar situation to me. I'm delighted with these proposals as they are going to end the current sham of a rigged market we are now operating in. This couple might get that €600k house for €400k in a few months time if they can save a bit more of a deposit

mr_seer

chris85 wrote: »

Was different situation then. People were borrowing 10 times salary with LTV ratios of 95%+ and in a lot of case above 100% unfortunately. Lending was wreckless with bonuses/overtimes being taken into account for salary which is not good practice.

Now we are lending at 3-4 times salary which is recognized internationally as a good level to lend at. House prices are rising but Dublin is driving this and nationally this is not the same.

Irish tax rates are far far higher than the OECD average. Also the cost of living in Ireland is much higher so net disposable income is much lower. It is therefore absolutely right that a lower multiple of salary should be used here

on_my_oe

Here's an article on the NZ market published today; NZ brought in the 20% deposit a year ago! and now FTBs make up less than 10% of the market! while investors are more than 40%.

http://www.stuff.co.nz/business/money/10608219/Investors-move-in-as-first-home-buyers-fold

I agree that some restrictions have to come in, however extending the CGT was a mistake and the proposals are a step too far.

chris85

mr_seer wrote: »

Irish tax rates are far far higher than the OECD average. Also the cost of living in Ireland is much higher so net disposable income is much lower. It is therefore absolutely right that a lower multiple of salary should be used here

Of course it is. Never said it wasn't

OMD

The_Conductor wrote: »

The average employee is paid for 31 hours employment per week- not 39.
The average pay, exclusive of bonuses- which no-one relies on- is 20.62
The average gross pay is in the region of 640 Euro per week (gross, not net).

The 'average' worker is not a fulltime, 39 hour week employee- the 'average' worker is the aforementioned 31 hours per week. This is according to the CSO- and is not my interpretation of their figures.

If you're going to quote statistics from a reputable source- such as the CSO- having an understanding of the statistics would probably be helpful- and if you don't have an understanding of them- quote them directly- don't try to interpret or extrapolate from them- you're only going to get into trouble.

The average worker does not work 31 hours a week. The average worker is full time.
The average number of hours worked per employee each week is 31 hours but that is very different.

I find your tone very condescending when it is you who do not understand statistics. The average worker in this country is full time. Your interpretation of the figures is the wrong one. It is common sense for Gid's sake. What kind of idiot thinks the average worker in this country is part time.

By your logic the average person in this country has less than 2 legs.

This is pretty basic stuff. I suggest you get to grips with it before you comment on others.

El_Dangeroso

on_my_oe wrote: »

Here's an article on the NZ market published today; NZ brought in the 20% deposit a year ago! and now FTBs make up less than 10% of the market! while investors are more than 40%.

http://www.stuff.co.nz/business/money/10608219/Investors-move-in-as-first-home-buyers-fold

I agree that some restrictions have to come in, however extending the CGT was a mistake and the proposals are a step too far.

The NZ rule has been around a year, and the annual % change in houseprices have come down since then:



So house prices are still going up but at a slower rate. God knows where the prices would be without some prudence in lending.

Michael D Not Higgins

OMD wrote: »

The average worker does not work 31 hours a week. The average worker is full time.
The average number of hours worked per employee each week is 31 hours but that is very different.

I find your tone very condescending when it is you who do not understand statistics. The average worker in this country is full time. Your interpretation of the figures is the wrong one. It is common sense for Gid's sake. What kind of idiot thinks the average worker in this country is part time.

By your logic the average person in this country has less than 2 legs.

This is pretty basic stuff. I suggest you get to grips with it before you comment on others.

None of this matters. You should be taking about medians. Ireland's median income is much lower, in the 20-30k range.

quadrifoglio verde

Larry Wildman wrote: »

Interest rates are going down, not up.

They are excellent candidates (and have been told as much).

The current ecb rate is 0.05 %?
Please tell me how much further you envisage this to fall? It's .05% off being free money.
I've news for you, interest rates are more likely to go up in the long term than down, as they've SFA left to go down.

Larry Wildman

quadrifoglio verde wrote: »

The current ecb rate is 0.05 %?
Please tell me how much further you envisage this to fall? It's .05% off being free money.
I've news for you, interest rates are more likely to go up in the long term than down, as they've SFA left to go down.

And mortgage rates are circa 4.5%, which is extremely high relative to the rest of the Eurozone.

Rates will fall due to competition...it's already starting with KBC.

As for the ECB rate, it has to stay low for a long time because there is so much debt in the world. Interest rates will stay low for a generation. Ask any academic.

Geuze

Belle Poor Surfing wrote: »

Just reading an article in the Independent - no surprise that developers are at all impressed by the news. link

Quote:

"A one bed apartment costs a developer €200,000 excluding VAT to build in Dublin, excluding site costs and cost of funding. It needs to sell for €270,000 for the economics to stack up for a developer. Based on the new Central Bank guidelines, a city centre worker earning €45,000 per year will only be able to borrow €157,500. Topped up with a 20pc contract deposit, the potential buyer will only be able to spend €211,500 under the new rules."



Could this be true?

200k to build a 1-bed apt, excl land costs, financing costs and 13.5% VAT?

Balmed Out

Geuze wrote: »

Could this be true?

200k to build a 1-bed apt, excl land costs, financing costs and 13.5% VAT?

Yes presuming hes paying all staff over the odds by three and taking a hefty wage himself and is paying massively for land.

Its a ridiculous notion that a self builder can build a modest home for the same amount as he can build an apartment. Dublin land prices would obviously be more but still im not buying that for a second.

makeorbrake

Larry Wildman wrote: »

And mortgage rates are circa 4.5%, which is extremely high relative to the rest of the Eurozone.

Rates will fall due to competition...it's already starting with KBC.

As for the ECB rate, it has to stay low for a long time because there is so much debt in the world. Interest rates will stay low for a generation. Ask any academic.

You have a link to support that?

kippy

Balmed Out wrote: »

Yes presuming hes paying all staff over the odds by three and taking a hefty wage himself and is paying massively for land.

Its a ridiculous notion that a self builder can build a modest home for the same amount as he can build an apartment. Dublin land prices would obviously be more but still im not buying that for a second.

I was just about to ask what are the costs to build various types of dwellings in various areas as I suspect a lot of people who think that house prices will continue to go down and down in different areas (particularly for "new" houses with no bad debt or NAMA backed estates) seem to think that developers build houses for free.

Now, I don't for a minute believe that a one bed apartment costs 200K to build in Dublin but a lot would depend on how much the site was bought for. There are now also major development charges payable to the local council and generally a tie in for amenities in the larger developments.

While some think property can continue to go down in price the reality is, almost all of the property on the market of late is "distressed".
For new developments, one would expect the owners would want to make some money.
If its not worth building a house (in that the prices that can be achieved don't go higher than the overall cost) you'll find that very few new houses are built.
That does't help anyone really. Especially in Dublin.

johnp001

"House building rises at its fastest since 2000" article in Irish Times today...

http://www.irishtimes.com/business/sectors/commercial-property/house-building-rises-at-its-fastest-since-2000-1.1961097

Saipanne

makeorbrake wrote: »

You have a link to support that?

Not sure how a link would help here, it's a prediction.

makeorbrake

Saipanne wrote: »

Not sure how a link would help here, it's a prediction.

Sure, it's a prediction ...presumably it's a prediction by someone better placed to make it than Larry - and someone who would have given their rationale for that big fat claim? If you are saying we simply can't have any faith in it - then what is the point in anyone mentioning it here?

Cuddlesworth

Geuze wrote: »

Could this be true?

200k to build a 1-bed apt, excl land costs, financing costs and 13.5% VAT?

With land included, sure. Without land, not a chance.

Saipanne

makeorbrake wrote: »

Sure, it's a prediction ...presumably it's a prediction by someone better placed to make it than Larry - and someone who would have given their rationale for that big fat claim? If you are saying we simply can't have any faith in it - then what is the point in anyone mentioning it here?

I agree.

D3PO

D3PO wrote: »

think its actually 1x so perhaps for the point of illustration I've gone OTT but I think my point is understood.

Your point appears to be that everything is great and the fact that Irish people have to put every cent of their disposable income into owning a mediocre property - in order to enrich landowners, property developers and bankers - is a good situation that nobody should complain about.